Creating sustainable value
Stuart L. Hart and Mark B. Milstein
Just as the creation of shareholder value requires performance on multiple dimensions,
the global challenges associated with sustainable development are also multifaceted,
involving economic, social, and environmental concerns. Indeed, these challenges have
implications for virtually every aspect of a firm’s strategy and business model. Yet, most
managers frame sustainable development not as a multidimensional opportunity, but
rather as a one-dimensional nuisance, involving regulations, added cost, and liability.
This approach leaves firms ill-equipped to deal with the issue in a strategic manner.
Accordingly, we develop a sustainable-value framework that links the challenges of
global sustainability to the creation of shareholder value by the firm. Specifically, we
show how the global challenges associated with sustainable development, viewed
through the appropriate set of business lenses, can help to identify strategies and
practices that contribute to a more sustainable world while simultaneously driving
shareholder value; this we define as the creation of sustainable value by the firm.
“Sustainability is as foreign a concept to
managers in capitalist societies as profits are
to managers in the former Soviet Union.”
First EPA Administrator
With the fall of communism over a decade ago,
capitalism has emerged as the dominant economic
ideology in the world. Unfortunately, the results
produced by ten years of global capitalism have
not been uniformly positive.
Saturation in the de-
veloped markets, a widening gap between rich
and poor, growing levels of environmental degra-
dation, and concern that the developing world may
be losing control over its own destiny have com-
bined to create drag on the global economy.
terrorist attacks in the U.S. on September 11, 2001
made it clear that the world is inextricably inter-
connected and that poverty, hopelessness, and
perceived exploitation in one part of the world will
not remain geographically isolated.
global capitalism is being challenged to include
more of the world in its bounty and protect the
natural systems and cultures upon which the
global economy depends.
The idea of sustainability has come to represent
these rising expectations for social and environ-
mental performance. Global sustainability has
been defined as the ability to “meet the needs of
the present without compromising the ability of
future generations to meet their needs.”
sustainable development “is a process of achiev-
ing human development...in an inclusive, con-
nected, equitable, prudent, and secure manner.”
sustainable enterprise, therefore, is one that con-
tributes to sustainable development by delivering
simultaneously economic, social, and environmen-
tal benefits—the so-called triple bottom line.
A sustainable enterprise is one that
contributes to sustainable development
by delivering simultaneously economic,
social, and environmental benefits—the
so-called triple bottom line.
Beyond this broad consensus on terminology,
however, there remains disagreement among
managers regarding the specific meaning of and
motivation for enterprise-level sustainability.
some managers, it is a moral mandate; for others,
a legal requirement. For still others, sustainability
is perceived as a cost of doing business—a neces-
sary evil to maintain legitimacy and right to oper-
ate. A few firms have begun to frame sustainabil-
ity as a business opportunity, offering avenues for
lowering cost and risk, or even growing revenues
and market share through innovation.
姝Academy of Management Executive, 2003, Vol. 17, No. 2
For most firms, the pursuit of enterprise sustain-
ability remains difficult to reconcile with the ob-
jective of increasing shareholder value. Indeed,
some have even advocated that creating a more
sustainable world will require firms to sacrifice
profits and shareholder value in favor of the public
By starting with legal or moral arguments
for firm actions, however, managers inevitably un-
derestimate the strategic business opportunities
associated with this important issue. To avoid this
problem, managers need to directly link enterprise
sustainability to the creation of shareholder value.
The global challenges associated with sustain-
ability, viewed through the appropriate set of busi-
ness lenses, can help to identify strategies and
practices that contribute to a more sustainable
world and, simultaneously, drive shareholder val-
ue; this we define as the creation of sustainable
value for the firm.
The global challenges associated with
sustainability, viewed through the
appropriate set of business lenses, can
help to identify strategies and practices
that contribute to a more sustainable
world and, simultaneously, drive
This article develops the strategic logic for the
pursuit of sustainable value. We begin by specify-
ing a multidimensional model of shareholder
value creation. Next, we describe the emerging
challenges associated with global sustainability.
Finally, we demonstrate how, through appropriate
business strategies and practices, the above chal-
lenges are being converted by companies into in-
itiatives to increase shareholder value. We close
with some thoughts about how to create truly sus-
Shareholder Value Is a Multidimensional
Figure 1 illustrates the basic components for our
shareholder-value framework. The model is built
using two well-known dimensions that are a
source of creative tension for firms. The vertical
axis in the model reflects the firm’s need to man-
age today’s business while simultaneously creat-
ing tomorrow’s technology and markets. This di-
mension captures the tension experienced by the
need to realize short-term results while also gen-
erating expectations for future growth.
zontal axis reflects the firm’s need to grow and
protect internal organizational skills and capabil-
ities while simultaneously infusing the firm with
new perspectives and knowledge from the outside.
This dimension reflects the tension experienced by
the need to buffer the technical core so that it may
operate without distraction, while at the same time
remaining open to fresh perspectives and new,
disruptive models and technologies.
Key Dimensions of Shareholder Value
2003 57Hart and Milstein
Juxtaposing these two dimensions produces a
matrix with four distinct dimensions of perfor-
mance crucial to generating shareholder value.
The lower-left quadrant focuses on those aspects
of performance that are primarily internal and
near-term in nature: cost and risk reduction. Quar-
terly earnings growth and reduction in exposure to
liabilities and other potential losses are important
drivers of wealth creation. Clearly, unless the firm
can operate efficiently and reduce its risk commen-
surate with returns, shareholder value will be
The lower-right quadrant also focuses on perfor-
mance dimensions that are near-term in nature but
extends to include salient stakeholders external to
the firm—suppliers and customers in the immedi-
ate value chain, as well as regulators, communi-
ties, NGOs, and the media. Without appropriate
inclusion of these stakeholder interests, the firm’s
right to operate may be called into question. Cre-
ative inclusion of these stakeholder interests can
foster a differentiated position for the firm, leading
to the enhanced reputation and legitimacy crucial
to the preservation and growth of shareholder
Shifting to the upper-left quadrant of the
model, the firm must not only perform efficiently
in today’s businesses but should also be con-
stantly mindful of generating the products and
services of the future. Internally, this means de-
veloping or acquiring the skills, competencies,
and technologies that reposition the firm for fu-
ture growth. Without such a focus on innovation,
it will be difficult for the firm to create the new
product and service flow needed to ensure that it
prospers well into the future. The creation of
shareholder value thus depends upon the firm’s
ability to creatively destroy its current capabili-
ties in favor of the innovations of tomorrow.
Finally, the upper-right quadrant focuses on the
external dimensions associated with future perfor-
mance. Credible expectations for future growth are
key to the generation of shareholder value; this
depends upon the firm’s ability to articulate a clear
vision of what its future growth path and trajectory
will be. A convincing growth trajectory requires
either that the firm offer new products to existing
customers or tap into previously unserved markets.
The growth trajectory provides guidance and di-
rection for new technology and product develop-
Firms must perform well simultaneously in all
four quadrants of the model on a continuous basis
if they are to maximize shareholder value over
Performing within only one or two quad-
rants is a prescription for suboptimal performance
and even failure. Firms like Kodak and Xerox,
which failed to adequately invest in digital tech-
nology, illustrate how overemphasis on today’s
business (to the exclusion of tomorrow’s technol-
ogy and markets) may generate wealth for a time
but will eventually erode shareholder value as
competitors enter with superior products and ser-
Similarly, the recent experience of many
Internet companies stands as testimony to how
preoccupation with tomorrow’s business (to the ex-
clusion of performing today) may be exciting and
challenging, but short-lived.
such as Monsanto, which failed to adequately ad-
dress stakeholder concerns over genetically mod-
ified food, demonstrate that overemphasis on the
internal aspects of the firm may enable short-term
execution but will ultimately blind the firm to the
external perspectives that are so important to le-
gitimacy and competitive imagination.
Just as the creation of shareholder value re-
quires performance on multiple dimensions, sus-
tainable development is also a multidimensional
challenge. Yet, most managers frame sustainabil-
ity not as a multidimensional opportunity, but
rather as a one-dimensional nuisance.
less, the multiple challenges associated with
global sustainability, seen through the appropri-
ate business lenses, can help to identify strategies
and practices which improve performance in all
four quadrants of the shareholder-value frame-
work. This, in turn, facilitates the creation of sus-
tainable value for the firm.
Most managers frame sustainability not
as a multidimensional opportunity, but
rather as a one-dimensional nuisance.
Global Drivers of Sustainability
There are four sets of drivers related to global
sustainability. A first set of drivers relates to in-
creasing industrialization and its associated ma-
terial consumption, pollution, and waste genera-
tion. Industrial activity has grown to the point
where it may now be having irreversible effects on
the global environment, including impacts on
climate, biodiversity, and ecosystem function.
While industrialization has produced tremendous
economic benefits, it has also generated signifi-
cant pollution burdens and continues to consume
virgin materials, resources, and fossil fuels at an
Resource efficiency and pollu-
tion prevention are therefore crucial to sustainable
58 MayAcademy of Management Executive
A second set of drivers relates to the prolifera-
tion and interconnection of civil society stakehold-
ers. As the power of national governments has
eroded in the wake of global trade regimes, non-
governmental organizations (NGOs) and other civil
society groups have stepped into the breach, as-
suming the role of monitor and in some cases en-
forcer of social and environmental standards.
the same time, the spread of the Internet and in-
formation technology has enabled these groups to
communicate with each other in ways that were
unimaginable even a decade ago. Internet-
connected coalitions of NGOs are making it in-
creasingly difficult for governments, corporations,
or any large institutions to operate in secrecy.
Sustainable development thus challenges firms to
operate in a transparent, responsive manner due
to a very well-informed, active stakeholder base.
As the power of national governments
has eroded in the wake of global trade
regimes, non-governmental organizations
(NGOs) and other civil society groups
have stepped into the breach.
A third set of drivers relates to emerging tech-
nologies that may provide potent, disruptive solu-
tions that could render the basis of many of today’s
energy- and material-intensive industries obso-
Genomics, biomimicry, nanotechnology, in-
formation technology, and renewable energy all
hold the potential to drastically reduce the human
footprint on the planet, making the problems of
rapid industrialization all but obsolete.
ample, bio- and nanotechnology create products
and services at the molecular level, holding the
potential to eliminate the concept of waste and
Similarly, biomimicry represents an at-
tempt to emulate nature’s processes to create novel
products and services without having to rely on
brute force to hammer out goods from large stocks
of virgin raw materials.
and renewable energy are distributed in character,
meaning that they can be applied in the most re-
mote and small-scale settings imaginable, elimi-
nating the need for centralized infrastructure and
wireline distribution, both of which are environ-
thus hold the potential to meet the needs of the
billions of rural poor (who have thus far been
largely ignored by global business) in a way that
dramatically reduces environmental impact.
novation and technological change are thus key to
the pursuit of sustainable development.
Finally, a fourth set of drivers relates to the in-
creases in population, poverty, and inequity asso-
ciated with globalization. While it took thousands
of years for the human population to reach 1 bil-
lion, that number has swollen to over 6 billion in
just the past two generations.
Such rapid popu-
lation growth has resulted in massive migration
from rural areas to cities and growing inequities in
income. Today, for example, over 4 billion people
survive on less than $1500 per year, the minimum
income needed to avoid serious deprivation.
combination of rising population and growing in-
equity is increasingly recognized as a prescription
for accelerating social decay, political chaos, and
Social development and wealth cre-
ation on a massive scale, especially among the
world’s poorest 4 billion, therefore appear to be
essential to sustainable development.
such development must follow a fundamentally
different course if it is not to result in ecological
In short, global sustainability is a complex,
multi-dimensional concept that cannot be ad-
dressed by any single corporate action. Creating
sustainable value thus requires that firms address
each of the four broad sets of drivers. First, firms
can create value by reducing the level of material
consumption and pollution associated with rapid
industrialization. Second, firms can create value
by operating at greater levels of transparency and
responsiveness, as driven by civil society. Third,
firms can create value through the development of
new, disruptive technologies that hold the poten-
tial to greatly shrink the size of the human footprint
on the planet. Finally, firms can create value by
meeting the needs of those at the bottom of the
world income pyramid in a way that facilitates
inclusive wealth creation and distribution.
Connecting the Dots: The Sustainable
If viewed through the appropriate set of business
lenses, it becomes clear how the sustainability
drivers discussed above present opportunities for
firms to improve all four dimensions of share-
holder value. As illustrated in Figure 2 (and de-
scribed in more detail below), each driver of sus-
tainability, and its associated business strategies
and practices, corresponds to a particular dimen-
sion of shareholder value. Thinking through the
full range of challenges and opportunities is the
first step managers can take toward the creation of
sustainable value for the corporation.
2003 59Hart and Milstein
Growing Profits and Reducing Risk Through
The problems of material consumption, waste, and
pollution associated with industrialization present
an opportunity for firms to lower cost and risk
through the development of skills and capabilities
in pollution prevention and eco-efficiency.
tion prevention is focused on improving the envi-
ronmental efficiency of today’s products and pro-
cesses—that is, reducing waste and emissions from
current operations. Less waste means better utiliza-
tion of inputs, resulting in lower costs for raw mate-
rials and waste disposal. Effective pollution preven-
tion requires extensive employee involvement, along
with well-developed capabilities in continuous im-
provement and quality management.
more saleable product or service per pound of in-
put, pollution prevention can lead to lower costs
and reduced risk. Environmental management sys-
tems (e.g., ISO 14000) built on total quality princi-
ples provide guidance for the development of sys-
tematic processes geared toward removing waste
and lowering risk throughout a firm’s operations.
Programs that reduce waste and emissions
through eco-efficiency have been widely adopted by
firms over the past decade and include such notable
cases as Dow Chemical’s Waste Reduction Always
Pays (WRAP) and Chevron’s Save Money and Re-
duce Toxics (SMART). Additionally, pollution-pre-
vention programs have proliferated at the industry
level and receive a great deal of attention from
regulatory bodies both in the United States as well
as Europe as potential alternatives to command-
The well-publicized re-
sults of pioneering programs like 3M’s Pollution
Prevention Pays (3P) illustrate the direct, bottom-
line benefits that can be realized through pollution
Indeed, between 1975 and 1990, 3M
reduced its total pollution by over 530,000 tons
(a 50 per cent reduction in total emissions) and,
according to company sources, saved over $500
million through lower raw material, compliance,
disposal, and liability costs. In 1990, 3M embarked
on 3P⫹which sought to reduce the remaining
waste and emissions by 90 per cent with the ulti-
mate goal being zero pollution.
Extensive empirical work has also now made it
evident that, with the appropriate set of skills and
capabilities (e.g., employee involvement, continu-
ous improvement), firms pursuing pollution-
prevention and waste-reduction strategies actu-
ally do reduce cost and increase profits.
prevention thus provides managers with the clear-
est, fastest way to increase shareholder value by
growing the bottom line for existing businesses
through reductions in cost and liability.
Sustainable Value Framework
60 MayAcademy of Management Executive
Enhancing Reputation and Legitimacy Through
Whereas pollution prevention focuses on internal
operations, product stewardship extends beyond
organizational boundaries to include the entire
product life cycle—from raw material access,
through production processes, to product use and
disposal of spent products.
thus involves integrating the voice of the stake-
holder into business processes through extensive
interaction with external parties such as suppliers,
customers, regulators, communities, non-govern-
mental organizations, and the media. As such, it
offers a way to both lower environmental impacts
across the value chain and enhance legitimacy
and reputation by involving stakeholders in the
conduct of on-going operations.
engaging stakeholders, firms increase external
confidence in their intentions and activities, help-
ing to enhance corporate reputation and catalyze
the spread of more sustainable practices within
the business system at large.
By constructively engaging stakeholders,
firms increase external confidence in
their intentions and activities.
There are many actions firms can take to in-
crease shareholder value through product stew-
ardship. Cause-related marketing efforts appeal to
consumers’ desires to associate their actions (pur-
chases) with products that have positive social and
extends the value chain beyond traditional firm
boundaries by including costs and benefits of
products from raw materials to production and ul-
timately to disposal by consumers.
dustrial ecology, firms can even convert the wastes
from one operation into the inputs to another.
1997, for example, Collins & Aikman Floorcover-
ings became the first carpet manufacturer to de-
velop the capability to convert old carpet and post-
industrial PVC waste into new carpet backing for a
new product line. Called ER3 (which stands for
Environmentally Redesigned, Restructured, and
Reused), this product has been central to the com-
pany’s growing reputation for environmentally
sustainable products and has helped to fuel gains
in market share against competitors.
Companies such as Weyerhaeuser and Shell
have increased the use of stakeholder engagement
through town hall-style meetings, Internet-based
comment boxes, and other tools designed to pro-
vide venues for stakeholders to voice their opin-
ions about a firm’s operations. In Europe, a strong
regulatory environment coupled with a very active
NGO community has led firms to pursue more col-
laborative approaches in addressing business is-
sues. Together with industry, European govern-
ments are moving forward with leading legislation
concerning take-back laws for electrical, elec-
tronic, and appliances manufacturers.
The company Nike serves as a recent, salient
example of the value of product stewardship.
Faced with growing backlash in the late 1990s
regarding its labor and environmental practices,
the company turned to product-stewardship strat-
egies to recover its reputation and preserve its
right to operate. The company enacted a world-
wide monitoring program for all contract factories,
using both internal and third-party auditors such
as PriceWaterhouseCoopers. Nike also became a
charter member of the Fair Labor Association
(FLA), a non-profit group that evolved out of an
anti-sweatshop coalition of unions, human rights
groups, and businesses. Additionally, Nike helped
found the Global Alliance, a partnership among
the International Youth Foundation, the MacArthur
Foundation, and the World Bank dedicated to im-
proving workers’ lives in emerging economies.
Aside from taking action on the labor (social)
front, Nike also took action environmentally. Foot-
wear designers started evaluating their new pro-
totypes against a product-stewardship scorecard,
using life-cycle analysis. Nike also launched the
Reuse a Shoe Project to downcycle old, unwanted
footwear. Nike retailers collected shoes and
shipped them back to the company where they
ground and separated the materials. Through part-
nerships with sports surfacing companies, the out-
sole rubber and midsole foam were turned into
artificial athletic surfaces. Profits from this busi-
ness generated income for the Nike Foundation
and the funding of sport surface donations.
As the Nike case makes clear, firms use product
stewardship to demonstrate that stakeholder
voices and opinions matter and can affect com-
pany behavior. Like pollution prevention, product
stewardship is centered on improving existing
products and services. As a consequence, changes
are immediate and value is realized quickly in the
form of improved community relations, legitimacy,
and brand reputation.
Accelerating Innovation and Repositioning
Through Clean Technology
Clean technology refers not to the incremental im-
provement associated with pollution prevention,
2003 61Hart and Milstein
but to innovations that leapfrog standard routines
The rapid emergence of disrup-
tive technologies such as genomics, biomimicry,
information technology, nanotechnology, and re-
newable energy present the opportunity for firms—
especially those heavily dependent upon fossil
fuels, natural resources, and toxic materials—to
reposition their internal competencies around
more sustainable technologies.
Thus, rather than
simply seeking to reduce the negative impacts of
their operations, firms strive to solve social and
environmental problems through the internal de-
velopment or acquisition of new capabilities that
address the sustainability challenge directly.
The sustainable competencies that emerge from
the search for clean technologies are central to
a firm’s efforts to reposition its internal skill set
for the development and exploitation of future
A growing number of firms have begun to de-
velop the next generation of clean technology to
drive future economic growth. BP and Shell are
ramping up investments in solar, wind, and other
renewable technologies that might ultimately re-
place their core petroleum businesses. In the auto-
motive sector, Toyota and Honda have already en-
tered the market with hybrid power systems in
their vehicles, which dramatically increase fuel
efficiency. They also launched a market experi-
ment in fuel cell vehicles in Japan at the end of
2002. Also in 2002, General Motors launched the
AUTOnomy project—a bold $1 billion initiative to
reinvent the automobile around hydrogen fuel cell
technology. While many automakers have fuel cell
initiatives, most see the expensive combination of
a fuel cell with a big electric motor as a simple
replacement for the engine, which makes such ve-
hicles economically uncompetitive compared to
current technology. GM, in contrast, has taken a
clean-sheet approach, not only to vehicle design
but also to the entire manufacturing system. By
radically simplifying the design around a fuel cell
which doubles as the vehicle’s chassis, GM hopes
to compensate for the higher cost of the fuel cell by
drastically reducing sourcing and production
costs. While many carmakers talk of a transition to
alternative power taking 20–30 years, GM, Toyota,
and Honda are committed to making it a commer-
cial reality within a decade.
In addition, firms such as General Electric, Hon-
eywell, and United Technologies are investing in
technologies that would lead to the development of
small-scale, widely distributed energy systems
that could make centralized coal-fired and nuclear
power plants obsolete. Finally, firms such as
Cargill and Dow are exploring the development of
biologically based polymers to enable renewable
feedstocks such as corn to replace petrochemical
inputs in the manufacturing of plastics. Each of
these cases is notable for the willingness of firms
to disrupt the very core technologies upon which
their businesses currently depend.
DuPont is an example of a large corporation with
a well-developed clean-technology strategy. In
the late 1800s, DuPont transformed itself from a
manufacturer of gunpowder and explosives into a
chemical company, focused on the production of
synthetic materials using petroleum feedstocks.
This strategy produced nearly a century of success
with such well-known blockbuster products as Ny-
lon, Lycra, Teflon, Corian, and Kevlar.
DuPont is an example of a large
corporation with a well-developed
In the late 1990s, DuPont embarked on its second
major transformation—from an energy-intensive
petrochemical company to a renewable-resource
company focused on sustainable growth.
ize this transformation, the company has pursued
an aggressive strategy of acquisition, divestiture,
and internal technology development. Over the
past decade, for example, DuPont has invested in
excess of $15 billion in biotechnology, including
the acquisition of Pioneer Hi-Bred, a major player
in the agricultural biotech business. It has also
divested resource- and energy-intensive busi-
nesses such as its oil subsidiary (Conoco) in the
1990s and, most recently, its core Nylon and Lycra
businesses in 2003.
In an effort to shrink its footprint dramatically,
the company has set bold targets for 2010—to re-
duce greenhouse gas emissions by two-thirds
while holding total energy use flat, and to increase
its use of renewable resources to 10 per cent of
global energy needs. To hit such ambitious targets
while continuing to grow as a company, DuPont
must fundamentally reorient its technology base
toward biology (e.g., genomics and biomimicry),
renewable energy (e.g., fuel cells) and information
(i.e., knowledge-intensive rather than resource-
intensive products). To accelerate this process,
DuPont is creating a venture fund focused on sus-
tainable technology development and innovations
aimed at the developing world.
Bold strategies in clean technology continue to
be less common among large, established corpo-
rations than are activities in pollution prevention
or product stewardship. Payoffs from such invest-
62 MayAcademy of Management Executive
ments take time and are determined more by trial
and error than internal hurdle rates. Entrenched
corporate mindsets and standard operating proce-
dures suppress the creation of structures that can
catalyze innovation. The risks associated with
such investments stand in stark contrast to the
risk-reducing efforts associated with the pollution-
prevention programs discussed above. Firms that
invest in clean-technology solutions tend to pursue
more novel approaches to long-term challenges
and create organizational environments support-
ive of the innovation process. Future economic
growth will be driven by those firms that are able
to develop disruptive technologies that address
society’s needs. The evidence is increasingly clear
that firms that fail to lead the development and
commercialization of such technologies are un-
likely to be a part of tomorrow’s economy.
Bold strategies in clean technology
continue to be less common among large,
established corporations than are
activities in pollution prevention or
Crystallizing the Firm’s Growth Path and
Trajectory Through a Sustainability Vision
The growing gap between rich and poor, and the
unmet needs of those at the bottom of the economic
pyramid, present opportunities for firms to define a
compelling trajectory for future growth.
ization of a more inclusive form of capitalism char-
acterized by two-way dialogue and collaboration
with stakeholders previously overlooked or ig-
nored by firms (e.g., radical environmentalists,
shantytown dwellers, the rural poor in developing
countries) can help to open up new pathways for
growth in previously unserved markets.
sustainability vision that facilitates competitive
imagination by creating a shared roadmap for to-
morrow’s business provides guidance to em-
ployees in terms of organizational priorities, tech-
nology development, resource allocation, and
business model design.
The Grameen Bank in Bangladesh is perhaps the
best known example of how a sustainability vision
can open up a completely new pathway for busi-
Over twenty years ago, Muhammad
Yunas, an economics professor at the time, con-
ceived the idea of a bank focused on offering
micro-credit loans to the poorest of the poor. Most
bankers assumed that laziness or lack of compe-
tence were the reasons that so many lived in abject
poverty. As a result, they focused their attention on
more affluent customers. But Yunas discovered
that the poor were, for the most part, energetic,
motivated, and knew exactly what they needed to
move themselves forward—gaining access to
small amounts of credit to launch or expand small
enterprises—and built his enterprise to serve this
need. By the late 1990s, Grameen Bank was provid-
ing microcredit services in more than 40,000 vil-
lages, better than half the total number in Bang-
ladesh. The competitive imagination of Grameen
Bank has led to a global explosion of institutional
interest in microlending over the past decade, in-
cluding recent entry into this domain by financial
giants such as Citigroup.
Increasingly, MNCs are recognizing that listen-
ing to the voices of the poor and disenfranchised
can be a source of creativity and innovation. For
example, Hindustan Lever Ltd. (HLL), a subsidiary
of Unilever PLC, has pioneered market develop-
ment among the rural poor in India. Through prod-
uct development dedicated specifically to the
unique needs of the rural poor, HLL has been able
to apply top-class science and technology to bring
affordable shampoos and soaps to this large new
Today, better than half of HLL’s revenues
come from customers at the bottom of the pyramid.
Even more importantly, using the approach to
product development, marketing, and distribution
pioneered in rural India, Unilever has been able to
leverage a rapidly growing and profitable busi-
ness to other parts of the developing world such as
Recognizing that information poverty may be the
single biggest roadblock to sustainable develop-
ment, Hewlett-Packard has begun to focus atten-
tion on the needs of the isolated and disconnected
through their World e-Inclusion initiative. As part
of their strategy, HP has created an R&D laboratory
in rural India with the express purpose of coming
to understand the particular needs of the rural
poor. They have quickly realized that this is not
unoccupied space: local companies such as
N-Logue and Tarahaat are also developing infor-
mation technology and business models focused
on this enormous potential market. Through
shared access (e.g., Internet kiosks), wireless infra-
structure, and R&D focused on cost reduction, these
companies are dramatically reducing the cost of
Despite the success of organizations such as
Grameen and Unilever, however, most companies
continue to mistakenly assume that poor markets
possess no value opportunities and have yet to try
to understand the possibilities of serving the mar-
kets they are used to ignoring. Firms that do take
2003 63Hart and Milstein
the time appear to recognize that those at the bot-
tom of the pyramid lack attention and capital,
not ingenuity and aspiration.
Johnson & Johnson, Dow, DuPont, Coca-Cola, and
Procter & Gamble are beginning to take steps to
understand how best to leverage their skills and
resources to meet the basic nutritional, energy,
housing, and communications needs of the world’s
Those steps include interacting with a
broad range of stakeholders previously assumed
to have nothing to offer a multinational corpora-
tion (e.g., local NGOs, disenfranchised dwellers of
shanty towns, rural villagers, etc.) to highlight
what unmet needs exist and how their organiza-
tion’s skills and capabilities might be wielded to
meet them. In turn, this understanding can become
a catalyst for the development of innovative tech-
nologies, products, and services that meet those
needs and drive growth at multiple levels within
Thus, firms that take the time to
create a compelling sustainability vision have the
potential to unlock future markets of immense
scale and scope.
Firms that take the time to create a
compelling sustainability vision have the
potential to unlock future markets of
immense scale and scope.
Toward Sustainable Value
At this point it should be clear that the challenge of
global sustainability is complex, multidimen-
sional, and emergent in character. Firms are chal-
lenged to minimize waste from current operations
(pollution prevention), while simultaneously reori-
enting their competency portfolios toward more
sustainable technologies and skill sets (clean tech-
nology). Firms are also challenged to engage in
extensive interaction and dialogue with external
stakeholders, regarding both current offerings
(product stewardship) as well as how they might
develop economically sound solutions to social
and environmental problems for the future (sus-
Taken together, as a portfolio, such strategies
and practices hold the potential to reduce cost and
risk; enhance reputation and legitimacy; acceler-
ate innovation and repositioning; and crystallize
growth path and trajectory—all of which are cru-
cial to the creation of shareholder value. The chal-
lenge for the firm is to decide which actions and
initiatives to pursue and how best to manage
them. Accordingly, we recommend the following
specific steps in the pursuit of sustainable value:
diagnosis (taking stock of the company portfolio),
opportunity assessment (strengths and weak-
nesses in capability), and implementation (the de-
sign of projects and experiments).
Each is explored in more depth below.
The sustainable-value framework can be used as a
simple but important diagnostic tool. By assessing
a company’s (or SBU’s) activity in each of the four
quadrants of the framework, managers can assess
the degree of portfolio balance. Extreme portfolio
imbalance suggests missed opportunities—and
vulnerability. Our research suggests that few in-
cumbent firms seem to recognize—let alone ex-
ploit—the full range of sustainable business op-
Most focus their time and
attention only on the bottom half of the matrix—
short-term solutions tied to existing products and
Indeed, programs in pollution prevention and
product stewardship are well institutionalized
within most MNCs today and have saved hundreds
of millions of dollars over the past decade. U.S.-
based companies have been especially focused on
the efficiency gains and cost savings associated
with pollution prevention. Highly publicized crises
at companies such as Monsanto and Nike, who
failed to successfully engage the views of stake-
holders, have also caused growing numbers of
firms to explore strategies for product stewardship.
European companies have been particularly pro-
active in this regard, actively pursuing strategies
for stakeholder dialogue, extended producer re-
sponsibility, and more inclusive forms of corporate
Relatively few established companies, however,
have begun to exploit the opportunities associated
with the upper half of the model—the portion fo-
cused on building new capabilities and markets.
Indeed, most clean technologies today are being
developed and commercialized by small, often
under-capitalized, new ventures—not by the MNCs
that possess the financial resources for doing so
successfully. Similarly, most business experiments
at the bottom of the economic pyramid have been
initiated by NGOs or small local firms while the
emerging market plays of MNCs have been limited
largely to the elites or emerging middle classes in
the developing world.
Given that pursuit of clean
technology and markets at the bottom of the pyra-
64 MayAcademy of Management Executive
mid is disruptive in character, perhaps we should
not be surprised that large incumbent firms have
not actively blazed these trails or that entrepre-
neurs have been likely to seek opportunities to
leapfrog existing competitors and claim under-
served market space.
Yet, it need not be this way. Just as particular
competencies predispose some companies to be
more effective than others in implementing pollu-
tion prevention and product stewardship (e.g.,
quality management, continuous improvement,
boundary-spanning capability), some MNCs will
be better positioned than others to pursue clean
technologies and bottom-of-the-pyramid mar-
kets—those with demonstrated ability in acquiring
new skills, working with unconventional partners,
incubating disruptive innovations, shedding obso-
lete businesses, and creatively destroying existing
product portfolios, to name just a few. Incumbent
firms with these skill sets possess a potentially
powerful first-mover advantage compared to those
firms more oriented toward defending base busi-
To make this opportunity a reality, however, it is
necessary to organize the range of possible activ-
ities into discrete projects and business experi-
ments. Given the nascent nature of clean technol-
ogy and bottom-of-the-pyramid markets, many
small experiments are far preferable to a single
big investment. These initiatives must be evalu-
ated for funding using a separate set of criteria
and metrics, since they will almost never meet the
short-term revenue and profitability targets asso-
ciated with projects designed to expand existing
We recommend using a real-options approach,
rather than the more conventional discounted-
Real-options thinking introduces
the logic of the private equity market into the firm,
with an expected payoff in the 5–7 year time frame,
rather than the excessively short-term logic asso-
ciated with conventional capital budgeting or the
excessively long-term logic associated with tradi-
We also recommend creating a sep-
arate pool of investment capital to fund these ini-
tiatives and a separate organizational entity to
house the business experiments aimed at opening
up new markets. Without this early protection, the
logic of short-term performance in today’s business
will almost certainly guarantee failure.
small percentage of the projects and business ex-
periments have to succeed to more than justify the
investment in terms of new capability develop-
ment and revenue growth.
Sustainable Value: A Huge Opportunity
The opportunity to create sustainable value—
shareholder wealth that simultaneously drives us
toward a more sustainable world—is huge, but yet
to be fully exploited. The sustainable-value frame-
work makes clear the nature and magnitude of the
opportunities associated with sustainable devel-
opment and connects them to dimensions of value
creation for the firm. The framework’s simplicity,
however, should not be mistaken for ease of exe-
cution: understanding the connections is not the
same thing as successfully implementing the strat-
egies and practices involved. The tasks are very
challenging and complex indeed, suggesting that
only a few firms will be able to successfully carry
out activities in all four quadrants simultaneously,
especially those that require the greatest efforts in
terms of vision, creativity, and patience.
The opportunity to create sustainable
value—shareholder wealth that
simultaneously drives us toward a more
sustainable world—is huge.
Stagnant economic growth and stale business
models present formidable challenges to corpora-
tions in the years ahead. Focusing on incremental
improvements to existing products and businesses
is an important step but neglects the vastly larger
opportunities associated with clean technology
and the underserved markets at the bottom of the
economic pyramid. Indeed, addressing the full
range of sustainability challenges can help to cre-
ate shareholder value and may represent one of
the most under-appreciated avenues for profitable
growth in the future.
See Stiglitz, J. 2002. Globalization and its discontents. New
York: W. W. Norton.
See the National Research Council. 1999. Our common jour-
ney. Washington, DC: National Academy Press.
Soros, G. 2002. George Soros on globalization. New York:
Protests at the World Trade Organization, World Bank,
World Economic Forum, G8, and other meetings in places like
Seattle, Washington, DC, Davos, and Rome have become the
most visible examples of the frustration felt by many who view
globalization as inequitable exploitation. See, Nye, J. 2001.
Globalization’s democratic deficit. Foreign Affairs, 80(4): 2–6.
2003 65Hart and Milstein
World Commission on Environment and Development. 1987.
Our common future. Oxford: Oxford University Press, p. 8.
Gladwin, T., Kennelly, J., & Krause, T. 1995. Shifting para-
digms for sustainable development: Implications for manage-
ment theory and research. Academy of Management Review,
See Elkington, J. 1994. Towards the sustainable corporation:
Win-win-win business strategies for sustainable development.
California Management Review, 36(3): 90–100.
We use the terms “global sustainability,”“sustainable
world,” and “sustainable development” interchangeably to re-
fer to the global-scale drivers of sustainability. Similarly, we
use the terms “sustainable enterprise,”“corporate sustainabil-
ity,” and “enterprise sustainability” interchangeably to refer to
firm-level strategies and practices to build value by moving
toward a more sustainable world.
See, Holliday, C. 2001. Sustainable growth, the DuPont way.
Harvard Business Review, 79(8): 129–132.
See Friedman, M. The social responsibility of business is to
increase profits. The New York Times Magazine 13 September
1970, for the classic argument representing this point of view.
See Christensen, C. 1998. The innovator’s dilemma. Boston,
MA: Harvard Business School Press for a detailed discussion of
the paradox of focusing on short- versus long-term value. The
concept of “creative destruction” was first introduced by Joseph
Schumpeter (1942) in Capitalism, socialism and democracy, New
York: Harper Torchbooks. More recently, the growing impor-
tance of creative destruction to competitive success has been
persuasively argued in Foster, R., & Kaplan, S. 2001. Creative
destruction, New York: Doubleday.
See Thompson, J. 1967. Organizations in action, New York:
McGraw Hill for the classic discussion of balancing the need
both to sustain and destroy the technological core underlying a
firm’s business model. More recently, these ideas have received
growing attention in the form of work on “core rigidities” (e.g.,
Leonard-Barton, D. 1992. Core capabilities and core rigidities: A
paradox in managing new product development. Strategic
Management Journal, 13(SSI): 111–125) and “dynamic capabili-
ties” (e.g., Teece, D., Pisano, G., & Shuen, A. 1997. Dynamic
capabilities and strategic management. Strategic Management
Journal, 18(7): 509–533).
This idea is similar to the balanced scorecard (see Kaplan,
R., & Norton, D. 1992. The balanced scorecard—measures that
drive performance. Harvard Business Review 72(1): 71–79) and
other tools that emphasize the need to balance a portfolio of
actions to drive firm value over time.
Christensen, C., op. cit.
The experiences of Enron and the numerous dot-bombs of
the tech wreck serve as the most recent illustrations that while
it can be very glamorous to be viewed as on the cutting edge of
the business world, bankruptcy provides a particularly ineffec-
tive platform from which to generate future growth.
See Hamel, G., & Prahalad, C. K. 1991. Corporate imagina-
tion and expeditionary marketing. Harvard Business Review,
See Rugman, A. M., & Verbeke, A. 1998. Corporate strate-
gies and environmental regulations: An organizing framework.
Strategic Management Journal, 19(4): 363–375, which notes that
most managerial approaches to environmental issues take a
very simple, static view of the problem.
National Research Council, op. cit.; and Daily, G. 1997.
Nature’s services: Societal dependence on natural ecosystems.
Washington, DC: Island Press.
See Hawken, P., Lovins, A., & Lovins, H. 1999. Natural cap-
italism: Creating the next industrial revolution. Boston, MA:
Little Brown & Company.
Florini, A. (Ed.). 2000. The third force: The rise of transna-
tional civil society. Washington, DC: Carnegie Endowment for
Rheingold, H. 2002. Smart mobs: The next social revolution.
Cambridge, MA: Perseus Publishing.
See, for example, Hart, S., & Milstein, M. 1999. Global sus-
tainability and the creative destruction of industries. Sloan
Management Review, 41(1): 23–33.
To be sure, there are many new problems that these tech-
nologies may create, making their ultimate contribution to sus-
tainability more unknowable; witness the problems Monsanto
encountered in pursuing its agricultural biotechnology strategy
in the mid to late 1990s.
Drexler, E. 1986. Engines of creation. Garden City, NY: An-
See Benyus, J. 1997. Biomimicry: Innovation inspired by
nature. New York: Morrow.
Christensen, C., Craig, T., & Hart, S. 2001. The great disrup-
tion. Foreign Affairs, 80(2): 80–95.
Coyle, D. 2001. Paradoxes of prosperity. New York: Texere
See World Bank. 2000. World development report: Attacking
poverty. New York: Oxford University Press.
Easterly, W. 2001. The elusive quest for growth. Cambridge,
MA: MIT Press.
National Research Council, op. cit. See also Hammond, A.
1998. Which world? Scenarios for the 21st century, Washington,
DC: Island Press.
See Prahalad, C. K., & Hart, S. 2002. The fortune at the
bottom of the pyramid. Strategy ⫹Business, Issue 26: 54–67.
Von Dieren, W. (Ed.). 1995. Taking nature into account. New
The four strategies developed in this section were first
articulated in: Hart, S. 1997. Beyond greening: Strategies for a
sustainable world. Harvard Business Review, 75(1): 66–76. We
would also like to thank our colleagues at the Sustainable
Enterprise Academy—in particular, Brian Kelly, David Wheeler,
Bryan Smith, John Ehrenfeld, Chris Galea, Art Hanson, David
Bell, Nigel Roome, Jim Leslie and Pat Delbridge—for helping us
to clarify our thinking regarding how the drivers of sustainabil-
ity, viewed through the proper set of business lenses, influence
The most comprehensive treatment of eco-efficiency was
done by the World Business Council for Sustainable Develop-
ment in: DeSimone, L., & Popoff, F. 1997. Eco-efficiency: The
business link to sustainable development. Cambridge: MIT
Press. See also James, P., & Bennett, M. 1994. Environment-
related performance measurement in business: From emissions
to profit and sustainability? Ashridge Management Group Pub-
Hart, S. 1995. A natural resource-based view of the firm.
Academy of Management Review, 20(4): 986–1014.
Darnall, N. 2002. Why firms signal green: Environmental
management system certification in the United States. Unpub-
lished Ph.D. dissertation, University of North Carolina, Chapel
See Marcus, A. 2002. Reinventing environmental regula-
tion. Washington, DC: RFF Press. For more information on
European pollution prevention programs, see European Inte-
grated Pollution Prevention and Control Bureau (http://
eippcb.jrc.es/), the UK government’s Enviro Wise Programme
(http://www.envirowise.gov.uk/), and the Implementation and
Enforcement of Environmental Law (IMPEL) at http://europa.e-
u.int/comm/environment/impel/index.htm). U.S. pollution-
prevention programs are documented by the U.S. Environ-
mental Protection Agency (http://www.epa.gov/epahome/
66 MayAcademy of Management Executive
For more information on these and other programs, see
Smart, B. 1992. Beyond compliance: A new industry view of the
environment. Washington, DC: World Resources Institute.
3M Company, 1992. Pollution prevention pays, videotape.
See, for example, Christmann, P. 1998. Effects of ‘best prac-
tices’ of environmental management on cost advantage: The
role of complementary assets. Academy of Management Jour-
nal, 43(4): 663–680; and Sharma, S., & Vredenburg, H. 1998. Pro-
active corporate environmental strategy and the development
of competitively valuable organizational capabilities. Strategic
Management Journal, 19(8): 729–753.
Through early adoption of extended producer responsi-
bility requirements, European governments and firms have
pioneered efforts in product stewardship. See, for example,
Roome, N., & Hinnells, M. 1993. Environmental factors in the
management of new product development. Business Strategy
and the Environment, 2(1): 12–27; Welford, R. 1995. Environ-
mental strategy and sustainable development. London:
Routledge; and Steger, U. 1996. Managerial issues in closing
the loop. Business Strategy and the Environment, 5(4):
Wheeler, D., & Sillanpaa, M. 1997. The stakeholder corpo-
ration. London: Pittman Publishing.
Elkington, J. 1998. Cannibals with forks. Gabriola Island:
New Society Publishing.
Hoeffler, S., & Keller, K. 2002. Building brand equity through
corporate societal marketing. Journal of Public Policy and Mar-
keting, 21(1): 78–89.
Fiksel, J. 1995. Design for environment: Creating eco-effi-
cient products and processes. New York: McGraw-Hill.
For a leading example of industrial ecology, refer to
Graedel, T., & Allenby, B. 1995. Industrial ecology. Englewood
Cliffs: Prentice Hall.
Buffington, J., Hart, S., and Milstein, M. 2002. Tandus 2010:
Race to sustainability. Center for Sustainable Enterprise, Uni-
versity of North Carolina, Chapel Hill.
See Proposal For a Directive of the European Parliament
and of the Council on Waste Electrical and Electronic Equip-
ment and on the Restriction of the Use of Certain Hazardous
Substances in Electrical and Electronic Equipment, COM
#(2000)347 available at http://europa.eu.int/comm/environment/
McDonald, H., London, T., & Hart, S. 2002. Expanding the
playing field: Nike’s World Shoe project. Washington, DC: World
See, for example, Vergragt, P., & van Grootveld, G. 1994.
Sustainable technology development in the Netherlands: The
first phase of the Dutch STD programme. Journal of Cleaner
Production, 2(3/4): 133–139; Fussler, C. 1996. Driving eco-innova-
tion. London: Pittman Publishing; and von Weizsacker, E., Lov-
ins, A., & Lovins, H. 1997. Factor four. London: Earthscan Pub-
See Hart, S., & Milstein, M., op. cit.
McDonough, W., & Braungart, M. 2002. Cradle to cradle.
New York: North Point Press.
Baum, D. 2002. GM’s billion-dollar bet. Wired.com. www.
Holliday, C., op. cit.
Hamel, G. 2000. Leading the revolution. Boston: Harvard
Business School Press; Foster, R., & Kaplan, S., op. cit; and
Christensen, C., Craig, T., & Hart, S., op. cit.
See von Dieren, W., op. cit.; Prahalad, C. K., & Hart, S.,
op. cit.; and Prahalad, C. K., & Hammond, A. 2002. Serving
the world’s poor, profitably. Harvard Business Review, 80(9):
Hart, S., & Sharma, S. 2002. Radical transactiveness and
competitive imagination. Presented at the Academy of Manage-
ment Annual Meeting, Denver, CO, August 2002.
Counts, A. 1996. Give us credit. New York: Times Books.
Balu, R. 2002. Strategic innovation: Hindustan Lever. Fast
Company, 47: 120–125.
Prahalad, C. K., & Hart, S., op. cit.
Prahalad, C. K., & Hammond, A., op. cit.
See de Soto, H. 2000. The mystery of capital. New York:
Basic, for a discussion about the value that resides in informal
These companies and others including Hewlett-Packard
and Ford have joined the Base of the Pyramid Learning Labo-
ratory at the University of North Carolina’s Kenan-Flagler Busi-
ness School to explore ways to enter the underserved markets of
the world in ways that are culturally appropriate and environ-
Hart, S., & Christensen, C. 2002. The great leap: Driving
innovation from the base of the pyramid. Sloan Management
Review, 44(1): 51–56.
Hart, S., & Milstein, M., op. cit.
Hart, S., & Christensen, C., op. cit.
See Amram, M., & Kulatilaka, N. 1999. Real options. Boston:
Harvard Business School Press; and Milstein, M., & Alessandri,
T. New tools for new times: Using real options to identify value
in strategies for sustainable development. Presented at the
Academy of Management Annual Meeting, Toronto, Canada,
Foster, R., & Kaplan, S., op. cit.
Christensen, C., op. cit.
Stuart L. Hart is a professor of
strategic management, Sarah
Graham Kenan Distinguished
Scholar, and director of the
Center for Sustainable Enter-
prise at the University of North
Carolina’s Kenan-Flagler Busi-
ness School. He received his
Ph.D. from the University of
Michigan. His research inter-
ests center on strategy innova-
tion and change, particularly the
strategic implications of environ-
mentalism and sustainable devel-
opment. Contact: email@example.com.
Mark B. Milstein is an adjunct as-
sistant professor and director of
research for the Center for Sus-
tainable Enterprise and is com-
pleting his doctorate in strategic
management at Kenan-Flagler
Business School at the University
of North Carolina at Chapel Hill.
His research and teaching inter-
ests are focused on the relation-
ship between strategic deci-
sion-making and organizational
change, industry transforma-
tion, and innovation. Contact:
2003 67Hart and Milstein
All multinational companies are parties to the de-
bate about sustainable development—none more
so than the energy industry. Accessing non-renew-
able energy sources like oil, gas, and coal is by
definition extractive, so the resource available to
future generations is inevitably reduced. On the
consumption side, hydrocarbon fuels raise enor-
mous environmental issues about the sustainabil-
ity of entire—perhaps global—ecosystems. So,
sustainability is by no means a foreign concept in
the energy industry. We’re acutely aware of it on
both the raw-material and the finished-product
sides of the business.
All multinational companies are parties
to the debate about sustainable
development—none more so than the
That having been said, this article adds refresh-
ing insight to the argument for incorporating
sustainability into business policy and decision-
making. Assuming for the moment that sustain-
ability isn’t a moral imperative or legal require-
ment, businesses still need to ask whether it
makes good economic and competitive sense to
embrace sustainable development. The significant
players in the energy business have no doubt that
addressing sustainability is a competitive neces-
sity. The authors identify drivers for sustainability
that are central issues for the energy industry, in-
cluding resource efficiency, pollution prevention,
and attentive, demanding global stakeholders.
These are often headline issues for energy compa-
nies. In addition, both access agreements to hydro-
carbon resources and licenses to operate have in-
creasingly explicit sustainability requirements,
ranging from pollution prevention and environ-
mental footprint to community development.
It’s not surprising, then, that three energy multi-
nationals are among the companies cited in the
article. My company has certainly evolved along
the path described by the author from pollution
prevention—a minimum, critical requirement in
all our operations—to product stewardship along
the entire life cycle. Pollution prevention and prod-
uct stewardship are actually part of a larger set of
practices, called Operational Excellence, that
guide our operations. Safe, reliable operations are
the starting point for Operational Excellence. But
the practices also include environmental responsi-
bility, product stewardship, and stakeholder in-
volvement in the areas where we do business—all
factors that contribute to sustainable value. My
company takes these practices very seriously.
Managers are held accountable for them. All em-
ployees are expected to apply them in their work.
The highest executive levels pay personal atten-
tion to our progress.
Operational Excellence responds to one of the
global drivers identified by the author—resource
efficiency and pollution prevention. The authors
are correct that a corporate paradigm like Opera-
tional Excellence will enhance a company’s repu-
tation. This is particularly important to energy
multinationals, given how they are often por-
trayed. Operational Excellence also drives directly
to the company’s bottom line, potentially saving
billions of dollars in operating costs while serving
sustainability. There is no tension here between
shareholder value and sustainable development.
The authors identify two additional drivers of
sustainability: (1) interconnected global stakehold-
ers, and (2) global social inequity and maldistribu-
tion of wealth. The energy industry is a case study
in developing strategies to respond to these driv-
ers. Consider stakeholders. In one sense, we’re all
stakeholders in the energy business—energy is
the lifeblood of our societies. The way we use en-
ergy over time has the single greatest impact on
the global environment and the ecosystem we live
in. At the same time, no companies are more prom-
inent in the public eye than multinational energy
companies. Each price increase at the gas station,
conflict over oil and gas access, or tanker accident
propels the industry into the headlines and Inter-
net forums, often with denunciations of conspiracy
or malevolence. Given the stakes and level of pub-
lic interest, it would be suicidal for an American
energy multinational not to operate with the great-
est possible transparency. My company, like many,
has demanding and enforced ethical standards,
including this one in our statement of values: “We
welcome scrutiny and we hold ourselves account-
able.” Energy companies—apart from rogues like
Enron—have been on a learning curve about
NGOs and networked interest groups. Some com-
panies in the industry now have working relation-
68 MayAcademy of Management Executive
ships with NGOs on environmental and social
matters such as community development and HIV/
AIDS prevention and treatment.
Beyond transparency and cooperation with vocal
stakeholders, the authors point out deep issues of
globalization and social disruption. Together with
the environmental challenge, these issues are, to
me, inescapable drivers toward sustainable devel-
opment. Ultimately, of course, governments control
natural resource wealth and are responsible for
national development and social equity. However,
it may surprise people to know that progressive
companies in the energy industry recognize that
resource extraction must be balanced by lasting
contributions to the welfare and prosperity of host
countries, particularly those in the developing
world. Companies like mine are embracing princi-
ples of Corporate Social Responsibility (CSR), a
concept pioneered by the European Union and
sometimes used synonymously with sustainable
development. In the authors’ sustainable-value
framework, CSR could be another driver for sus-
tainability or a comprehensive set of responses to
the drivers that they identify. Either way, CSR
takes companies into new responsibilities for hu-
man rights, labor practices, community engage-
ment, and other activities that traditionally have
been the concern only of governments and civil
authority. The corporate role in these activities is
still controversial and in the formative stage, both
from the shareholders’ view and as a matter of
public policy. The authors’ sustainable-value
framework can easily be used to frame this active
Resource efficiency, environmental stewardship,
and social equity are large-scale, geopolitical
drivers external to the corporation. The author also
identifies a less-obvious intersection between sus-
tainability and a corporation’s internal need for
renewal and innovation. Any opportunity to exploit
disruptive change for competitive advantage is
clearly in shareholders’ interest. This article de-
picts sustainability as a vast field of opportunity
for technology innovation, product development,
and the opening of untapped markets. Any busi-
ness should be excited by such prospects, even if
it’s not persuaded by the authors’ other drivers.
Here again, the energy industry is at technology
thresholds around alternative fuels, transporta-
tion, and power generation. It isn’t a strategy of
energy multinationals to stifle these develop-
ments. The authors’ disruptive-change driver adds
nicely to the argument about why energy compa-
nies should embrace and lead the transformation
Energy multinationals are actively engaging all
the drivers for sustainability discussed in this ar-
ticle. The idea of sustainable value ties the drivers
together in a very accessible framework that
broadens the meaning of shareholder value. I will
refer colleagues to this article as a way to bring
separate discussions about sustainable develop-
ment onto the same page.
Joseph Caggiano is a strategy consultant for Chevron Texaco, with 17
years’experience in the energy industry. He advises on geopolitical
issues influencing corporate strategy and on organizational capa-
bilities needed for key initiatives. The views expressed in this
commentary are those of the author alone. Contact: JCAG@
2003 69Hart and Milstein