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Developing Sustainability Balanced Scorecards for Environmental Services: A Study of Three Large Portuguese Companies This article discusses a study that involved designing sustainability balanced scorecards for the environmental service units of three large Portuguese companies.

and social matters (Bieker & Gminder, 2001). For example, in the case of Novartis, an SBSC was first developed for the environmental services unit. This in turn triggered development of a corporate SBSC and an overall business sustainability strategy (Zingales & Hockerts, 2003).

Encouraging companies to

integrate sustainability into company strategy

Background The balanced scorecard (BSC), as proposed by Kaplan and Norton (1992), and modifications thereof, such as the sustainability balanced scorecard (SBSC), can serve as tools for integrating sustainability issues at the strategic level within companies (Bieker & Gminder, 2001; DiasSardinha et al., 2002; Figge et al., 2002; Johnson, 1998; Zingales et al., 2002). It is sometimes assumed that a well-defined corporate-level sustainability strategy is a prerequisite for SBSC development (Bieker & Gminder, 2001). In fact, however, the “bottom up” implementation of balanced scorecards within business units can actually encourage development of corporate strategies with respect to environmental

© 2007 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/tqem.20139

SBSCs and Value Creation A variety of sustainability balanced scorecard templates have been developed. The approaches differ in their definition of value creation. Kaplan’s (2003) environmental and social BSC template stresses that companies’ environmental and social initiatives and results should be evaluated on the basis of their contribution to longterm shareholder value, productivity, and growth

Idalina Dias-Sardinha, Lucas Reijnders, and Paula Antunes

Environmental Quality Management / DOI 10.1002/tqem / Summer 2007 / 13

strategies. This is in line with other authors such as Bieker and Gminder (2001) and Figge et al. (2002). According to this view, an environmental or social aspect can be considered strategic if it might contribute to (Reinhardt, 1999): •

• • • •

increasing customers’ willingness to pay more (e.g., product differentiation or eco-innovation); reducing costs (e.g., reduction of inputs or pollution prevention); improving management of business risk (e.g., reducing expected environmental costs); redefining markets (e.g., reducing customers’ disposal costs); or managing competition (e.g., setting standards).

Other SBSC templates evaluate results not only with respect to financial value creation, Little has been published on the but also on their condesign of SBSCs for companies that tribution to social and have no experience with the use of environmental value. business balanced scorecards and In this context, auno explicit sustainability strategy. thors often use the term “triple bottom line (TBL) value creation” (Amanco, 2003; Bieker & Gminder, 2001; Dias-Sardinha et al., 2002; Kaplan, 2003).

Study Overview

Motivation for the Study Little has been published on the design of SBSCs for companies that have no experience with the use of business balanced scorecards and no explicit sustainability strategy (Zingales et al., 2002). Even less has been written about the development and implementation of sustainability balanced scorecards for company environmental service units. In addition, there is little existing

14 / Summer 2007 / Environmental Quality Management / DOI 10.1002/tqem

literature on the sustainability performance of Portuguese companies.

Study Project In the study project discussed here, we designed sustainability balanced scorecards for the environmental service units of three large Portuguese companies. We adapted existing SBSC and strategy map templates, focusing on factors that are considered to be risks or benefits to business, environmental, and social value. We then further customized these templates to meet the needs of environmental service units. The three companies involved have achieved “beyond compliance” levels of environmental performance and are fairly similar in terms of their social-value activities and ambitions (Dias-Sardinha & Reijnders, 2005). All three are interested in sustainability but have no explicit corporate sustainability strategy. None of the companies currently has a sustainability department, or any other effective organizational structure that addresses environmental and social issues and their integration into company business strategy. The business units involved in this study have no previous experience with balanced scorecards. Two of the environmental services units are shared environmental functions, responsible for providing their services to other business units and sites within the organization, and covering all activities and all countries in which their companies operate. From the companies’ perspective, the expected benefits of SBSC implementation included the ability to report on sustainability within a Global Reporting Initiative format, and the possibility that development of SBSCs for environmental services might facilitate the introduction of sustainability into the company’s overall business strategy. In developing our sustainability balanced scorecard, we used as a template a modified busi-


ness balanced scorecard format (Dias-Sardinha et al., 2002). This template was then adapted to each company’s current performance status, as described in Dias-Sardinha and Reijnders (2005), and to the strategic context of each company. It was further customized through cooperation with a company team in which members of the environmental service units participated. Within the template structure, we also dealt with perceptions regarding value creation as it actually existed within the business units involved.

Research Questions The research questions addressed in this study were as follows: •

•

•

Are the social and environmental values created by company sustainability initiatives considered important for their own sake, or only important to the extent that they benefit business development and company profits? Is employment of a company-adapted and customizable sustainability balanced scorecard template and strategy map a useful format for generating a sustainability balanced scorecard for a company environmental services unit? Are the proposed template’s perspectives and categories of performance appropriate? What are the potential positive impacts of the sustainability balanced scorecard, and the major impediments to its further development, within the companies involved in our study?

About This Article The discussion below begins with a consideration of environmental, social, and sustainability performance evaluation within organizations. We then briefly describe how environmental services are handled at our study companies and

Developing Sustainability Balanced Scorecards for Environmental Services

discuss how we went about developing and customizing sustainability balanced scorecards for the participating organizations. We go on to discuss study outcomes at the three participant companies and describe our findings with respect to the research questions outlined above. We conclude with some general discussion of our study results.

Evaluation of Organizations’ Environmental, Social, and Sustainability Performance The environmental performance of an organization reflects how it interacts with the natural environment. Such performance can be defined in terms of the environmental impact or burden created by The sustainability performance of the organization’s acan organization is the aggregate of tivities, products, or its environmental, social, and services. economic outcomes. Similarly, the social performance of an organization reflects how its activities, products, or services interact with the social environment, particularly with the relevant direct stakeholders within that environment (Bennett, James, & Klinkers, 1999). The environmental management of an organization can be defined as encompassing mechanisms and actions (including the process of performance evaluation) that are designed to contribute to improvement of environmental performance (adapted from Mauser, 2001). The sustainability performance of an organization is the aggregate of its environmental, social, and economic outcomes. Sustainability performance generally reflects (at least in part) trade-offs among these domains. In this article, environmental, social, and sustainability performance are defined broadly to include management activities and outcomes.


Definition of Performance Evaluation Performance evaluation is a process that establishes the performance status of activities, products, or services. It includes data collection, measurement, analysis, comparison of results with predefined goals, and revision of the total process to better meet expectations (e.g., Bennett, James, & Klinkers, 1999; International Organization for Standardization, 1999; Mauser, 2001).

Internal and External Utilization of Performance Results Environmental, social, and sustainability performance evaluation within business organizations can take two main forms, depending on the way the rePerformance evaluation is a sults are used. process that establishes the In the first apperformance status of activities, proach, the perforproducts, or services. mance results might be used for internal company management purposes—that is, for managerial information, strategy evaluation, operational control, internal reporting, self-assessment, and internal benchmarking, with indicators, categories, and performance targets customized for each end user. The aim is to improve (directly or indirectly) the company’s environmental, social, and overall sustainability performance. Alternatively, the organization’s performance evaluation results may be reported externally or otherwise disclosed and may be benchmarked with respect to other companies.

Performance Evaluation Tools Multiple tools have been created for evaluating the environmental, social, and sustainability performance of companies. The main characteristics of these performance evaluation tools are:


• •

•

use of qualitative and/or quantitative indicators and indices, clustering of indicators into categories or classes and aspects (often leading to another level of aggregation that is subject to evaluation), and use of structural information that may be organized in frameworks.

As noted by Olsthoorn et al. (2001), concepts such as physical aggregation, impacts, and environmental categories are social constructs; their definition and content differ depending on the contexts within which they are identified. Many publications have proposed (and sought to develop) indicators and frameworks for environmental, social, and sustainability performance evaluation. These frameworks can be employed for multiple purposes, such as performance reporting (e.g., Global Reporting Initiative, 2002; Investor Responsibility Research Center, 1996; United Nations Environment Programme, 1994), product evaluation (e.g., Bennett, Hughes, & James, 1999; BUWAL, 1991; Heijungs et al., 1992), self-assessment (e.g., Eagan & Joeres, 1997), internal benchmarking, asset management, sustainable/responsible investment (e.g., Dow Jones Sustainability Indexes), and internal company performance evaluation. Exhibit 1 summarizes key characteristics of several performance evaluation frameworks set out in the relevant literature. The characteristics emphasized are those we considered the most relevant to our present research. This exhibit reflects the literature on the topic that has appeared since the early 1990s. A brief analysis indicates that, over this time period, the number and scope of categories has grown larger. Stakeholder categories have increased, and there has been an increase in joint performance evaluations with respect to social and environmental matters.


Exhibit 1. Key Characteristics of Company Environmental, Social, and Sustainability Performance Evaluation Frameworks, as Set Out in the Relevant Literature Authors (arranged by publication date)

Summary of Aims

Frameworks/Measurement Areas/Categories/Measurement Methods

Greenberg and Unger (1992)

Effective processes that ensure “good” environmental performance

• Key inputs: Personnel, equipment, methods, materials, physical setting, internal support and administrative functions, external groups, and feedback

Wells et al. (1992)

Environmental measurement throughout the company

• Process improvement measurement (existence and efficacy of management systems) • Environmental results measurement (emissions and waste) • Customer satisfaction (perceptions about environmental actions among buyers and stakeholders)

Piet (1994)

Suggestions of environmental indicators for companies based on performance levels proposed by the European Green Table in 1993

• Operational performance indicators related to materials, energy, water, emissions, incidents, and noise, as defined for companies on a case-by-case basis

Azzone et al. (1996)

Framework for environmental performance evaluation, which later was tested and modified by Young and Welford (1999)

• Environmental policy (21 key aims) • Environmental management system (economic indicators and noneconomic indicators on commitment, compliance, stakeholders, input, stock, and output) • “State of the environment” using Dobris (Stanners & Bourdeau, 1995) indicators: emissions, waste, energy, and transportation • Products, processes, and services (applying ecobalance impact categories)

Young and Rikhardsson (1996)

Environmental performance indicators for managerial control, strategic advantage, and performance reporting

• • • •

Ditz and Ranganathan (1997)

Conceptual framework to track corporate environmental and social performance

• Environmental: Materials use, energy consumption, nonproduct output, and pollutant releases • Social: Employment practices, community relations, ethical sourcing, social impacts of products

Marsanich (1997)

Characterization of environmental performance • Environmental management indicators: Investment, indicators (EPIs) from EMAS statements noncompliance, complaints, and general infrastructure • Environmental indicators: Physical quantities, emissions, waste, and energy use • Environmental performance indicators: Production, employees, or working hours • Potential effect indicators: Potential to cause environmental effects • Environmental effect indicators: Evaluation of environmental conditions

European Chemical Industry Council (CEFIC) (1998)

15 standard types of indicators on health, safety, and environment that chemical companies use to inventory and report corporate and site emissions

• Safety (fatalities, injuries at work) and occupational health • Environment: Emissions to water; emissions to air; wastes disposed to land; dispersal incidents; carbon dioxide emissions; fuel and energy

National Round Table on the Environment and the Economy (Canada) (1998)

Framework developed and tested in companies, based on the WBCSD eco-efficiency framework

• Materials intensity: Mass of products and by-products per material input • Energy intensity: Energy per service unit • Pollutant dispersion: Sum of mass times a weighting factor for all toxics used

Skillius and Wennberg (1998)

Suggestions for development of environmental performance management system

• Proposal for material accounting (inputs and outputs, energy, and water) • Translation of results into financial values

World Business Council for Sustainable Development (1998)

Suggestion for a set of eco-efficiency metrics. • Eco-efficiency form = value-added/environmental impact added Themes of eco-efficiency: Emphasis on • Main indicators on energy, materials, water consumption, service; focus on needs and quality of life; greenhouse gas emissions, and ozone depletion consideration of entire life cycle; recognition of the limits of eco-capacity; process view

Processes Product Financial Management

(continued)



Exhibit 1. Key Characteristics of Company Environmental, Social, and Sustainability Performance Evaluation Frameworks, as Set Out in the Relevant Literature (continued) Authors (arranged by publication date)

Summary of Aims


Spangenberg and Bonniot (1998)

Sustainability indicators for macro (country) and micro (business) levels, as well as interlinkage indicators

• Environmental indicators: Resource intensity and transport intensity; income creation; resource productivity of investments • Social indicators: Corporate human development index (CHDI) (quality of industrial relations and labor conditions, education, and income level and distribution)

AA1000 Framework (AccountAbility) (1999)

Conceptual management framework to improve ethical and social accounting, auditing, and reporting; standard intended to complement the Global Reporting Initiative guidelines

• Indicators on legal compliance; organizational values and objectives; reporting guidelines; internal and external benchmarking

Bennett and James (1999)

Conceptual model conforming to ISO 14031 but adapted to other issues (the environmental performance evaluation diamond)

• Environmental condition indicators: Receptors, sustainability, proxy/risk • Operational performance indicators: Services, energy and materials, facilities and equipment, emissions and waste products • Management performance indicators: Implementation, conformance, stakeholders, financial

Fiksel et al. (1999)

Framework for business to initiate continuous measurement and improvement of triple bottom line, guided by four principles and based on best reporting companies’ practices

• Triple bottom line leading indicators (business process) and lagging indicators (sustainability outcome)

ISO 14031 (International Organization for Standardization) (1999)

Standard for environmental performance • Environmental condition indicators evaluation, with a guide to selecting and using • Operational performance indicators indicators, and reporting significant aspects • Management performance indicators

Thoresen (1999)

Conceptual environmental performance evaluation for industries

• Product life-cycle performance • Environmental performance of manufacturing operations • Environmental conditions

Young and Welford (1999)

Internal assessment tool to encompass all of a company’s activities, referred to as an Environmental Performance Measurement Framework (EPMF); based on Azzone et al. (1996) framework and tested with four case studies

• Environmental policy • Environmental management system area: comparison with ISO 14001 and EMAS; indicators for compliance, commitment, and stakeholder issues • Processes, products, and services management areas • State-of-the-environment management area

SA 8000 (Center for Economic Priorities Accreditation Agency/ Social Accountability International) (2000)

International standard on requirements for social (workplace) accountability, including a verification system and public reporting provisions

• Ethical sourcing: child labor; forced labor; health & safety; union issues; discrimination; disciplinary practices; compensation; working hours; and management systems

Epstein and Wisner (2001)

Balanced scorecard (BSC) with environmental, health, and safety issues included in all perspectives

• • • •

Jung et al. (2001)

Measurement of corporate environmental • General environmental management performance using a framework called • Inputs (materials and energy) Gscore; based on petroleum company reports • Process/operations • Outputs (desirable and undesirable) • Outcomes (financial and nonfinancial)

Mauser (2001)

Framework for environmental performance evaluation based on empirical study from the Dutch dairy industry

Financial Customer Internal processes Learning and growth

• Environmental management indicators (policy and strategy, communication, organizational structure, management commitment) • Environmental performance indicators: ❖ Environmental operations indicators (regulation, procurement, technical processes and products, postproduction issues) ❖ Environmental impact indicators (energy, water, other)

(continued)



Exhibit 1. Key Characteristics of Company Environmental, Social, and Sustainability Performance Evaluation Frameworks, as Set Out in the Relevant Literature (continued) Authors (arranged by publication date)

Summary of Aims


Olsthoorn et al. (2001)

Standardized categories of environmental performance indicators based on literature review; tested within the Measuring Environmental Performance of Industry (MEPI) project (Tyteca et al., 2002)

• • • • •

Veleva et al. (2001)

Conceptual tool for evaluating the effectiveness of sustainability indicator systems with five levels of performance indicators: (1) facility compliance; (2) material use and performance; (3) effects; (4) chain and product life cycle; and (5) sustainable systems

Five evolutionary levels for categorization of 22 indicators on the basis of: • Energy and material use • Natural environment (including human health) • Economic performance • Community development and social justice • Workers • Products

Tyteca et al. (2002)

Quantitative EPIs for manufacturing to encourage standardization, based on data from six industrial sectors within six European countries, and on the Olsthoorn et al. (2001) model

• • • •

Azapagic (2004)

Framework of sustainable development • Categories and indicators in triple bottom line format indicators for the mining and minerals industry, • Sector-specific indicators based on the Global Reporting Initiative (2002) guidelines

Performance Evaluation That Focuses on Strategic Objectives From the business point of view, strategic objectives are key components for achieving the vision of the organization. These objectives help identify actions the company can take to differentiate itself from direct competitors or to enhance its business. The factors that drive environmental and socioeconomic management goals and activities within organizations have multiple origins. Among the most relevant traditional drivers for action are legislation, the need to respond to environmental accidents, and market pressure (Reinhardt, 1999). Empirical findings suggest that companies have become increasingly aware of inputs from a range of stakeholders, and that many organizations now go beyond their traditional focus on regulatory requirements (Madsen & Ulhøi, 2001). In addition, individual company leaders often


Business activity Environmental impact Productive efficiency Monetary aggregate Management effort

Physical indicators Business management indicators Business activity indicators Environmental impacts

seek to adopt policies that go beyond compliance (Prakash, 2001). Thus, there is at least some evidence that companies are beginning to view environmental and social matters as strategic. The first phase of strategic performance evaluation must focus on analysis of stakeholders’ interests. In this context, we note that research has been conducted to identify the internal and external driving forces that promote action on environmental and social matters (e.g., Ghobadian et al., 1998) and stakeholder management (Freeman, 1984; Grafé-Buckens & Hinton, 1998). The results of this research were used in the empirical part of our study but are not extensively discussed here.

Strategic Objectives and the Balanced Scorecard Strategic objectives are integrated into a balanced scorecard. The business balanced scorecard, which was first proposed by Kaplan and


Norton (1992), reflects company performance with reference to four perspectives: financial, customers, internal processes, and organizational learning and growth.

Strategy Maps In developing a BSC, it is useful to create a strategy map. Such a map indicates relationships among critical elements in the BSC and shows the perspectives used. Kaplan (2003) has developed a strategy-map template format that incorporates environmental and social aspects. The critical elements in a strategy map relate to key external pressures, internal capabilities, and constraints. These elements are summarized in Exhibit 2.

through addition of a fifth, nonmarket perspective (Figge et al., 2002); by integrating social and environmental issues into some or all of the four perspectives outlined by Kaplan and Norton (1992) (e.g., Bieker & Gminder, 2001; Epstein & Wisner, 2001; Figge et al., 2002); or through development of a specific sustainability balanced scorecard (Dias-Sardinha et al., 2002; Figge et al., 2002). In our study, we opted for a sustainability balanced scorecard that used the following four perspectives (Dias-Sardinha et al., 2002): •

triple bottom line (financial, social, and environmental) value creation, stakeholders (internal and external), processes/products, and learning and innovation.

The Sustainability Balanced Scorecard

• • •

The balanced scorecard can incorporate the three aspects of sustainability (financial, social, and environmental) in several different ways: by increasing the number of perspectives used

We adapted a template strategy map to the performance status and strategy context of each of the companies involved in our study. The main struc-

Exhibit 2. Critical Factors That Determine Companies’ Environmental and Social Strategic Objectives Critical External Pressures

Critical Internal Capabilities and Constraints

• Industry structure or market in which the company operates (e.g., competition, markets, products, type of customers, suppliers, prices of inputs)

• Economic characteristics and capital availability, including financial position of the company, costs of environmental/social management, tangible and intangible assets, firm-specific advantages, and company strategies (including, e.g., profits, market share, market strategy, degree of vertical integration, diversification, internationalization)

• Other forms of pressure and social expectations (from, e.g., nongovernmental organizations, trade associations, local communities) • Network in which the company operates (e.g., dependency relationships, product chains)

• Firm-specific human resources and capabilities (e.g., special green and social capabilities, new products/processes) • Organizational structure and adaptability

• Regulations, standards and norms, general requisites, and ongoing evolution in requirements the company must meet • Local/global environmental and social risks, impacts, and opportunities (e.g., local sensibilities, technology changes)

• Technological factors • Internal environmental and social risks, impacts, and opportunities • Leadership characteristics (e.g., style, commitment, concerns, objectives, reward structure) • Company traditions (e.g., predominant shared behaviors) • Company ethics

Adapted from Ghobadian et al. (1998) and Kolk (2000).



ture of the template SBSC that we used (with its performance categories) is shown in Exhibit 3.

Environmental Services at Our Study Companies The three companies involved in our study were EDP Produção, Lusotur, S.A., and Sonae Imobiliária. Our collaboration with these companies started in 2001 within the framework of an earlier study (Dias-Sardinha & Reijnders, 2005). Exhibit 4 describes the main characteristics of the three companies (which are business units of larger organizations). The environmental service units of Sonae Imobiliária and EDP Produção are shared functions that are responsible for providing their services to other business units and sites owned by their parent organizations, covering all activities of the company and all countries in which the company operates. There is no formal relationship between the environmental service unit and the strategic planning department (where it exists) within these companies. In Sonae Imobiliária, the responsibilities of the environmental service unit include institutional relations and communication. They do not include quality, worker health and safety issues, or social concerns.

At EDP Produção, the environmental service unit deals with matters of quality and local community relations, but not with other social matters (e.g., worker health and safety). Lusotur does not have a single environmental service department that serves the whole business unit. Instead, it has an environmental department at each site, which is also responsible for quality issues and worker health and safety matters. All of the study companies use the services of scientific and sectoral advisory committees on environmental matters. More information about each of the companies is included in the section entitled “Study Outcomes at the Participant Companies.”

SBSC Development Development of SBSCs for our study companies took place from January through November 2003. The process had two iterative phases, as described in the following sections.

Data Collection and SBSC Creation In the first phase, we collected the data necessary to adapt our SBSC template to each company’s strategic context and performance status. We also sought to create awareness about our

Exhibit 3. SBSC Template Main Structure (To Be Adapted for Each Individual Company) Perspectives Categories of Performance

Triple Bottom Line Value Creation

Stakeholders

Processes/Products

• Governance

• Business Ethics

• Management Structure • Synergy

• Compliance

• Labor Practices

• Management Systems • Training

• Environment

• Wider Society

• Tools

• Social

Learning and Innovation

• Research & Development

• Products and/or Transport

• Financial Aspects of Social and Environmental Matters • Sector issues



Exhibit 4. Companies Studied: Business Unit Characteristics in Brief EDP Produção (owned by EDP—Electricidade de Portugal, S.A.) • EDP—Electricidade de Portugal, S.A., is a Portuguese multinational holding company. It is a leader in the national electricity sector, and has extended its business activities to the telecommunications, information technology, and multiutility areas. • Within Portugal, EDP—Electricidade de Portugal, S.A., generates and distributes electricity through EDP Produção, which employs approximately 9,000 people and had revenue of 6,386,508 euros in 2002. • The companies comprising EDP Produção in Portugal own and utilize 57 hydroelectric stations, 6 conventional fossil-fuel power stations, 4 wind farms, 1 biomass power plant, and 2 cogeneration power plants, achieving a total in-service (operating) system capacity of approximately 7,600 megawatts (60 percent of national consumption in 2002), and serving 5,665,005 customers (2002). Lusotur, S.A. (owned by Planfipsa) • Lusotur, S.A., is the master developer of Europe’s largest privately managed seaside resort, Vilamoura, in the south of Portugal. The resort covers 1,700 hectares and includes a 1,000-berth marina, 3 kilometers of beaches, and 5 golf courses, among other facilities. • Vilamoura has around 10,000 villas, townhouses, and apartments. It accommodates 6,000 permanent residents and 450,000 visitors each year. • Lusotur, S.A., is also developing Belas Clube Campo (near Lisbon), a 460-hectare residential area with a championship golf course. Sonae Imobiliária (owned by Sonae SGPS) • Sonae SGPS, a multinational holding company, manages a portfolio of five subholdings: retail, industry, tourism, commercial centers, and multimedia. • Sonae Imobiliária is a leading European investor in, and developer and manager of, shopping and leisure centers. The company is very active in Portugal (where it has 50 percent of the market), as well as in Spain, Greece, Italy, Austria, Germany, and Brazil. • During 2002, its shopping centers received 377 million visitors. At year-end, its net asset value was 1,037 million euros.

project and encouraged involvement in the SBSC development process. After sending a working agenda to each study company, we arranged semistructured interviews. We then conducted these interviews with key people within each organization: EDP Produção’s head of environmental services, Lusotur’s environmental board representative, and Sonae Imobiliária’s technical head of environmental services. We also spoke with one or two environmental professionals at each service or site. The interviews covered several topics: business scenario analysis; stakeholder pressure; current company environmental, social, and business strategy practices and guidelines; and short-term strategic and operational objectives, initiatives, measurement methods, and performance targets. The interview results were supple-


mented with information from published research papers (including Dias-Sardinha & Reijnders, 2005) and company reports and documents. We prepared reports for each company containing strategic analysis results, a companyadapted SBSC, and a strategy map. The criteria used in clustering and filtering the objectives, measurement methods, and initiatives to be included in each company-specific SBSC were the following: •

•

urgency of action (that is, actual importance of factors with respect to the company’s path toward future profitability, social responsibility, and environmental soundness); saliency to the business unit, and to its environmental service unit and site departments (e.g., contribution to competitive advantage,


•

cost reduction, or achievable reduction of negative environmental impacts); and incorporation of leading and lagging indicators based on the DPSIR framework, which emphasizes driving forces of environmental change (D), pressures on the environment (P), state of the environment (S), impacts on the human population and ecosystems (I), and response indicators (R) (Smeets & Weterings, 1999).

We sent our completed reports to company participants for their comments.

SBSC Customization In the second phase, we customized the SBSC that was developed for each business unit in the first phase. The focus at this stage was on more accurately choosing, clustering, and filtering the specific strategic objectives, initiatives, measurement methods, and targets. We again conducted semistructured interviews, this time focusing on strategic decision making, as well as on operational matters and capabilities. In this phase, we spoke with a board member responsible for environmental matters at Lusotur, with two directors of business-unit environmental service units at Sonae Imobiliária and EDP Produção, and with the director of environmental services at Electricidade de Portugal, S.A, the parent company of EDP Produção. We also collected additional data that we found to be useful for SBSC customization (on subjects such as the parent company’s business strategy and environmental plans). In addition, we asked participants about the topics involved in our research questions. Based on their answers, we prepared a second, customized set of strategy maps and sustainability balanced scorecards, working with participants from each of the environmental service units.


Study Outcomes at the Participant Companies In the discussion that follows, we summarize the results of our SBSC development efforts at the three participant companies. The study interviewees saw the Portuguese sustainability-related regulatory context (that is, the requirements regarding environmental, health, safety, and labor issues) as similar to those of other European countries. However, interviewees reported that there is no systematic control and monitoring of compliance with the applicable laws. To the extent that control is present, two companies complained that it sometimes creates difficulties in their pursuit of environMain goals for all three companies mental improvement. included increasing shareholder The three compavalue, enhancing profitability, and nies represent different improving the quality of customer industry sectors and service. are of different sizes. They are, however, rather similar in terms of environmental and social operationalization issues (Dias-Sardinha & Reijnders, 2005). All stated that their missions were focused on becoming national and/or European business leaders. Main goals for all three companies included increasing shareholder value, enhancing profitability, and improving the quality of customer service. Business strategies were different for each company, and were specific to their industry sectors. The current business strategies of the two largest parent companies do not explicitly deal with environmental, social, or sustainability matters. Rather, these issues are addressed in specific policies or guidelines.

EDP Produção EDP Produção is a major producer and distributor of electricity in Portugal. At EDP Pro-


dução, the main external critical factors that might influence environmental and social strategic decisions are: •

•

• •

transition to a liberalized Iberian competitive electricity and gas market (as of July 2004) and to a new parent-company holding structure; sector and regulatory pressure related to requirements regarding renewable energy and carbon dioxide emission targets and trading; increasing competition among national production sites; and increasing customer pressure regarding product quality and quantity.

EDP handles environmental issues, worker health and safety, and other social concerns through a set of operational principles that guide production-site decision making.

A case can be made for viewing the development of sustainable energy supplies and investment in sustainability-related market differentiation (by offering energy-efficiency services and premium-products such as renewable energy) as matters for strategic decision making at EDP Produção. However, there is no indication that these matters are actually viewed as such at the company. Instead, EDP handles environmental issues, worker health and safety, and other social concerns (such as local community relations) through a set of operational principles that guide production-site decision making. At EDP Produção, the main environmental strategic guidelines concern certification of environmental management systems (EMSs) at fossilfuel and hydroelectric power plants, along with continuing preparation for meeting the requirements of the European Union’s Eco-Management and Audit Scheme (EMAS, 1993). Other objectives and initiatives included in the company’s balanced scorecard are cost reduc-


tion and optimization, increasing internal and external communication, sustainability reporting, maintaining a good company image, developing a sustainability strategy, and creating a clear sustainability functional structure. Social strategy is not formalized at EDP Produção, but company practice aims at compliance with worker health and safety requirements and prevention of detrimental health effects. In addition, at site level the company supports several initiatives involving local communities. The strategy map that we created for the environmental service unit of EDP Produção is shown in Exhibit 5. It reflects critical strategic objectives regarding environmental and social matters (and related financial aspects) under the four perspectives of the sustainability balanced scorecard. At the end of the SBSC development process, the representatives of the EDP Produção environmental service unit stated they were ready to start a pilot project aimed at implementing a sustainability balanced scorecard.

Lusotur, S.A. Lusotur, S.A., is the developer of Europe’s largest private seaside resort, and also has substantial interests in real estate. It is owned by Planfipsa, a major holding company. Several critical factors could potentially influence the strategic environmental and social decisions to be made at the Lusotur business unit: •

•

the change to a parent-company holding business structure, and consequent changes in investor pressure; the need to differentiate the company from competitors, operate in a manner that is acceptable to both customers and local environmental activist groups, and contribute to quality tourism in Portugal (to accomplish this, the company needs to maintain a good


Exhibit 5. Strategy Map for the Environmental Service Unit of EDP Produção

• •

•

image and achieve high visibility for its environmental activities); the need to maintain equilibrium between quality tourism and urban development; the need to enlarge and formalize environmental, social, and quality management within the business unit and in other business areas (e.g., real estate) at all organizational levels (e.g., the parent-company level); and the need to increase board-level awareness about issues relating to sustainability and company goodwill.

At Lusotur, implementation of an environmental strategy started in 2001 with certification of an EMS for its golf activities. Current annual objectives at the company include maintaining EMS certifications and recognition under the


Green Globe 21 program (a worldwide sustainability benchmarking and certification program for the travel and tourism industry), as well as the European Blue Flag eco-label (which covers marinas and beaches). Lusotur company targets for 2006 included establishing a shared environmental and quality function at the parent-company level and integrating the respective systems. By 2010, the company aims to have its environmental and quality management systems certified for all business units and activities. Lusotur’s social strategy is not formalized. Its current and future priorities focus on improving stakeholder dialogue and company transparency. The Lusotur board representative whom we interviewed did not want to implement an SBSC at the company in the short term. We did, how-


ever, work with representatives from two Lusotur site environmental departments on customizing the SBSC. Our efforts focused on what could potentially be implemented at each site. Exhibits 6 and 7 reflect the SBSC development efforts for the two Lusotur sites. These exhibits show, respectively, the second and fourth SBSC perspectives (stakeholders and learning/innovation). They include sustainability objectives, measurement methods, and initiatives.

Sonae Imobiliária Sonae Imobiliária is a leading investor in, and developer and manager of, shopping and leisure centers in Europe and Brazil. It is owned by Sonae SGPS, a multinational holding company. Sonae SGPS’s 2000 environmental policy (Sonae SGPS, 2002) stated that the company will evaluate its position as to sustainability and responsible practices and foster a periodic review of its environmental principles and strategic goals.

At the time of our study, Sonae Imobiliária had no formal sustainability strategy and no business strategy with respect to environmental and social matters. However, activities aimed at addressing these issues were taking place at the parent-company level. For instance, at the end of 2002, workshops were held in each of the business units to develop strategic thinking regarding sustainability and to implement the Sonae SGPS environmental vision (Baptista et al., 2002). At its workshop, Sonae Imobiliária proposed a sustainability strategy with the following elements: •

Develop and operate the business in an environmentally sustainable way. Contribute to stakeholder awareness about what the organization does regarding the environment and encourage contributions to this effort. Actively promote an image of environmental leadership that differentiates the organization from competitors.

•

•

Exhibit 6. Lusotur SBSC: Stakeholder Perspective (Potential Initiatives for 2006) What environmental and social aspects should the Lusotur business unit focus on and measure in order to meet the expectations of internal and external stakeholders regarding the company’s main environmental and social strategic objectives? Stakeholders

Objectives

Measurement Methods

Business ethics

• No objectives on this matter

Labor practices

• Increase satisfaction of employees

Wider society

• Extend current H&S standards • Percentage of suppliers/ to builders and suppliers builders that follow H&S • Maintain transparency and standards dialogue about activities • Publication of business • Contribute to local unit (golf) environmental/ community welfare social reports (yes/no) • Awards disclosure and marketing (yes/no) • Percentage of local community that report satisfaction

--

Initiatives --

• Percentage of employees that report positively about job satisfaction • Developed H&S policy (yes/no) • Worker turnover

• Develop H&S policy and planning • Establish survey on employee satisfaction (with regard to, e.g., safety, medical insurance, promotions, training, involvement in decision making, performance evaluations) • Develop extended H&S and environmental requirements for suppliers and builders • Analyze current survey results on local community satisfaction • Transform current EMS reports to environmental business unit reports • Define plan for contribution to local social support (e.g., donations, investment in community development)

Abbreviations: H&S = Health & Safety; EMS = Environmental Management System



Exhibit 7. Lusotur SBSC: Learning and Innovation Perspective What learning and innovation skills should the Lusotur business unit focus on and measure relevant to the company’s environmental and social strategies, and the financial aspects thereof? Learning

Objectives

Measurement Methods

Synergy

• Increase sectoral and environmental networking/ partnerships (e.g., with universities)

• Number and type of networks • Identify and participate in relevant and successful projects that projects regarding eco-social the business unit is involved in tourism • Exchange workshops on • Promote follow-up meetings results of EMS with partners (e.g., hotels) (yes/no)

Training

• Increase sustainable tourism • Percentage of employees with • Establish plans for personal training of employees (e.g., training skills development associated with in water quality management) • Raise awareness (through, performance evaluation • Increase awareness of e.g., meetings, surveys, mini- • Create awareness plan builders and homeowners manuals) (marketing) on “eco-building” and building improvements

Research & Development

• Promote adequate R&D projects

At the Sonae Imobiliária environmental service unit, critical factors that can influence environmental and social strategic decisions include the need to: • •

• •

•

•

continuously contribute to increasing the activities or assets of the business unit; maintain (and continuously improve) the company’s environmental and social image among shareholders and investors (particularly those participating in the organization’s recently created investment fund); enhance the company’s differentiation from competitors; contribute to fulfillment of the promises made by the chief executive officer of Sonae SGPS (e.g., the promise to issue a sustainability report in 2005); increase the business credibility of the organization’s environmental actions (e.g., by measuring the contribution of environmental activities to financial value creation within the company); and establish and formalize a sustainability service for the organization.


• Project development and demonstration (yes/no)

Initiatives

• Identify priority areas of interest for R&D (e.g., traffic, noise, waste, and effluent management)

The Sonae Imobiliária study participants stated that the company’s current environmental policy and social guidelines were particularly helpful in maintaining and extending joint ventures with the organization’s national and international partners. Environmental issues were also seen as being important to the creation of the recently established investment fund. Sonae Imobiliária’s environmental ambitions have been operationally supported by the implementation of noncertified EMSs for all company activities in all countries. In addition, the company has developed programs for eco-efficiency measurement, focusing on operational indicators. Sonae Imobiliária does not currently have a formalized social strategy, although a responsible person at each site manages social issues involving the local community. The company also is undertaking a study regarding social responsibility at the parent-company level. Sonae Imobiliária did not foresee implementation of an SBSC within the short term but did anticipate gradually implementing one in the future. SBSC customization at Sonae Imobiliária was based on the company’s environmental plan-


ning for 2004 (which received positive input from the SBSC development efforts that were carried out within the framework of this study). Parts of the SBSC developed for Sonae Imobiliária are shown in Exhibits 8 and 9. These exhibits deal with, respectively, the first SBSC perspective (triple bottom line value creation) and the third perspective (internal and external processes/products).

Findings on Research Questions • Are the social and environmental values created by company sustainability initiatives considered important for their own sake, or only important to the extent that they benefit business development and company profits? In the opinion of the participants involved in this study, environmental and social activities are mainly important to the extent that they The interviewees saw environmental benefit company busiand social management as an ness development and intrinsic part of “good” company profit, either directly management, necessary for the or indirectly. It was success and further development of also suggested that the their businesses. business sectors involved in the study (e.g., electricity and tourism) have a positive social value when contrasted with, for instance, the liquor industry. The interviewees also stated, however, that they did not need to translate all outcomes into financial values. A positive social effect (such as increased employment) could be seen as value creation in itself. With regard to the Sonae Imobiliária investment fund, participants noted that one-third of the factors affecting the fund’s investment decisions were based on nonfinancial information, including data on environmental, security, and health and safety issues.


Representatives of the study companies’ environmental service units viewed indicators such as audit results, impact measurements, and resource consumption as relevant data that should be communicated to company boards, irrespective of their contribution to financial value creation. This view derived from the participants’ perceived need to demonstrate internal efficiency, establish that financial and human resources were being correctly allocated, and justify continued operation of their environmental service units. The environmental service unit participants indicated a strong need to identify the contributions their environmental activities were making to financial value creation within the company. This task was considered very difficult to achieve. Overall, the interviewees saw environmental and social management as an intrinsic part of “good” company management, necessary for the success and further development of their businesses.

• Is employment of a company-adapted and customizable sustainability balanced scorecard template and strategy map a useful format for generating a sustainability balanced scorecard for a company environmental services unit? Are the proposed template’s perspectives and categories of performance appropriate? The study participants stated that using a customizable SBSC template and strategy map adapted to their companies seems useful in developing a company-specific SBSC because it reduces the amount of time they would need to devote to future SBSC development. The participants also noted that using the SBSC template and strategy map helped them get an overview of their current sustainability-related activities. This approach allowed them to identify “good” goals and pinpoint elements that potentially were missing from their programs. They


Exhibit 8. Sonae Imobiliária SBSC: Triple Bottom Line (TBL) Value Creation Perspective What are the key environmental and social matters, and the financial aspects thereof, that contribute to triple bottom line value creation and that Sonae Imobiliária should focus on, considering its main sustainability objectives? TBL Value Creation

Objectives

Measurement Methods

Initiatives

Targets (2004)

Leadership

• Be a leading business unit in sustainability for the shopping sector

• Number of defined environmental and social objectives/total business strategic objectives

• Establish annual • Sustainability integrated sustainability objectives into business strategy at strategic, planning, and project levels

Compliance

• Achieve conformity with national, international, and sectoral requirements, codes, and standards

• Number and type of • Inventory relevant compliance noncompliances that violations and penalties generate penalties incurred • Describe measures and expenditures applied to solving cases of noncompliance • Maintain systematic regulation forecasting

Environment

• Increase efficiency of resource use • Reduce emissions and waste produced by shopping centers

• Resource use and • reduction: Amount of energy used per year; amount of energy used per tenant/customer; • percentage of internal energy savings per year; water used per year • • Emissions and waste production and reduction: percentage of waste produced, recycled, reduced; hazardous/other per year

Social

• Enhance and • Percentage of stake• Survey relevant stake- • Achieve contact with [X] systematically promote holders with whom there holders (e.g., visitors, percent of stakeholders good brand image and is direct interaction local community, tenants, awareness among • H&S indicators (e.g., and NGOs) regarding stakeholders number and severity company image and • Promote motivation of employee stakeholder satisfaction among employees accidents; rate of (on, e.g., accessibility, • Maintain security and security incidents; comfort, urban H&S conditions in indoor air quality integration, business shopping centers parameters; number ethics, security, of H&S complaints) prestige, quality)

Economic

• Contribute to local sustainable development

• Local indicators of social • value (e.g., number of jobs and percentage of • local employment created by each shopping center per year; amount of taxes paid per year)

Sector issues

• Be innovative within the sector

• New type of shopping • Research to identify center with new needs and products /services consumption trends (e.g., home services) in shopping and new type of centers tenant mix

• Zero violations • Zero penalties

Maintain systematic • Institute representative inventory to calculate monitoring indicators for • Reduce environmental site/business unit burden by 33 to 75 percent Identify projects to reduce use of resources and eliminate pollution Define critical moments in the development and operation of a project

Define local • Information on 100 percent sustainability indicators of main partners at each Establish format for center evaluating contributions to local economy (through, e.g., employment and investment in infrastructure) --

The information in bold indicates elements that are not currently within the responsibility of the environmental service unit, but that are tasks for the business unit. Abbreviation: NGO = nongovernmental organization



Exhibit 9. Sonae Imobiliária SBSC: Processes/Products Perspective What internal and external processes should Sonae Imobiliária maintain with respect to environmental and social issues, and the financial aspects thereof, in order to achieve its main environmental and social strategic objectives? Processes

Specific Objectives

Measurement Methods

Initiatives

Management structure

• Consider integration • Proper fit of • Define and provide of EH&S management organizational resources for structure at site/ structure to integration of EH&S business unit sustainability structure management (yes/no)

Management systems

• Maintain and extend EMSs and, when necessary, improve implemented EMSs at site/business unit

• Number of EMSs implemented within the business unit

Tools and technology (e.g., communication, evaluation, marketing, benchmarking)

• Be at forefront with respect to best practices in the sector

• Established information • Standardize • Disclose information in all update system for communication countries where shopping reporting from all sites procedures and centers are in operation or to business unit (yes/no) intranet use under development • Number of internal and • Include sustainable external audits that objectives and results required corrective in periodic reports action • Develop plan for • Implemented new and implementation of effective best practices performance evaluation (yes/no) system • Define tool for systematic inclusion of stakeholder interests in new projects • Discuss business scenarios, including environmental considerations

Transport

• Promote reduction of local congestion and traffic due to each shopping center

--

• Implement improved systems

• Study traffic evolution

Targets --

• Implement [X] percent of EMS procedures (in 2004)

--

The information in bold indicates elements that are not currently within the responsibility of the environmental service unit, but that are tasks for the business unit. Abbreviation: EH&S = environment, health, and safety

also believed that this approach helped ensure that they were working in the “right” way. Participants stated that the performance categories used in the SBSC template (e.g., “governance,” “social,” and “environment”) were helpful, and even “logical.” However, participants thought that the second phase of the study (which stressed strategic matters) should have focused more on how environmental and social activities can contribute to financial value creation. Participants suggested that the SBSC template


needed a separate category to deal with business financial performance.

• What are the potential positive impacts of the sustainability balanced scorecard, and the major impediments to its further development, within the companies involved in our study? The environmental service unit personnel involved in this study were willing to participate in large part because they believed that the study’s


results might help increase interest in sustainability among top managers within their companies. Specifically, participants believed that the study project might be able to develop a sustainability performance evaluation tool that could help convince management to include sustainability among their companies’ business objectives. Participants perceived the sustainability balanced scorecard as having several potential benefits, including possible utility in designing a company sustainability strategy and reporting on sustainability under the Global Reporting Initiative guidelines, as well as providing evidentiary support for dealing with current and long-term sustainability issues. Participants also stated that they had realized several benefits from taking part in the study, including: •

•

•

clarification regarding how well environmental and social matters were integrated into current company practice; a better understanding of what sustainability is, what their companies have accomplished with regard to sustainability, and what is missing from their sustainability programs; and guidance on planning environmental service unit activities over the short term, along with help in establishing long-term sustainability objectives.

The interviewees suggested that they would take a careful, step-by-step approach to implementing SBSCs, stressing a need to maintain the right balance between achievements and procedures. Impediments to short-term implementation of the SBSC mentioned by participants included lack of interest on the part of company boards, shortage of qualified staff, and lack of the defined sustainability structure necessary to manage the SBSC tool.


Discussion of Study Results

Strategic Importance of Sustainability Issues Our first research question sought to understand the strategic importance of environmental and social issues within business organizations. We found that, among our sample companies, financial value creation was viewed as being far more important than environmental and social value creation, at least for purposes of business development. This aligns with the expectations of the World Business Council for Sustainable Development, of which one of We found that financial value our study companies creation was viewed as being far (Sonae) is a member more important than environmental (Sonae SGPS, 2002). It and social value creation, at least for also is in line with prepurposes of business development. vious findings regarding the performance status of these companies (Dias-Sardinha & Reijnders, 2005). However, our participants also stated that adequate management of environmental and social matters contributed to the evolving business strategy of their companies. This finding suggests that the format of the SBSC should be enlarged to include a separate category for business financial performance. This can be accomplished using the template format proposed by Kaplan (2003). Some may doubt whether development of a sustainability balanced scorecard for an environmental services unit can contribute toward integrating sustainability into company strategy. As pointed out by Orssato and Clegg (cited in Zingales et al., 2002), the power of company environmental departments typically is limited, and balanced scorecard implementation is not a guarantee that environmental or sustainability issues will be taken seriously by the organization’s leaders.


On the other hand, there is the example of Novartis (Zingales & Hockerts, 2003), where an SBSC developed for an environmental service unit was helpful in integrating sustainability into overall company strategy. The chief executive officers of the Sonae and EDP parent companies have expressed interest in corporate responsibility and sustainability reporting. Hence, their environmental service units are already faced with a need to design sustainability strategies and integrate environmental and social issues into business performance. Moreover, future market and regulatory developments may increase interest in sustainability at the company board level.

Usefulness of the SBSC Template and Strategy Map Our second research question asked about the utility of employing a company-adapted, customizable SBSC template and strategy map. We found that this approach can help solve one of the key problems inherent in SBSC implementation: the time needed for company staff to develop the scorecard. Apart from the perceived need to include a separate category for financial performance, the SBSC format we used (with its modified perspectives, performance categories adapted to performance status, and strategy context) was found to be adequate in dealing with the multiplicity of sustainability issues found within the study companies. This fits with the finding of Gminder and Bieker (2002) that it would be helpful to have a reference framework for classifying strategies, goals, and measurements based on their contribution to corporate sustainability. Such a framework is useful in analyzing the extent of company sustainability achievements and as a possible methodology for gradually implementing sustainability or social responsibility programs within corporations.


Acknowledgment The study discussed here was funded by the Fundação para a Ciência e a Tecnologia (FCT) [Science and Technology Foundation], Programa Operacional Ciência, Tecnologia, Inovação (POCTI) [Science, Technology and Innovation Operational Program], Portugal.

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Idalina Dias-Sardinha is a postdoctoral researcher at IN+, Center for Innovation, Technology and Policy Research, Technical University of Lisbon (IST), and professor of corporate social responsibility at the High Institute of Management (ISG), Lisbon, Portugal. She can be contacted as follows: Instituto Superior Técnico (IST), Center for Innovation, Technology and Policy Research, IN+., Av. Rovisco Pais, 1049-001 Lisboa, Portugal; phone: + 351 218 419 405; fax: + 351 218 496 156; e-mail: [email protected] Lucas Reijnders is a professor of environmental science at the University of Amsterdam (IBED) in The Netherlands. He can be contacted as follows: University of Amsterdam, IBED, Niewe Prinsengracht 130, 1098 VZ Amsterdam, The Netherlands; phone: +31 20 5256269; fax: +31 20 5255850; e-mail: [email protected] Paula Antunes is a professor of environmental management at the New University of Lisbon, Faculty of Sciences and Technology. She can be contacted as follows: Universidade Nova de Lisboa, Faculdade de Ciencias e Tecnologia, Departamento de Eng. do Ambiente, Quinta da Torre, 4º Piso, Gab. 439, 2825-114 Costa da Caparica, Portugal; phone: +351 21 2948300; e-mail: [email protected]

