Sustainable Practices in Italian Businesses: Environmental, Social and Economic Aspects 3031281764, 9783031281761

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SpringerBriefs in Environmental Science Fabiola Riccardini · Silvia Biffignandi · Samuel Ashong

Sustainable Practices in Italian Businesses Environmental, Social and Economic Aspects

SpringerBriefs in Environmental Science

SpringerBriefs in Environmental Science present concise summaries of cutting-­ edge research and practical applications across a wide spectrum of environmental fields, with fast turnaround time to publication. Featuring compact volumes of 50 to 125 pages, the series covers a range of content from professional to academic. Monographs of new material are considered for the SpringerBriefs in Environmental Science series. Typical topics might include: a timely report of state-of-the-art analytical techniques, a bridge between new research results, as published in journal articles and a contextual literature review, a snapshot of a hot or emerging topic, an in-depth case study or technical example, a presentation of core concepts that students must understand in order to make independent contributions, best practices or protocols to be followed, a series of short case studies/debates highlighting a specific angle. SpringerBriefs in Environmental Science allow authors to present their ideas and readers to absorb them with minimal time investment. Both solicited and unsolicited manuscripts are considered for publication.

Fabiola Riccardini • Silvia Biffignandi  Samuel Ashong

Sustainable Practices in Italian Businesses Environmental, Social and Economic Aspects

Fabiola Riccardini Department of Statistical Production Italian Statistical Institute Rome, Italy

Silvia Biffignandi Former Department of Economics Former University of Bergamo Bergamo, Italy

Samuel Ashong Department of Economics University of Bergamo Bergamo, Italy

ISSN 2191-5547     ISSN 2191-5555 (electronic) SpringerBriefs in Environmental Science ISBN 978-3-031-28176-1    ISBN 978-3-031-28177-8 (eBook) https://doi.org/10.1007/978-3-031-28177-8 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

1

 Sustainability Background and Literature��������������������������������������������    1 1.1 Introduction��������������������������������������������������������������������������������������    2 1.2 Defining Sustainability���������������������������������������������������������������������    4 1.3 Pillars of Sustainability (Identifying the Dimensions of Sustainability)������������������������������������������������������������������������������    5 1.4 The Different Structures of the Dimensions of Sustainability����������    7 1.5 Sustainability Initiatives and Indexes������������������������������������������������   10 1.5.1 A Short Historical Overview of the Sustainability Initiatives������������������������������������������������������������������������������   11 1.5.2 The Current State of Art��������������������������������������������������������   14 Bibliography����������������������������������������������������������������������������������������������   23

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 Developing a Synthetic Index of Business Sustainability ��������������������   27 2.1 Methodology for Composite Indicator����������������������������������������������   28 2.1.1 How Some of the Steps of Constructing CI Have Been Faced in the Research Context����������������������������������������������   32 2.2 A New Indicator for Measuring Businesses’ Sustainability ������������   34 2.2.1 Theoretical Framework and Variables Selection������������������   34 2.2.2 Data Treatment, Normalization, Transformation and Aggregation��������������������������������������������������������������������   47 2.3 Methodology for Analyzing Sustainability and Profitability and Productivity ����������������������������������������������������   55 Bibliography����������������������������������������������������������������������������������������������   57

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Application of the Sustainable Index: A Feature of Sustainability in Italian Businesses��������������������������������������������������������������������������������   59 3.1 Introduction��������������������������������������������������������������������������������������   60 3.2 Data and Source of Data for Our Analysis����������������������������������������   61 3.3 Sustainability Actions in the Italian Businesses�������������������������������   62

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Contents

3.4 The Sustainability ABR Index����������������������������������������������������������   66 3.4.1 Social Dimension- Internal, External, Safety and Security��������������������������������������������������������������������������   74 3.4.2 Size and Sector of Business��������������������������������������������������   75 3.5 Italian Businesses’ Contribution to the SDGs����������������������������������   77 3.5.1 An Elaboration of ISTAT Data Variables under the SDG Mapping ����������������������������������������������������������������   78 3.6 Comparing Indexes, Importance of the ABR INDEX����������������������   95 3.7 A Relationship Between Sustainability Level and Level of Profitability and Productivity��������������������������������������������������������   98 3.8 Synthesis of the Results��������������������������������������������������������������������  103 Bibliography����������������������������������������������������������������������������������������������  109 4

Appendix ��������������������������������������������������������������������������������������������������  111

Index������������������������������������������������������������������������������������������������������������������  153

Abbreviations

ABR INDEX CMEPSP

Ashong Biffignandi Riccardini Index Commission on the Measurement of Economic Performance and Social Progress ECI European Common Indicators ESG Environmental, Social and Corporate Governance ESI Environmental Sustainability Index EU European Union EU SDS European Union Sustainable Development Strategy EU SDIs EU set of Sustainable Development Indicators GPI Genuine Progress Index GRI Global Reporting Initiative HDI Human Development Index ISEW Index of Sustainable Economic Welfare ISTAT Istituto Nazionale di Statistica MDGs Millennium Development Goals NFRD European Union’s Non-Financial Reporting Directive OECD Organisation for Economic Co-operation and Development SDGs Sustainable Development Goals SPI Social Progress Index PSR Pressure-State-Response UN United Nations (UN) UNGC UN Global Compact WCED World Commission on Environment and Development (WCED)

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Chapter 1

Sustainability Background and Literature

Abstract  This chapter contains a descriptive form of sustainability on a macro and on a micro (i.e., business) level, and builds the theoretical framework for the analysis in the subsequent chapters. We introduce chapter one (1) with a brief history and direction of the concept of sustainability. The chapter involves a background and literature review of the concept of sustainability under the following heading: ‘defining sustainability’, ‘the dimensions/pillars of sustainability and the structures of the dimensions’, and ‘Sustainability Initiatives and Indexes’. The discussion under Sustainability Initiatives involves various old and current sustainability projects, frameworks, and/or guidelines in the literature. Building up this point is essential for our empirical study in this book because we will consider the main frameworks for measuring or promoting sustainability from the business perspective. The main frameworks for measuring business sustainability will be used to propose a simplified list of variables to measure and assess sustainability for Italian enterprises. Keywords  Micro and macro sustainability of businesses · Literature on businesses sustainability · Pillars of sustainability · Sustainability initiative and indexes for businesses · Main frameworks for measuring sustainability of businesses This chapter contains a description of sustainability on a macro and on a micro (i.e., business) level, and builds the theoretical framework for the analysis in the subsequent chapters. We introduce chapter one (1) with a brief history and direction of the concept of sustainability. The chapter involves a background and literature review of the concept of sustainability under the following heading: ‘defining sustainability’, ‘the dimensions/pillars of sustainability and the structures of the dimensions’, and ‘Sustainability Initiatives and Indexes’. The discussion under Sustainability Initiatives involves various old and current sustainability projects, frameworks, and/ or guidelines in the literature. Building up this point is essential for our empirical study in this book because we will consider the main frameworks for measuring or promoting sustainability from the business perspective. The main frameworks for © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Riccardini et al., Sustainable Practices in Italian Businesses, SpringerBriefs in Environmental Science, https://doi.org/10.1007/978-3-031-28177-8_1

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1  Sustainability Background and Literature

­ easuring business sustainability will be used to propose a simplified list of varim ables to measure and assess sustainability for Italian enterprises.

1.1 Introduction Sustainability is a complex and multifaceted concept. Most of the literature focuses on specific aspects of this concept and discusses it with respect to specific disciplines. In the past decades there were worldwide concerns that we were in the era where it was necessary to tackle growing environmental issues (Scoones, 2007). The concept of sustainability had earlier attention before the Brundtland Report or Stockholm Declaration days (Lanoie et al., 2011), and environmentalists back then focused on two major issues. These were the limits to earth’s natural resources and the dangers in continuous demand growth because of the high population growth. In the study on the limits of our natural resources and growth, Meadows, et al. (1972), commissioned by the Club of Rome,1 using the results from computer simulation found that “the limits to growth on earth would become evident by 2072, where will have a sudden and uncontrollable decline in both population and industrial capacity”. The report showed that the world will face a rapid decline in industrial output, food, services and even population after these have reached a peak. This brought the discussion of ways to address the problems to come. Natural scientists and ecologists of the nineteenth century called for the conservation of our natural resources for sustainable consumption (Callicott & Mumford, 1997; Caradonna, 2014; Du Pisani, 2006; Lumley & Armstrong, 2004; McCormick, 1986). Caradonna, (2014) notes that economists, such as Smith and Ricardo, also voiced out the need for sustainable consumption, questioning the limits of economic and demographic growth. Thus, the belief of the environment or natural scientist was that economic growth is equated to undesirable environmental effects. Early formal discussion about these issues dates back to the UN Conference on the Human Environment held in Stockholm in 1972. This event was an attempt to raise the need for the preservation and enhancement of the human environment (Stockholm Declaration, 1972). Addressing these concerns, the need to integrate economic growth while ensuring that we protect the environment and promote social equity was established (Elkington, 1999). Thus, the concept of sustainability, which has become a buzzword in the twenty-first century, was introduced. The concept of sustainability during the late twentieth century took on the label Sustainable Development. The term ‘sustainable development’ was used in the report by the United Nations (UN) World Commission on Environment and Development (WCED) in 1987. The definition given by the WCED was that “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to  The Limits to Growth: A Report for the Club of Rome’s Project on the Predicament of Mankind, Meadows D.H., Meadows D.L., Randers J., Behrens W.W., MIT 1972 1

1.1 Introduction

3

meet their own needs” (Brundtland Report, 1987). The report by the commission provided guiding principles for governments to have a structural approach in tackling alarming environmental issues, and the contributions coming from the different parts of the world. It is stated in the report- also known as the Brundtland Report, that “critical global environmental problems were primarily the result of the enormous poverty of the South and the non-sustainable patterns of consumption and production in the North”. This may signal that every part of the world was contributing to the issue, and for this reason, governments needed the structural approach to the issues at hand. Following the report by the WCED, 172 nations met in Rio de Janeiro at the United Nations Conference on Environment and Development (UNCED) in 1992. The meeting took place to help seek solutions to the growing environmental, economic, and social problems. This paved the way for increased adoption for sustainable development around the world (Rio de Janeiro, 1992). The Sustainable Development Goals (SDGs) and the European Union (EU) Strategy for Sustainable Development are examples of the new deal about the sustainability issue. In 1997, the EU Council during the Amsterdam Treaty set sustainable development as one of its priorities. The Council therefore included it in its policies as one of its fundamental objectives, from which the first EU strategy for sustainable development was launched. Following these events countless number of seminars, publications and initiatives have been done and are currently taking place. Just to quote some of the famous works: Gurría (2008), Stiglitz et al. (2009), Stiglitz et al. (2018), UNSD KOSTAT (2016), and Biamah et  al. (2013). Most of these are discussed under par.1.5 Sustainability Initiatives and Indexes. After the Stockholm days a new belief emerged that economic development and environment management must go hand in hand as a necessity to have a sustainable society. The current study aims to use the concept of sustainability as the integration of environmental management, social progress, and economic growth to promote well-being. The direction of sustainability study follows the macro and micro levels, where the macro level focuses on the global, national, or regional scale. This involves works by organizations like the United Nations (UN), the Organization for Economic Co-operation and Development (OECD), the European Union (EU), or government agencies whose focus is on the macroeconomic, or macro dimensions setting. Examples include European Common Indicators (ECI, 2003), the UN Sustainable Development Goals (SDGs), the Environmental Sustainability Index, among others. Sustainability studies under the micro dimensions setting focus on the behavior of businesses (Büyüközkan & Karabulut, 2018; Riccardini et al., 2020), and households or individuals (Waitt et al., 2012), regarding the protection of the environment and ensuring social equity and economic growth. The ultimate goal in the sustainability discourse is to promote well-being. This goal is currently being measured by the SDGs that describe the destination we are heading towards. Before the SDGs were edited, the approach to sustainability development was shifting from the focus on environmental management to well-being. Where sustainable well-being is

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“understood as the balance defined by the coexistence of the levels of vulnerability and resilience that a country or group show that they have respect for loss/maintenance of levels of well-being” Riccardini et al. (2016). In this regard, sustainability can be measured by the ability to identify the risk factors that threaten current levels of well-being achieved, and the factors that allow restoring levels of well-being following adverse shocks. The risk factors or vulnerabilities, along with the resilience (capitals and capabilities) are identified and measured using a set of indicators. Recently some experts of OECD, Siegerink, Shinwell and Zanic, produced a paper for a measurement framework of non-financial performance of firms that takes into consideration their Well-being Framework (Siegerink et  al., 2022). In doing this they try to combine the macro-level with the micro-level for sustainability assessment. A framework of sustainability that combines macro-level and micro-level for sustainability assessment is important because it provides a way to assess the contribution of micro agents of economic development to the goal of global sustainability as measured by the SDGs. The introduction above presents a brief history of the buzzword- Sustainability, which gained prominence starting with the concern for growing environmental issues and ways to tackle it, and down to the wellbeing approach. Continuing this chapter, we shall discuss the meaning of the concept, and the various major initiatives promoted to tackle concerns of sustainability.

1.2 Defining Sustainability The literature reports various definitions of the concept of sustainability. All have a common foundation, the definition of the concept according to the 1987 Brundtland Report: sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. The sustainability concept can be approached under two perspectives: the macro and micro perspective. In the macro setting sustainability is viewed as sustainable development and involves all the socio-economic agents. The definition of the concept under the macro setting can be viewed as a generalized expression on the use and protection of natural resources and the interactions between humans and the environment. The definition of the concept under the micro setting of sustainability concept is a more specific view of sustainability involving a socio-economic agent. If we consider businesses only, we focus on the micro setting of sustainability concept. It must be observed that anyway the micro setting perspective contributes and impacts on the macro setting perspective. Hereunder we report a few definitions of sustainability representing the different perspectives presented in the literature:

1.3  Pillars of Sustainability (Identifying the Dimensions of Sustainability)

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Reference paper: Mihelcic, J. R., Crittenden, J. C., Small, M. J., Shonnard, D. R., Hokanson, D. R., Zhang, Q., Chen, H., Sorby, S. A., James, V. U., Sutherland, J. W., Schnoor, J. L. (2003). Sustainability science and engineering: the emergence of a new metadiscipline. Environmental science & technology, 37(23), 5314–5324. Hall, J. K., Daneke, G. A., & Lenox, M. J. (2010). Sustainable development and entrepreneurship: Past contributions and future directions. Journal of business venturing, 25(5), 439–448.

Sustainability meaning: “Sustainable development is defined here as the design of human and industrial systems to ensure that humankind’s use of natural resources and cycles do not lead to diminished quality of life due either to losses in future economic opportunities or to adverse impacts on social conditions, human health, and the environment”, (Mihelcic, et al., 2003) “Sustainable development implies that renewable resources should be used wherever possible and that non-renewable resources should be husbanded (e.g., reduced and recycled) to extend their viability for generations to come. This intergenerational aspect of sustainable development suggests a confluence of diverse social, environment, and economic objectives and raises a number of important questions”, (Hall, et al., 2010). Spangenberg, J. H., & Bonniot, O. (1998). “Sustainability is a composite phenomenon policy, Sustainability indicators: a compass on the comprising of environmental, economic and social road towards sustainability (No. 81). criteria with equal importance” (Spangenberg, Wuppertal Papers. Bonniot, 1998). Ameer, R., & Othman, R. (2012). “Sustainability is concerned with the impact of Sustainability practices and corporate present actions on the ecosystems, societies, and financial performance: A study based on environments of the future”, (Ameer, Othman, the top global corporations. Journal of 2012) business ethics, 108(1), 61–79. Pissourios, I. A. (2013). An “In its loosely form sustainability is referring to the interdisciplinary study on indicators: A triptych: environment–society–economy, while comparative review of quality-of-life, there is always the narrower interpretation of its macroeconomic, environmental, welfare concept, in which sustainability focuses only on the and sustainability indicators. Ecological environmental aspect”, (Pissourios, 2013). indicators, 34, 420–427.

1.3 Pillars of Sustainability (Identifying the Dimensions of Sustainability) Sustainability is a complex phenomenon, and this is because of the multidimensionality of the concept. To fully measure such a complex phenomenon, all the elements that combine to explain the idea must be explored. Therefore, many authors try to identify the elements of the dimensions of the concept of sustainability or sustainable development. The most diffused approach to sustainability considers 3 main dimensions (called basic pillars): environment, social and economic. Depending on the type of research that was performed, some authors have provided more than the 3 dimensions. Examples of publications that analyzed sustainability beyond the 3 basic pillars include works by Singh et al. (2007), Choi and Sirakaya (2006), and Seghezzo (2009). Singh et al. (2007) in their work titled ‘development of composite

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1  Sustainability Background and Literature Inter-generational justice

Sustainability Permanence

y Intra-generational justice

Persons

Place z x

Identity, happiness

Source: Seghezzo, 2009

Fig. 1.1  The Five Dimensions of Sustainability depicted by Seghezzo (2009)

sustainability performance index for steel industry’, introduced 5 dimensions of sustainability. These five (5) dimensions were environment, economic, society, organizational governance, and technical aspects. Seghezzo (2009) also introduced 5 dimensions of sustainability: 3 dimensions of space, a time dimension, and a human dimension. Seghezzo (2009) had a more philosophical approach in identifying the dimensions of sustainability. The 3 dimensions of space, however, form a single dimension of intra-generational justice. Thus, regardless of the 5 dimensions stated, all can be fitted into 3 main dimensions of sustainability (intra-generational justice, inter-generational justice, and human happiness). He explains his conceptual framework of the dimensions of sustainability as: (see as depicted in Fig. 1.1). “I propose a sustainability triangle formed by ‘Place’, ‘Permanence’, and ‘Persons’. In such a triangle, it is possible to distinguish five dimensions: Place contains the three dimensions of space (x, y, and z), Permanence is the fourth dimension of time (t), and the Persons corner adds a fifth, individual and interior, human dimension”

In the mist of the different dimensions of the concept, the widely accepted approach to define the dimensions of sustainability is the three pillars approach of sustainability, i.e., environment, social and economic, as previously stated (Elkington, 1999; Purvis et al., 2019). There is a fourth dimension which in some cases may be represented in one or two of the three dimensions. This dimension is governance, which is presented in the corporate Environmental, Social and Governance (ESG) criteria as a separate dimension. The integration of the dimensions of sustainability together is the solution to achieving sustainability.

1.4  The Different Structures of the Dimensions of Sustainability

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1.4 The Different Structures of the Dimensions of Sustainability The dimensions of sustainability have been conceptualized under different structures. The first is the idea that these dimensions are disjoint but complement each other in defining the concept of sustainability. The second structure is where the dimensions are seen to be interlinked, (Purvis et al., 2019). Figure 1.2 shows examples of the structures of the dimension. In other literature, the dimensions of sustainability are presented in a pyramid structure. In this setting one dimension is positioned as the base/ foundation on which the others fall on. Working on the social dimension of sustainability, Boyer et al. (2016) provided some approaches to understand the connection between the social dimension of sustainability to the environmental and economic dimension. One of the approaches they presented is that social sustainability can be understood as a foundation for the other dimensions of sustainability (Fig. 1.3). The idea that the dimensions of sustainability may be distinct can be linked to the different approaches adopted in the literature in studying the phenomena. It has been a common practice by some researchers to study for example the environmental or social aspects separately (Bakos et al., 2020; Dempsey et al., 2011). Kaivo-oja et al. (2014) found a strong negative correlation between human well-­ being (a social dimension indicator) and environmental well-being. Another work by Riccardini et  al. (2020) found positive correlations among the dimensions

Fig. 1.2  The structures of the dimension of sustainability

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SUSTAINABILITY

Economic sustainability

Environmental sustainability

Social sustainability

Source: Boyer et al., 2016

Fig. 1.3  Social sustainability as a foundation for other priorities of sustainability

looking at the activities of firms. It is evident that these types of analyses provide a way of viewing this heterogeneous system of indicators as interlinked. The connection among the dimensions as we have discussed is hence faced with some colloquy. They may be distinct, constraint to each other, interconnected, or even have a causal relation. The structure of the dimensions of sustainability (i.e., interlinked, distinct, etc.) in any study will depend on some evidence obtained by a careful analysis of the association among the dimensions. The analysis can be done using for example a correlation analysis. The Sustainable Society Index (SSI) for instance approaches sustainability as a distinct structured concept. We see this because the dimensions (Human well-being, Environmental well-being, and Economic well-being) for the Sustainable Society Index (SSI) were strongly recommended not to be joined to obtain a single sustainability index. In fact, the JRCs (Joint Research Center) final recommendation during the constructing of the SSI was that the components should not be aggregated into an overall index, but instead the focus should be on the individual SSI categories and the Well-being dimensions (Saisana & Philippas, 2012). This conclusion was because of the analysis of the association of the categories/ dimensions of SSI (Kaivo-oja et al., 2014; McGguinn et al., 2020). For example, a negative correlation was found between the components/dimensions, human well-­ being, and environmental well-being. Regardless of the different ways of treating the concept of sustainability (i.e., interlinked, distinct, etc.), it must be kept in mind that the concept of sustainability

1.4  The Different Structures of the Dimensions of Sustainability

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deals with the 3 dimensions (environment, social, and economy), and the analysis of their interrelations. In our opinion it must be observed that if we analyze only a single dimension, we are not dealing with the concept but rather just the dimension under study. Our work tries to give evidence that it is necessary to consider all together the dimensions of sustainability. Dealing with the elements of the dimensions of sustainability, certain criteria are considered when focusing on determining what makes up the various dimensions of sustainability. The elements or composition of the dimensions of sustainability are not fixed items but are influenced by the area of study. There may be some general elements or variables that are common in sustainability studies, like carbon footprint, waste generation and management, to mention a few. However, elements of sustainability should follow some criteria. The criteria include: –– a critical review of the literature. It is important to understand the economic theory behind the area for which the concept is being studied. Understanding questions like- ‘which sector am I analyzing?’, ‘which geographical area is under consideration and what indicators are practical?’, is very important. –– understanding that there is industry or site-specific features that influence the choice of indicators. Some elements of sustainability that apply to one sector or industry may not necessarily be adequate in another sector. It is also important to consider the measurability and adoptability of the set of indicators of sustainability that we choose for any field of study (Bell & Morse, 2012; UL Haq & Boz, 2018). The following studies provide examples of the application of the abovementioned criteria to determine what makes up the elements of the dimensions of sustainability. UL Haq and Boz (2018) in their study identified a set of indicators to measure sustainability of tea cultivating firms in Rize province of Turkey. The first step was to review the literature on sustainability of farms. This step provided them with the grounds to identify potential set of indicator variables. They argue that the tea farm has different physical and geographical conditions. Therefore, it was appropriate to develop indicators for the tea farm by looking at the site-specific features. Indicator variables they found for the social dimension include gender equity, education level, farmer’s age, and old age index. For the economic dimension, they found gross margin, value addition per unit of land, labor productivity, land productivity, benefit cost ratio, technical and economic efficiency. Quality of chemical fertilizer per unit of land, and eco efficiency are two significant indicators for the environmental dimensions that UL Haq and Boz (2018) found. Examples of other studies that identified industry or site-specific set of sustainability indicators or elements of dimensions of sustainability are, in the steel industry (Singh et  al., 2007), in the automotive industry (Amrina & Yusof, 2011), in tourism (Perez et  al., 2013), and in the information technology services (Yadav et al., 2017).

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1.5 Sustainability Initiatives and Indexes Over the past decades, various initiatives have been established to promote sustainability, and activities surrounding the concept. A global consensus on sustainable development has followed since the days of Stockholm, Brundtland, Club of Rome, Millennium Development Goals, the Stiglitz-Sen-Fitoussi Reports and, recently, the Sustainable Development Goals. These initiatives have formed a solid road map proving how far the discussion on sustainability development has come. The macro level initiatives (e.g., SDG) cover a wide range of ideas and practices to be adopted by governments and international bodies, (e.g., the UN) to ensure we reach the goal of a sustained world. In addition, some well detailed sustainable variables have been provided to measure and monitor our sustainable practices. An example is the 17 SDG goals, and the 169 targets that when vigorously followed could ensure the goals set out in the SDG are met. Given that we have a vast set of indicator variables from a lot of initiatives, it makes sense to measure the progress of sustainability or any aspect of sustainable development. This is the reason for the creation of an index that synthetizes the level of a phenomenon. In sustainable development, various indexes that measure all or some of dimensions of sustainability have been developed. For example, the Genuine Progress Index (GPI) is a sort of “beyond GDP” measure designed to account for the well-being of a nation, by incorporating environmental and social factors, which are not measured by the traditional GDP. Another index is the Index of Sustainable Economic Welfare (ISEW), which sorts to estimate the sustainable economic welfare of a country (Lawn, 2003). The UN development report’s Human Development Index (HDI)2 (UN HDI, 2021), or the 2010 Inequality-adjusted Human Development Index (IHDI), see Alkire and Foster (2010), are indexes of human development and well-being used to rank countries for their human development. These indexes may be assigned to the social and economic dimensions of sustainability as they capture relevant elements of our social and economic well-being. On the environmental side we have the Environmental Performance Index (EPI) or the Environmental Sustainability Index (ESI)3 (ESI, 2005), or the Environmental Vulnerability Index4 (Barnett et al., 2008), among others. These indexes measure the performance of a country’s policies toward the performance of good environmental practices and were designed to supplement the environmental targets set forth in the United Nations Millennium Development Goals (MDGs).

 The UN Human Development Index. http://hdr.undp.org/en/content/human-development-indexhdi. Accessed 25th March 2021. 3  Environmental Sustainability Index (http://sedac.ciesin.columbia.edu/es/esi/index.html) (2005) Yale Center for Environmental Law and Policy Yale University, New Haven and Yale University Center for International Earth Science Information Network Columbia University 4  Linked to Barnett et al., 2008. https://www.tandfonline.com/doi/abs/10.1080/00045600701734315 Accessed 28th March 2021 2

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The Social Progress Index (SPI) is another index that measures well-being of society and the extent to which countries provide for the social and environmental needs of their citizens, along with the Sustainable Society Index5 (Van de Kerk & Manuel, 2008), and the Canadian Sustainable Index.6 The limit of these indexes is they  focus on partial  dimensions,  do not have a stable analytical framework and they can go in different directions. Among other sustainability indexes, for businesses there are indexes developed by third-party reporters. They have the aim of assessing the degree of sustainability reached by business or the all the business system by considering some aspects or factors. Examples include, the FTSE4Good Index, Carbon Disclosure Project (CDP) Index, MSCI ESG Indices, United Nations Global Compact 100 (GC 100), ECPI Ethical indexes, Sustainalytics ESG Rating, Dow Jones Sustainability Index. We introduce below some initiatives of sustainability with a short historical overview.

1.5.1 A Short Historical Overview of the Sustainability Initiatives 1.5.1.1 Organization for Economic Co-operation and Development (OECD) Initiatives The initial concern on sustainability was the environmental issues, and because of this the Environment Ministers of OECD member countries, in January 1991, called on the OECD to start environmental performance reviews of member countries. The OECD Environmental Performance Reviews program was adopted, which provided independent assessments of countries’ progress in achieving its environmental policy commitments. The framework used in the assessment program is the Pressure-­ State-­Response (PSR) approach (see Fig.  1.4) as a framework for environmental performance review based on the concept of causality (OECD, 1991, 1993). The approach identifies “Pressures”, “States” and “Responses”. “Pressures” are such as environmental or social consequences of human activities (e.g., extraction and use of resources, climate change, and land use patterns). “States” identifies the environment and natural resources that are impacted by human activities, and “Responses” are the policy actions for alleviating pressures and improving quality (Li et al., 2021). Subsequent years, the OECD has undergone several initiatives to promote measurement and progress of sustainability and well-being. For example, the OECD launched its “Better Life Initiative” in 2011 based on a framework that is closely

 A comprehensive index for a sustainable society: The SSI — the Sustainable Society Index by Van de Kerk & Manuel, 2008. https://www.napawatersheds.org/img/managed/Document/3470/ VandeKerk2008%20AComprehensiveIndex4ASustainableSocietyTheSSI.pdf Accessed 6  Online home page of the Canadian Sustainability Index. https://www.canada.ca/en/environmentclimate-change/services/environmental-indicators.html. Accessed 5

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12 PRESSURE Indirect pressures and drivers

Direct pressures

STATE

RESPONSE

Information

Environment and natural resources

Human activities

Energy Transport Industry Agriculture Others

Pollution waste

Resources [Production consumption, trade]

Economic, environmental and social agents

Conditions Information Air and atmosphere Water Land and soll Wild life and biodiversity Other natural resouces Others:human health, amenities,... Societal responses (Intentions-actions)

Administrations Households Enterprises Sub-national National International

Societal responses (Intentions-actions)

Source: OECD (2013), Framework of OECD work on environmental data and indicators

Fig. 1.4  The OECD Pressure-State-Response (PSR) Model. (Source: OECD (2013), Framework of OECD work on environmental data and indicators)

aligned to the recommendations of the Commission on the Measurement of Economic Performance and Social Progress (CMEPSP) report. The CMEPSP was established under former French President Nicolas Sarkozy in 2007, and chaired by Joseph E.  Stiglitz, Amartya Sen and Jean-Paul Fitoussi, that came out with the Stiglitz Sen Fitoussi Report in 2009 (Stiglitz et al., 2009). Other initiatives under the OECD include “Measuring Business Impacts on People’s Well-being” in 2017, and ‘Green growth and sustainable development’-which has it early beginning in 2011 with publications such as OECD Towards Green Growth (May 2011) and ‘Towards Green Growth: Monitoring Progress. OECD Indicators’,7 (OECD, 2011). 1.5.1.2 The World Bank, Monitoring Environmental Progress A step forward in the monitoring process, the World Bank published a set of environmental indicators specifically focusing on the applicability in policy development. The idea was to compile indicators that would assist for environmentally sustainable development. These were sorted following the OECD ­Pressure-State-­Response scheme; however, they provided additional information and were more comprehensive. Indicators linked to their targets were termed performance indicators (The World Bank, 1995). Other initiatives of the World Bank

 A publication that provided measurement tools, including indicators, to support countries’ efforts to achieve economic growth and development, while ensuring that natural assets continue to provide the resources and environmental services on which well-being relies. OCED (2011). 7

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include: 1.  the Global Program on Sustainability- an initiative to promote use of high-quality data and analysis on sustainability for better decision making, 2. the World Bank Group’s Environment Strategy- a strategy for clean, green, resilient world for all, and 3. the World Bank Environmental and Social Framework (ESF), among others. 1.5.1.3 UN Department of Policy Co-ordination and Sustainable Development The United Nation Department of Policy Co-ordination and Sustainable Development (DPCSD) was established in 1993, in response to the mandates of the UN Conference on Environment and Development held in Rio de Janeiro in June 1992 (Flanders, 1997). The United Nations DPCSD developed its program on the development of sustainability indicators partly using the OECD’s PSR-system as a starting point and broaden its scope just as the World Bank did, by adding nonenvironmental dimensions of sustainability. The so-called DSR (Driving force  State -Response) scheme was the result of such a development. 1.5.1.4 European Environment Agency The European Environment Agency (EEA) is the agency of the European Union (EU) which provides independent information on the environment. The European Union has a similar framework as that of the UN DPCSD.  This is the DPSIR (Drivers, Pressures, State, Impact and Response model of intervention) developed in 1995 by the European Environment Agency (EEA, 1995), which is also an extension of the PSR (Pressure-State-Response) model developed by OECD. The goal of this framework was to help those involved in developing, implementing, and evaluating environmental policy, and to inform the public. 1.5.1.5 European Common Indicators The European Common Indicators (ECI): ‘Towards a Local Sustainability Profile’ is a report developed by the Ambiente Italia Research Institute in 2003 for the European Commission (ECI, 2003). The European Common Indicators is a local sustainability monitoring initiative for evaluating and comparing the sustainability of the policies of various local authorities. This led to the creation of the 10 (harmonized) common indicators starting from Citizens’ satisfaction with the local community as indicator number one, to the tenth indicator, products promoting sustainability.

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1.5.2 The Current State of Art Historically, we notice that most of the initiatives to address “sustainability” was inclined to the environmental aspect. Eventually, a far more comprehensive approach was given to many initiatives, taking into account all facets of sustainability. We discuss below some current initiatives, some of them are on general level, others on business level. 1.5.2.1 General Level Initiatives EUROSTAT Sustainable Initiatives Under the European Union (EU) and reported by the Commission (EUROSTAT), the works under sustainability before the adoption of the SDGs included the EU Sustainable Development Strategy (EU SDS), and EU set of Sustainable Development Indicators (EU SDIs). The EU published its progress on sustainability development in bi-annual reports series of “monitoring report of the EU sustainable development strategy” which came out under the heading “Measuring progress towards a more sustainable Europe” for its 2007 version, then subsequently followed by “Sustainable development in the European Union”8 (EUROSTAT et al., 2007). Also, as a response to the report of the Stiglitz-Sen-Fitoussi Commission and to the ‘GDP and beyond’ Communication of the European Commission, Eurostat published the report on “Measuring Progress, Well-being and Sustainable Development”, (EUROSTAT, 2011). Recently the EU is monitoring the achievement of the Sustainable Development Goals, by adapting the United Nations indicator system to the European reality. UN Sustainable Development Goals (SDGs) The current and widely accepted framework for macro sustainability is the SDGs. The SDGs serve as a blueprint to achieve a better and more sustainable future for all”. In 2015, the United Nations Member States adopted the Sustainable Development Goals, Agenda 2030, comprising of 17 SDGs9 (United Nations, 2015). This came to take the place of the Millennium Development Goals (MDGs) which ended in 2015. As a goal to have a sustainable society for all, the SDGs came to provide states with a target framework to understand current world needs and  “Measuring progress towards a more sustainable Europe”. 2007 monitoring report of the EU sustainable development strategy. https://ec.europa.eu/eurostat/web/products-statistical-books/-/ KS-77-07-115 (Accessed on 27th December 2020). Subsequent monitoring report of the EU sustainable development strategy under “Sustainable development in the European Union”. Link for the 2015 version (the last of its kind before the adoption of the SDG: https://ec.europa.eu/eurostat/web/products-statistical-books/-/KS-GT-15-001 (accessed on 3rd January 2021). 9  The UN SDG’s can be accessed at https://sdgs.un.org/goals 8

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provide ­solutions. For the sustainable development goals to be achieved, the core elements must be harmonized as these elements are interconnected and all are crucial for the well-­being of individuals and societies. The core elements are environmental protection, economic growth, and social inclusion. The SDGs are more and more serving as the focus and guide for the development of a strategic approach to sustainability in businesses too. The SDGs provide an opportunity for businesses to be part of a shift towards greater global sustainability. The development goals are for all socio-economic agents to contribute to, and for businesses there are specific goals directly related to firms’ practices. The goals with a direct influence on businesses practices are mainly SDG 8 (decent work and economic growth), 9 (industry, innovation and infrastructure), 12 (responsible consumption and production), and SDG 13 (climate action). In addition, SDG 14 (life below water) and 15 (life on land) are also under businesses consideration because of the blue economy or ecological economy, with discussions under the ecological transition. Apart from these main goals, businesses also have a direct or indirect relation to other sustainable development goals or targets. We can see this connection in the linkage between the SDGs and Global Reporting Initiative (GRI)- a business-­oriented sustainability standard10 (GRI, 2020b). The UN Global Compact and GRI mapped various corporate disclosure standards against the SDGs, providing concrete measurement standards for business contributions to SDGs. National Government Sustainability Guidelines and Initiatives Other national governments have established sustainability initiatives to measure the progress of their contributions to global development issues. In fact, a lot of nations have sustainability development strategies with most in line with the SDG guidelines (at least we know for sure that all states of the United Nations do). The situation of the strategies is much more varied than we may be able to report in this book. Germany for example adopted its National Sustainable Development Strategy (GNSDS) in 2002, where sustainability was made a guiding principle for national policies. The current GNSDS report (German Sustainable Development Strategy, 2016, which was adopted by cabinet in 2017), is aligned with the UN’s 17 SDGs and focuses more on global responsibility. The United Kingdom has also adopted the SDGs and publishes its report11 (UK SDG, 2020) along with other publications12 that take stock of progress towards the Sustainable Development Goals.

 Mapping SDGs to GRI. Link to pdf: https://www.globalreporting.org/media/lbvnxb15/mappingsdgs-gri-update-march.pdf 11  https://sdgdata.gov.uk 12  Publications such as the “Voluntary National Review of progress towards the Sustainable Development Goals”. United Kingdom of Great Britain and Northern Ireland, June 2019 Accessed on December, 2020 from: https://www.gov.uk/government/topical-events/ uk-voluntary-national-review-of-progress-towards-the-sustainable-development-goals 10

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However, we note that the need to have a set of objectives or developmental strategies on the issue of sustainability in these nations started before the introduction of the SDGs. The UK for example has the UK Sustainable Development Strategy with four main objectives in its sustainability assessment. These objectives of the UK Sustainable Development Strategy include social progress and equality, environmental protection, conservation of natural resources and stable economic growth. This sustainability development strategy of the UK13 (UK SDS, 1999) was first published in 1994 and republished in 1999 before the introduction of the SDGs. Italy reports also on its annual SDGs monitoring through ISTAT, following the UN measurement system, and adapting it to its national reality. However, there is the previous report, the Benessere Equo e Sostenibile (BES) that reports on the socio-economic well-being of the citizens dealing with sustainability. The first BES report was edited in 2013 while the first SDGs report was edited in 2017 by ISTAT. The Benessere Equo e Sostenibile (BES) report describes the state of Italy key dimensions of well-being, inequality and sustainability that goes beyond the GDP. This equitable and sustainable well-being (BES) report has a set of more than 130 indicators covering 12 domains that are relevant for the measurement of well-­ being in Italy, and this report is published yearly14 . The deal breaker for the BES is the more focus on the objectives of well-being and which level of well-being of the people is sustainable or not sustainable. In 2015 sustainability of well-being was described as the state of equilibrium with respect to the level of well-being reached at any given time, with the simultaneous presence of resilience and vulnerability factors (ISTAT Commission on well-­ being and Riccardini et  al., 2016). These resilience and vulnerability factors identified on the macro scale are a cumulative synthesis of the factors identified under the micro level. In Italy, the factors, i.e., the components, that constitute the elements of BES and the national SDG achievements are measured by the National Statistical Institute. These components describing the macro state are a result of the combined efforts of all economic agents, including businesses. Thus, the Benessere Equo e Sostenibile (BES) measurement and the SDGs achievements in Italy, measured by National Statistical Institute ISTAT, all try to measure business towards sustainability. Even though these frameworks (BES and SDG) have components that try to measure business towards sustainability, they are not sufficient for measuring sustainability inside a business. This makes it necessary to have a more focused framework for businesses, that describes business models’ evolution and the sustainability of businesses. In this way, the Italian census on businesses, a pioneer and unique in the international scenario, is a very important experience because of its specific focus on businesses. The census is conducted and coordinated by the Italian National Statistical Institute, ISTAT. Also, the OIBR (corporate reporting entity) is very active on standards for non-financial reporting of businesses, following the European Directives on this issue, and working with experts inside and outside firms.  “A better quality of life: A strategy for sustainable development for the United Kingdom”. Great Britain. Department of the Environment, Transport and the Regions. 1999 14  The BES report can be accessed here; https://www.istat.it/en/well-being-and-sustainability/themeasurement-of-well-being/bes-report 13

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More on Sustainability Initiatives: An Italian Perspective Italy has seen various sustainability initiatives from the national level and the institutional level over the past decades. These initiatives have various policy impacts on different agents of the economy, and have been constructed to either measure progress to sustainability or simply affect the direct sustainability behaviour of institutions. The introduction of BES is an example of an initiative in Italy measuring progress towards sustainability, but it also has the potential to affect sustainability behaviour. There are some sustainability initiatives introduced in Italy that have or had the aim to influence the behavior of Italian businesses towards sustainability. And some of these initiatives may have had a role in increasing the participation rate of some businesses in the sustainability variables we will consider in the analysis in this book. We are considering this theory, and the situation may not be far from it. Hence, we consider it important to discuss some initiatives from the Italian perspective, which influence the behavior of Italian businesses. The Italian Flagship Project Factories of the Future “Fabbrica del Futuro” is an initiative that was funded by the Ministry of Education and Scientific Research (MIUR). The project had five strategic macro-objectives and involved enterprises and research institutions to increase the competitiveness of industries in Italy through innovation and sustainable processes. The project was among other 14 projects with total funding of ten million euros that started in January 2012 and lasted till December 2018. The National Research Council of Italy (CNR) coordinated the project. The initiative led to various scientific impacts, and a diffusion of innovative practices across different economic sectors of the country through exhibitions, proceedings of international conferences, and publications (Terkaj & Tolio, 2019). Other initiatives with an influence on the behaviour of businesses in Italy are national laws and regulations. In 2016, the Italian legislation for the promotion of the “green economy” Law No. 221 (subscript as: https://www.normattiva.it/uri-­res/ N2Ls?urn:nir:stato:legge:2015-­12-­28;221) entered into effect after it was introduced in 2015. The National Law on Green Economy (2015) provides general measures to protect nature and promote sustainable development. The measures include ways to protect the marine environment and to protect natural spaces such as district basins and soils through proper waste management and even demolition of buildings built illegally. The other measures are greenhouse gas emissions and installations for energy production, the procedure for the assessment of environmental impact, green public procurement, incentives for the generation of green products, transportation to school or work, and other measures covered under miscellaneous provisions. Another law with a similar purpose is LAW no. 125 of 11 August 2014, General law on international development cooperation (14G00130). This regulation establishes mechanisms to ensure policy coherence for sustainable development. The full enforcement of these and other laws is a different discussion, however, we acknowledge the practical importance of such regulations or initiatives to promote sustainability conformity. These legislations are handled by the Italian Ministry of Justice, but there should be further legislation evolution because the competence of business sustainability is not in one Minister, but many are competent in it, like the Ministry of Environment, Ministry of Economic Development, Ministry of Health,

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Ministry of Labour, Ministry of Infrastructures and Transports. Various stakeholders must work together to prescribe and promote legislative instruments for a positive influence on business sustainability. Beyond what is discussed above, several of these Italian sustainability initiatives have practical influences on business behaviour. These initiatives have been either organized by the national government, research institutions, universities, and businesses themselves, or through joint efforts of the various institutions. There are the ENEA projects on the circular economy by ENEA’s Department for Sustainability such as the NETWAP project (ENEA NETWAP, 2019) and the InnoWEE project (ENEA InnoWEEE, 2018). Also, we can talk about the initiatives of Confindustria (General Confederation of Italian Industry) to stimulate businesses to a circular economy and sustainability. A report on some of the initiatives by Confindustria with contributions towards sustainability can be found in the 2020 CONFINDUSTRIA for Sustainability Report, Confindustria (2020). There is also the CAN (Confederazione Nazionale dell’Artigianato e della Piccola e Media impresa) initiatives to support sustainability for businesses. The CAN- in English, the National Confederation of Craft Trades and Small- and Medium-Sized Enterprises, is an Italian organisation representing handicraft enterprises and SMEs. The CNA represents artisans, business owners, professionals, the self-employed and small and micro businesses in the tourism, services and industrial sectors. Some initiatives by CAN include CNA Federmoda (2022) which started in 2014 with the goal of stimulating attention and discussion on the theme of sustainability. In a recent development, the Italian National Recovery and Resilience Plan (Piano Nazionale di Ripresa e Resilienza- PNRR), and the 6 macro actions, in particular the ecological transition and digitalization, along with sustainable transport and infrastructure have gained huge attraction (PNRR, 2021). Huge sums of money have been allocated, of which some have already gone into investments that will ultimately impact the sustainability transition, from which businesses will benefit. However, the measurement framework developed until now seems to be not well focused on businesses and on impacts deriving from policy actions. Going into the future, it is necessary to improve the measurement framework to focus on businesses. There are many of these initiatives on the national and local levels, and we risk not quoting relevant ones if we wish to list them all. The argument here is that many organisations and local administrations are very active on this issue. The importance of these initiatives is that, gradually, they have shaped the way businesses in Italy behave to contribute to the SDGs. 1.5.2.2 Business Level Initiatives Following the concerns and developments on sustainability on the macro level, organizations have built and analyzed the issue on the individual business or organizational level. Business sustainable initiatives and frameworks for the assessment, measurement and reporting of business sustainability have been developed. We introduce hereunder the main initiatives and the frameworks that are used by corporations and/ or National Statistical Institutes.

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OECD Measuring the Non-financial Performance of Firms through the Lens of the OECD Well-being Framework This OECD work15 by Siegerink et al. (2022) underlines the importance of aligning the measurement of non-financial performance of businesses at the macro level and sectoral level by National Statistical Offices with micro-level measures collected by firms themselves. It is a proposal for a measurement framework and indicator set for measuring the well-being outcomes of stakeholders, internally and not-internally, that operate with the operational boundaries of the firms, i.e., employees and capital resources (economic, human, social and natural) that are created or depleted directly by the firm itself and that are relevant to society as a whole. The framework relates to the OECD well-being framework, and integrated set of measures that captures both the current well-being of individuals in society as well as the resources needed to sustain their well-being in the future (Fig. 1.5). At the same time investors and businesses are increasingly interested in measuring the non-financial performance of individual business to better understand the environmental, social and governance (ESG) risks and impacts. With reference to this framework, it is possible to approach the investigation of the relationships between employee well-being and productivity, sustainability and production, and between distributional outcomes and sustainability. Understanding these relationships can be important to guide a firm’s decisions in terms of business Stakeholder well-being Consumers

Long term value creation:what is good for socity and the planet is good for the firm

Communities

Employees

To meet demands from stakeholders

Financial performance

Impact on socity and the environment

Business To provide accountability to Shareholders and investors shareholders and investors in maximising financial returs

Socity at large future generations

Natural capital

Human capital

Economic capital

Social capital

Intrinsic reasons: to make a positive contribution to society

Sustainability Measurable current well-being outcomes, resource flows and stockks Source: OECD (2022), OECD Papers on Well-being and Inequalities No.3

Fig. 1.5  Stakeholder well-being and sustainability affect long-term value creation and have an impact on society and environment  https://www.oecd-ilibrary.org/docserver/28850c7f-en.pdf?expires=1647508999&id=id&accna me=guest&checksum=F702718828A25D301D91AD977A774C50 15

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strategies, operational activities, and innovations. Measuring the well-being of stakeholders16 firms can better understand their dependences on natural and human resources that are important for their long-term value or success. Therefore, it is essential to evaluate the environmental and social performance of businesses. The European Union’s Non –Financial Reporting Directive (EU NFRD) in 2018 established significant business entities to publicly disclose their policies, giving instructions on key performance indicators and risks related to environmental, social and economic performance. In Italy this Directive was translated in National Law Decree No. 254 of 12.30.2016. For businesses, those indicators based on social, environmental and economic outcomes can help them improve efficiency and reduce costs, by optimizing the use of resources and identifying emerging risks (employee health and well-being outcomes, consumer dissatisfaction, environmental fragilities in the supply chain, etc.), and untapped opportunities. At the same time, those indicators are important for measuring their broader impacts on society and the environment. The OECD work suggests a list of indicators on environmental, social and economic aspects following their Well-being Framework. Standards for Disaster Risk Reduction (ISO 14000, ISO 26000) These are standards for best practices. The ISO 2600017 is an international standard that provides organizations a way to be socially responsible (Moratis & Cochius, 2017). It has as its key principles - ‘accountability’, ‘ethical behavior’, ‘transparency’, ‘respect for law, human rights, international norms of behavior and stakeholder interest’. The ISO 14000 relates to the environmental management practices that help to minimize the negative impact of business practices on the environment. These two standards provide frameworks that businesses can follow to promote sustainable best practices (Pukkanasut, 2005). United Nation Global Compact, UNGC The United Nations announced the UN Global Compact in 1999 and officially launched at UN Headquarters in New York City on 26 July 2000. The compact is a business-oriented program and a non-binding pact which seeks to encourage

 Milton Friedman and other economists fifty years ago introduced the concept of shareholder capitalism and introduced the idea that the only goal of the firm is to maximize value for its shareholders is too simplicist. During 2019 the US Business Roundtable (a group of about 200 CEOs of US companies) made a statement on the purpose of the corporation, recognizing the need to go beyond shareholder primacy and to consider other stakeholders, as consumers, employees, suppliers and communities. 17  Moratis, L., & Cochius, T. (2017). ISO 26000: The business guide to the new standard on social responsibility. Routledge. 16

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businesses to be sustainable and socially responsible. The UN Global Compact is composed of 10 Principles (Compact, 2021). These 10 principles as put by the UN are derived from the “Universal Declaration of Human Rights”, the “International Labor Organization’s Declaration on Fundamental Principles and Rights at Work”, the “Rio Declaration on Environment and Development”, and the “United Nations Convention Against Corruption”.18 The basic idea is that the Global Compact with its principles form the sustainable strategic values to guide business conduct in their strategy and operations towards the destinations of the sustainable development goals (Compact, 2017). Global Reporting Initiative (GRI) The GRI is an international standards initiative to help businesses, other organizations, and even governments, by developing a framework useful to understand and communicate issues on sustainability (GRI, 2020). The GRI’s framework for sustainability reporting, issued by the Global Sustainability Standards Board (GSSB), was set up to help companies to identify, report and communicate their contribution to global sustainability. The framework of the GRI is the GRI Sustainability Reporting Standards; it is the most widely used framework (Isaksson & Steimle, 2009). The most recent version of the standards published in 2021 contains the universal standards, the sector standards, and the topic standards. The universal standards contain the requirements and principles, and guidance for using the GRI as a reporting tool. The sector standards can be used purposely in the case where it applies to the sector the business belongs to. The topic standards contain the sustainability indicators divided into economic, environment and social topic specific standards (Fig.  1.6) useful for reporting specific information on material topics. The GRI standards provide definitions to the sustainability actions that firms can undertake, and therefore how to measure and report them (GRI, 2021). Environmental, Social and Corporate Governance (ESG) The ESG is a set of criteria/ factors that are considered by investors to determine the future financial performance of companies and the risk associated with investing in a company. The ESG criteria have been adopted by investors for potential investments in a company. Then they are used for measuring the sustainability and societal impact of an investment in a company. Previously, financial returns were considered by investors to screen a company’s operations for their potential investments in a company.

 The statement can be found on the online home page of the United Nations Global Compact, at https://www.unglobalcompact.org/what-is-gc/mission/principles. Accessed on 12 February 2022. 18

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Fig. 1.6  Overview of the Set of GRI Standards

There is no single universal set of ESG variables, hence businesses/ institutions report on ESG following common guidelines like the UN Global Compact (UNGC). Broadly, the environmental components of ESG capture the contributions of firms to the stocks and flows of natural capital. The governance components capture business non-financial performance which primarily affects social capital in society. The social components consist of two separate elements. First, firms contribute directly to the well-being outcomes of business stakeholders (employees, consumers and communities)- both in operations and in supply chain. Secondly, firms contribute directly to economic, social and human capital in society, by adding value to the economy, contributing to knowledge and research and development and by making dedicated human and social capital investments. Some businesses build and report on their sustainability actions using one or a mixture of the various frameworks and initiatives, with the ESG and GRI being arguably the widely used. Meanwhile there are institutions (commonly referred to as third-party reporters) that assess other companies and provide ESG reports/ ratings on the companies. Private investors or financial institutions then rely on the ratings by these third parties (Huber et al., 2017). Examples of ESG report providers or third-party reporters include the Corporate Knights Global, Bloomberg ESG, Sustainalytics, Thomson Reuters ESG Research Data, NASDAQ’s ESG Reporting Guide. If we consider a third-party reporter like Corporate Knights Global, we find Italian companies like Enel SpA, ERG S.p.A., and Intesa Sanpaolo SpA that fall

Bibliography

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under the Corporate Knights’ 2020 Global 100 ranking. Companies under the Global 100 rankings are companies that have earned a spot on the Corporate Knights’ index of the world’s most sustainable corporations. Such index ratings are used by investors to assess the risk in investing in companies looking at their sustainable activities.

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ENEA InnoWEEE. (2018). Innovative WEEE (Waste from Electrical and Electronic Equipment) traceability and collection system and geo-interoperability of WEEE data. 2018. Link: http:// www.innoweee.eu/it, also here: https://risorse.sostenibilita.enea.it/en/projects/innoweee ENEA NETWAP. (2019). NETwork of small “in situ” WAste prevention and management initiatives project: Sustainable waste management in small communities. Link: https://www.italy-­ croatia.eu/web/netwap ESI. (2005). Environmental Sustainability Index. Yale Center for Environmental Law and Policy Yale University, New Haven and Yale University Center for International Earth Science Information Network Columbia University. http://sedac.ciesin.columbia.edu/es/esi/index.html Accessed 28 Mar 2021. EUROSTAT. (2011). Sponsorship group on measuring Progress, Well-being and sustainable development. Final Report adopted by the European Statistical System Committee, November 2011. https://ec.europa.eu/eurostat/documents/7330775/7339383/SpG-­Finalreport-­Progress-­ wellbeing-­and-­sustainable-­deve/428899a4-­9b8d-­450c-­a511-­ae7ae35587cb. Accessed 3 Jan 2021. EUROSTAT, Ledoux, L., Lock, G., Wolff, P., & Hauschild, W. (2007). Measuring progress towards a more sustainable Europe. 2007 monitoring report of the EU sustainable development strategy. https://ec.europa.eu/eurostat/web/products-­statistical-­books/-­/KS-­77-­07-­115. Accessed 27 Dec 2020. Flanders, L. (1997). The United Nations’ department for policy coordination and sustainable development (DPCSD). Global Environmental Change, 7(4), 391–394. GRI. (2020). Global reporting initiative. Available at: https://www.globalreporting.org/standards/. Accessed 25 Sept 2021. GRI. (2020b). Mapping SDGs to GRI. Link to pdf: https://www.globalreporting.org/media/ lbvnxb15/mapping-­sdgs-­gri-­update-­march.pdf Gurría A., OECD Secretary-General. (2008). Seminar on “Sustainable development and climate change: International and National Perspectives”. Oslo, Norway. Huber, B. M., Comstock, M., Polk, D., & Wardwell, L. L. P. (2017). ESG reports and ratings: what they are, why they matter. Available at: https://corpgov.law.harvard.edu/2017/07/27/esg-­ reports-­and-­ratings-­what-­they-­are-­why-­they-­matter/. Accessed 11 Aug 2021. Isaksson, R., & Steimle, U. (2009). What does GRI-reporting tell us about corporate sustainability? The TQM Journal, 21, 168–181. Kaivo-oja, J., Panula-Ontto, J., Vehmas, J., & Luukkanen, J. (2014). Relationships of the dimensions of sustainability as measured by the sustainable society index framework. International Journal of Sustainable Development & World Ecology, 21(1), 39–45. Lanoie, P., Laurent-Lucchetti, J., Johnstone, N., & Ambec, S. (2011). Environmental policy, innovation and performance: New insights on the porter hypothesis. Journal of Economics & Management Strategy, 20(3), 803–842. Lawn, P. A. (2003). A theoretical foundation to support the index of sustainable economic welfare (ISEW), genuine Progress indicator (GPI), and other related indexes. Ecological Economics, 44(1), 105–118. Li, W., Qi, J., Huang, S., Fu, W., Zhong, L., & He, B. J. (2021). A pressure-state-response framework for the sustainability analysis of water national parks in China. Ecological Indicators, 131, 108127. Lumley, S., & Armstrong, P. (2004). Some of the nineteenth century origins of the sustainability concept. Environment, Development and Sustainability, 6(3), 367–378. McCormick, J. (1986). The origins of the world conservation strategy. Environmental Review: ER, 10(3), 177–187. McGguinn, J., Fries-Tersch, E., Jones, M., Crepaldi, C., Masso, M., Kadarik, I., Samek Lodovici, M., Drufuca, S., Gancheva, M., & Geny, B. (2020). Social sustainability  – Concepts and benchmarks. IPOL | Policy Department for Economic, Scientific and Quality of Life Policies. Meadows D.H., Meadows D.L., Randers J., Behrens W.W., MIT (1972). The limits to growth: A report for the club of Rome’s project on the predicament of mankind,

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Moratis, L., & Cochius, T. (2017). ISO 26000: The business guide to the new standard on social responsibility. Routledge. National Law on Green Economy. (2015). Italy: Comprehensive Legislation on the “Green Economy”. [Web Page] Retrieved from the Library of Congress. https://www.loc.gov/item/ global-­legal-­monitor/2016-­02-­24/italy-­comprehensive-­legislation-­on-­the-­green-­economy/. Link accessed on 01/12/2022. OECD (1991). Environmental indicators, A preliminary set, . OECD (1993). Core set of indicators for environmental performance reviews, . OECD (2011). Towards green growth: Monitoring Progress: OECD indicators. OECD Publishing.. https://doi.org/10.1787/9789264111356-­en OECD (2013). Framework of OECD work on environmental data and indicators. In Environment at a glance 2013: OECD indicators. OECD Publishing. Perez, V., Guerrero, F., Gonzalez, M., Perez, F., & Caballero, R. (2013). Composite indicator for the assessment of sustainability: The case of Cuban nature-based tourism destinations. Ecological Indicators, 29, 316–324. PNRR. (2021). Italia Domani, il Piano Nazionale di Ripresa e Resilienza. Link: https://www. italiadomani.gov.it/content/sogei-­ng/it/en/home.html Pukkanasut, K. (2005). The benefits of implementing ISO 14000 standards. California State University. Purvis, B., Mao, Y., & Robinson, D. (2019). Three pillars of sustainability: In search of conceptual origins. Sustainability Science, 14(3), 681–695. Riccardini, F., Bachelet, M., Bressan, G., Conigliaro, P., De Rosa, D., & Vazquez, D. (2016). Sviluppo e benessere sostenibili. Una lettura per l’Italia. Universitalia. Riccardini, F., De Santis, S., Spinelli, V., & Tersigni, S. (2020). Businesses behaviors and sustainable development. Istat – Experimental Statistics. Rio de Janeiro. (1992). UN Conference on Environment and Development. Available at: https://www. are.admin.ch/are/en/home/sustainable-­development/international-­cooperation/2030agenda/ un-­_-­milestones-­in-­sustainable-­development/1992%2D%2Dun-­conference-­on-­environment-­ and-­development%2D%2Drio-­de-­janei.html. Accessed 4 May 2021. Saisana, M., & Philippas, D. (2012). Sustainable Society Index (SSI): Taking societies’ pulse along social, environmental and economic issues. Environmental Impact Assessment Review, 32, 94–106. Scoones, I. (2007). Sustainability. Development in Practice, 17(4–5), 589–596. Seghezzo, L. (2009). The five dimensions of sustainability. Environmental Politics, 18(4), 539–556. Siegerink, V., Shinwell, M., & Žarnic, Ž. (2022). Measuring the non-financial performance of firms through the lens of the OECD Well-being framework: A common measurement framework for “Scope 1” Social performance (OECD Papers on Well-being and Inequalities, No. 03). OECD Publishing. https://doi.org/10.1787/28850c7f-­en Singh, R. K., Murty, H. R., Gupta, S. K., & Dikshit, A. K. (2007). Development of composite sustainability performance index for steel industry. Ecological Indicators, 7(3), 565–588. Stiglitz, J. E., Sen, A., & Fitoussi, J. P. (2009). Report by the commission on the measurement of economic performance and social progress. Stiglitz, J. E., Fitoussi, J. P., & Durand, M. (2018). Beyond GDP, Measuring what counts for economic and social performance. OECD. Stockholm Declaration. (1972). Declaration of the United Nations Conference on the Human Environment. Accessed 4 Mar 2021 Terkaj, W., & Tolio, T. (2019). The Italian flagship project: Factories of the future. In T.  Tolio, G.  Copani, & W.  Terkaj (Eds.), Factories of the future. Springer. https://doi. org/10.1007/978-­3-­319-­94358-­9_1 The World Bank, (1995). Monitoring environmental Progress – A Report on work in Progress, . UK SDG. (2020). The UK Office for National Statistics SDG Report. https://sdgdata.gov.uk. Accessed 15 Dec 2020.

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UK SDS. (1999). A better quality of life: A strategy for sustainable development for the United Kingdom. Great Britain. Department of the Environment, Transport and the Regions. 1999. UL Haq, S., & Boz, I. (2018). Developing a set of indicators to measure sustainability of tea cultivating farms in Rize Province, Turkey. Ecological Indicators, 95, 219–232. UN HDI (2021). The UN Human Development Index. http://hdr.undp.org/en/content/human-­ development-­index-­hdi. Accessed 25 Mar 2021. United Nations. (2015). United Nations, Transforming our world: the 2030 Agenda for Sustainable Development. https://sdgs.un.org/goals. Accessed on 21 Mar 2021. UNSD (The United Nations Statistics Division), KOSTAT (Statistics Korea). (2016). International Seminar on Data for Sustainable Development Goals: Data Disaggregation. Report from the international seminar held in Seoul, Republic of Korea (South Korea), from 3–4 November 2016. Van de Kerk, G., & Manuel, A.  R. (2008). A comprehensive index for a sustainable society: The SSI—The sustainable society index. Ecological Economics, 66(2–3), 228–242. https://www.napawatersheds.org/img/managed/Document/3470/VandeKerk2008%20 AComprehensiveIndex4ASustainableSocietyTheSSI.pdf. Accessed 12 Apr 2021. Waitt, G., Caputi, P., Gibson, C., Farbotko, C., Head, L., Gill, N., & Stanes, E. (2012). Sustainable household capability: Which households are doing the work of environmental sustainability? Australian Geographer, 43(1), 51–74. Yadav, S.  S. K., Abidi, N., & Bandyopadhayay, A. (2017). Development of the environmental sustainability indicator profile for ITeS industry. Procedia Computer Science, 122, 423–430.

Chapter 2

Developing a Synthetic Index of Business Sustainability

Abstract  This chapter provides at first a synthetic overview of the concepts and steps for the construction of composite indicators, which are useful and frequently applied in studying sustainability. Afterwards, the core issue of the chapter is about the proposal of the methodology of a new sustainability index: the ABR INDEX. The task of the index is to measure sustainability for Italian businesses and define the formula to assess the importance of being sustainable. The steps of the methodology for the new sustainability index as described in this chapter, follow OECD guidelines. The original main contribution of our study is twofold, one relates to the selection of the variables, and the other one is about the analytical approach for the construction of the indicator and the analysis of the data. Regarding the first aspect, the variable selection stage, we adopt a new method to select relevant variables, different from those used in other published indicators. The method adopted is by making connections to the SDG and business-related sustainability frameworks like the GRI, with the ISTAT variables available for analysis. In this way we seek to identify the relevant variables to be included in the index. For our second contribution, the construction of the sustainability indicator, we propose the use of a simplified approach adequate for the variables under study and the type of available data. Furthermore, we provide a method to link the relationship of sustainability to businesses profitability and productivity level. Keywords  Concepts and steps for the construction of composite indicators · Proposal of the methodology for a new sustainability index · Connection Istat variablea/GRI/ESG/SDGs This chapter provides at first a synthetic overview of the concepts and steps for the construction of composite indicators, which are useful and frequently applied in studying sustainability. Afterwards, the core issue of the chapter is about the proposal of the methodology of a new sustainability index: the ABR INDEX. The task of the index is to measure sustainability for Italian businesses and define the formula to assess the importance of being sustainable. The steps of the methodology

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Riccardini et al., Sustainable Practices in Italian Businesses, SpringerBriefs in Environmental Science, https://doi.org/10.1007/978-3-031-28177-8_2

27

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2  Developing a Synthetic Index of Business Sustainability

for the new sustainability index described in this chapter, follow the OECD (2008) guidelines. The main contribution of our study in its originality is in twofold, one relates to the selection of the variables, and the other one is about the analytical approach for the construction of the indicator and the analysis of the data.

2.1 Methodology for Composite Indicator An indicator is basically a statistic, qualitative or quantitative, that gives you a general idea of the state of a measured phenomenon. For example, a person’s age is an indicator of how long the person has been in existence. An indicator provides us with information on the current state, the progress over time, or what is to be expected soon. When a concept such as sustainability is being studied, it comes with a set of indicator variables that are analyzed and communicated. A composite indicator (CI) can become a very useful tool to effectively  analyze and communicate such a concept (OECD, 2008), and particularly for sustainability of businesses. A CI is useful to communicate how businesses are performing when analyzing the set of indicator variables available. A composite indicator is a synthetic measure formed when several indicators are mathematically combined to obtain a single indicator (Freudenberg, 2003). Observing the characteristics among the various indicator variables is useful because we can understand the contribution of each variable. However, using a composite indicator is an easy way to decipher what is going on within a system (OECD, 2008). Building a composite indicator is one difficult task to go through (Mazziotta & Pareto, 2013). This is because producing a synthetic indicator that sends out the wrong information is not useful. Composite indicators, just like any other estimate comes with its own pros and cons. The variables selected for constructing the indicator and the type of method used to synthesize the variables will ultimately affect the results, and hence the interpretation of the phenomenon under study. The advantage of having a composite indicator includes easy communicationth of a phenomenon under study because the indicator becomes a single measure for a multidimensional phenomenon. Even though using a composite indicator is a clean and simple way to communicate a phenomenon such as sustainability, it is not without limitations or challenges. A composite indicator is very sensitive to the methodological framework used in the construction. This could include the underlying theory or definition of the phenomenon, the available data, and/or the steps for constructing the indicator. The theory behind the phenomenon for which an indicator is constructed is important and influences how the indicator is built (OECD, 2008). The theory behind the phenomenon is the ideas used to account for the phenomenon or define the situation, and it will determine the final interpretation of the CI. The other issue is with the data or variables used in constructing the CI. Depending on how many variables are available, the decision to select relevant variables or utilize all available variables is challenging and could ultimately influence the final CI. The limitations in the construction of CIs have led to criticism by some scholars

2.1  Methodology for Composite Indicator

29

(Chiappini, 2012). More specifically, issues have been raised in the methodological limitations more than in the general usage of a composite indicator (Dialga & Le Giang, 2017). Composite indicators can be used effectively, and their usage is less contended, however the procedure in constructing a CI is where the issue is. The methodological process must be coherent and theoretically justified for the indicator to have legitimacy. Building a CI may involves some technical steps, and the OECD handbook (OECD, 2008) provides clear technical steps for the construction of a composite indicator. These steps are straightforward, however the task in each step requires a careful approach to them.1 The steps involved in the analysis for constructing a composite indicator includes: 1. Developing a theoretical framework. The first step is highlighting the theory behind the phenomenon and defining the CI. Developing the theoretical framework is an identification or realization process. This process includes defining the objective of the CI, identifying the dimensions and the variables that represent the phenomenon for the CI, highlighting relevant works on the phenomenon, etc. (OECD, 2008). This step allows us to understand the phenomenon that we are analyzing. For example, the definition of sustainability involves the presence of the three dimensions, and any work done on one or two dimensions of sustainability is not dealing with the concept but rather just the dimension(s) under study. It is therefore essential to provide a complete definition or discuss the theory for the CI. Thus, for our study and analysis, the CI is defined as an indicator to measure sustainability of Italian businesses, focusing on all dimensions of sustainability. The theoretical understanding of the phenomenon provides us with the basis for selecting each single indicator variable from each dimension and it is also useful in explaining the results of the analysis (OECD, 2008). Although this step is an important precondition for developing CIs, it has limitations. The definition can be objective or subjective even if it is rational with the objectives of the CI, and for a new phenomenon, developing the framework is hectic and subjective (Dialga & Le Giang, 2017). This step for our analysis is accomplished in Chap. 1 where we discuss the theory of sustainability and business sustainability. In our study of sustainability, the theories behind the dimensions for instance provide a basis for selecting the variables and interpreting what the results say concerning the dimensions. 2. Selecting Indicator Variables. This step implies the identification and selection of indicator variables for the CI. Variables available from the data source pertaining to the phenomenon are

 If we look at the OECD guidelines or any procedure in the literature, we can summarize the steps as follows: develop the theory and framework for the concept, identify the relevant variables, construct the synthetic indicator from the identified variables, and check for robust checking. The difficulty lies in each step where different techniques can be applied which can result in different outcomes. 1

30

2  Developing a Synthetic Index of Business Sustainability

selected following an understanding of the theoretical framework (OECD, 2008). How does the theoretical setting/ definition affect the selection of indicator variables? Let’s consider a scenario where an index of sustainability is being constructed to assess the sustainability level of a country towards the SDGs. If the definition of the index is to measure sustainability on the 17 goals, the selected variables for the sustainability CI will be limited. If we are on the other hand constructing the sustainability CI based on the SDGs targets, we may be interested in studying the individual targets, the SDGs targets and certainly the availability of the data will influence the variables selection. Arguments, however, can be made about the limitations of the variable selection step. The limitations can include unavailability of data, quality of the available indicators, data sources of less than desirable quality, etc. Where an important variable is unavailable or non-­measurable, proxy variables can be considered (OECD, 2008). In such a case, this process masks data problems and reveals the need to measure or collect data variables that may be missing in a data source (Freudenberg, 2003). This is because usually data collection departments may measure only the most obvious and easily accessible data aspects of the study. In selecting the indicator variables, we must balance a high degree of information detail with simplified variables, only keeping relevant and representative ones. Selecting indicator variables is probably the most difficult task in constructing a CI (Dialga & Le Giang, 2017). The variables may be limited or unlimited, however, a decision must be made to select relevant ones. In any case, the important prerequisite is a strong theoretical framework. 3. Data Treatment, normalization, transformation. Data treatment means that after the variables are selected, it is important to scan the data to check for issues such as missing information. If there are missing data values, the imputation of the missing data is important to complete the dataset (OECD, 2008). Missing data is different from the unavailability of data. Missing data is when data points in the dataset are missing at random, structurally missing, or missing not at random. The two types of imputation or treatment methods for missing data include, ‘case deletion’ and ‘imputation by approximation (where missing values are approximately estimated)’. The use of these methods is completely dependent on the type of missing data. When data is missing completely at random, case deletion is preferable. If data is not missing completely at random, then various imputations by approximation methods (e.g., mean substitution, regression, nearest neighbour) are used. Regardless of which method is used, missing data imputation could be both seductive and dangerous (OECD, 2008), hence care must be taken. When data issues like missing data are corrected, decisions about normalization and data transformation must be made. For most sustainability indicator construction, the selected indicator variables are normalized since the variables are coming in different units of measure as we find in Pislaru et al. (2019), Perez et  al. (2013), and Salvati and Carlucci (2014). The normalization is done to render the variables comparable (OECD, 2008) using methods like z-score xij xij  M xj normalization ( zij  ), distance from mean ( zij  100  ), min-max M xj S xj

31

2.1  Methodology for Composite Indicator

normalization ( rij 

( zij 

xij  min j max j  min j

( zij  100  10 

xij  min j max j  min j

60  70 ),

and

)

or the

adjusted adjusted

min-max z-score

from AMPI from

MPI

xij  M xj

).2 Different normalization will produce different S xj results for the composite indicator (Mazziotta & Pareto, 2013; Walesiak, 2018). Therefore, the selected normalization method should consider the properties of the data and the objectives of the composite indicator. 4. Weighting and Aggregation. After deciding on  the method to transform the data, the decision about the weighting and aggregation method follows. Alternative methods of weighting are budget allocation processes (BAP), factor analysis (FA), principal component analysis (PCA), equal weighting (EW), and  data envelopment analysis (DEA) (OECD, 2008). The choice of weighting may be subjective or based on the statistical property of data variables. For instance, the choice of equal weighting is subjective and usually influenced by the objectives of the study and experts’ (or stakeholders’) reviews. The budget allocation process (BAP) also involves stakeholders allocating a budget/share of an X amount to the variables. This is different from equal weighting because the variables do not obtain equal weights in BAP. The aggregation follows the weighting method. For aggregation, different approaches exist. The objective and data available will influence the strategy (Bianchi & Biffignandi, 2020; OECD, 2008). The aggregation method can be an additive, multiplicative or harmonic mean. Aggregation methods include simple q 1

linear aggregation CI c  Wq I qc , data envelopment analysis after distanceQ

j 1

principal component (DEAPC), DEAPCI0  max wij0 DPCi0 j by Perez et  al. w

d

(2013), Mazziotta–Pareto index (MPI), MPI i  /   M zi  Szi •cvzi , geometric q 1

aggregation, CI c  xq ,qc , etc. The use of an aggregation method should however w

Q

consider the polarity of the variables. Polarity is the positive or negative direction of a variable. When an increase in the  value of a variable is bad, then it belongs to the negative polarity. When the increase in value is a good sign, then it belongs to the positive polarity.  The AMPI or MPI normalization methods comes from the (adjusted) Mazziotta–Pareto index construction method, (Mazziotta & Pareto, 2013, 2018). The MPI and AMPI normalization is done to simply avoid negative values and to obtain visually manageable values (Farro et al., 2018). 2

32

2  Developing a Synthetic Index of Business Sustainability

The weighting and aggregation are linked together, even if they are provided separately, because they form the final index formula (Dialga & Le Giang, 2017). 5. Validating a synthetic indicator. Validating the results of the composite indicator is an additional step required to check the robustness of the index. Some procedures for validating the composite indicator include sensitivity and uncertainty analysis. This step identifies how the individual variables affect the overall performance of the index, and how the index is dependent on the normalization method. The validation check can be performed by removing variables and checking how the index value responds to the changes. The relation of individual variables and why they may influence the overall score can be tested using correlation analysis.

2.1.1 How Some of the Steps of Constructing CI Have Been Faced in the Research Context As stated above the choices at different steps are often interrelated and the decisions are subjective. Hereunder is reported how some of the abovementioned steps/methodologies have been faced in the research context. We consider the work by Perez et al. (2013), who worked on data from the tourism sector. Their paper is on evaluating the sustainability of tourism in Cuba, with nature-based tourist destinations as their observational units. The theoretical framework they applied is the ‘concept of sustainable tourist development’ outlined by the World Tourism Organization (WTO), from which the set of indicator variables was selected. The selected variables were normalized, INik, using the method of I  min distance to a reference point as follows, IN ik  ik where the reference max  min point is the minimum value. The aggregation method is in two phases, first they computed a composite indicator for each dimension using a distance-principal j 1   k 1  component (DPC) indicator as DPCi   VE j  IN ik Corrjk   , and finally q   p    they aggregated the composite indicator from each dimension (dimensional indicators, j 1

DPC) to obtain the final index using the formula: DEAPCI0  max wij0 DPCi0 j , w

d

where DEAPC means “data envelopment analysis after distance principal component”, w represents the weights; the formula sums the index of each dimension with weights associated to each dimension. The best situation is when the DEAPC equals 1, which means the tourist destination has a performance equal to its reference unit. The worst situation is when DEAPC = 0. Ahmad and Wong (2019) performed a study on the Malaysian food sector. They studied the importance of the various dimensions of sustainability through selected

2.1  Methodology for Composite Indicator

33

variables. The main objective of their study was to develop ‘weighted and comprehensive sustainability indicators for the Malaysian food manufacturing industry’. Their findings showed that the social dimension for the Malaysian food manufacturing industry had more weight, and along with other analysis results, was thus more important, followed by the environmental and economic dimensions. Following the steps for constructing a sustainability indicator, Ahmed and Wong first reviewed the literature on sustainable manufacturing to identify the relevant variables. They employed the Delphi method3 to develop the weighted sustainability indicators. Their study focused more on obtaining weights (calculated based on the applicability scores assigned by experts), as a measure of the importance of the various indicator variables for the different dimensions. They interviewed experts from academia, research centers and industry to obtain scores they gave on each of the initially selected literature-based variables. The scores were on the measure of how applicable indicators were to the sustainability of the food manufacturing industry. With 57 relevant variables, the scores given by experts showed that 42% of the variables received 100% agreement- highly applicable indicators. However, besides the scores on the initial variables, Ahmad and Wong took into account the applicability of other indicators and agreed on 44% (25/57) highly applicable indicators. Among the 25 important/ highly applicable indicators, 44% (11/25) belonged to the social dimension, 28% (7/25) to the environmental dimension and 28% (7/25) to the economic dimension. Hence, the conclusion is that for the Malaysian food manufacturing industry, the social dimension is more important as the majority of the applicable indicators belong to the social dimension. After this finding on the relevant variables, they performed a case study to demonstrate the usefulness of the highly applicable indicators. This is a good example of a study that paid particular attention to steps 1 and 2. Chang and Cheng (2019) performed a study to identify the key sustainability indicators that are necessary to boost the sustainable performance of small and medium enterprises (SMEs) in the manufacturing sector. Like Ahmad and Wong (2019), Chang and Cheng used a Delphi Method too (a variant called Fuzzy Delphi Method (FDM)) to screen important criteria. To further evaluate the performance of the variables and summarize the rules of decision making they used some methods derived from the relational theory and the set theory, grey relational analysis (GRA) and rough set theory (RST), respectively. For a more detailed application of steps 4 and 5, we highlight the work by Liu (2014), which reviews other methods of normalization, weighting, and aggregation for building a synthetic sustainability indicator applicable to renewable energy systems. Although the work by Salvati and Carlucci (2014) is related to macro-level sustainability, we can take insight from it also. Their analysis was done on the sustainability of the Italian geographical area. Following the same premise of other works, the data was transformed and weighted before the aggregation method was

 The Delphi method uses a scientific process to collect opinions from experts through rounds of questioning to manage and analyze those opinions for decision making (Ahmad & Wong, 2019). 3

34

2  Developing a Synthetic Index of Business Sustainability

applied. The major task they took was to combine 99 variables into an index of sustainable development using a model known as the Factor Weighting Model (FWM). Given that they had so many variables to deal with, they employed the Principal Components Analysis (PCA) strategy to explore the relationship among indicators and to estimate weights. Note that there are several publications with the application of the steps for building a composite indicator, (examples, Mazziotta and Pareto (2013), Bianchi and Biffignandi (2020), etc.), however, the examples we have presented are specific to sustainability.

2.2 A New Indicator for Measuring Businesses’ Sustainability We propose a composite indicator that takes into consideration the theoretical framework of businesses sustainability (see Chap. 1), the SDGs, the international standards for non-financial business reporting (GRI), criteria for investments evaluation in sustainability (ESG), and available data by ISTAT. Variables selection is shown in Tables 2.1, 2.2 and 2.3. All variables are considered with equal importance (as suggested by the experts who collaborated on the ISTAT questionnaire). The original contribution of our study is twofold. First, at the variable selection stage, we take into account various alternative perspectives to measure sustainability and we adopt for our indicator a set of variables different from the one used in the other published indicators. As a second point, we propose the construction of the composite indicator (from here after we call it ABR  INDEX) using a simplified approach adequate for the variables under study. Regarding the first two steps of the indicator construction, i.e., the theoretical framework and the variables selection, the main innovative point is that we propose an approach trying to catch transversal classification aspects, that is theoretical concepts and variables which are common to the classifications adopted in alternative indicators. The starting point of the theoretical background is the evaluation of the links among the SDGs (Sustainable Development Goals), GRI (Global Reporting Initiative) Standards, and ESG (Environmental, Social, and Governance) variables. Then we select the ISTAT variables common to these standards.

2.2.1 Theoretical Framework and Variables Selection 2.2.1.1 Business Sustainability and the SDGs The variables that measure business sustainability have an influence on the targets of the SDGs. A business, as an economic agent, has a duty to promote the development goals, by engaging in sustainable activities. Sustainable activities of

2.2 A New Indicator for Measuring Businesses’ Sustainability

35

Table 2.1  Linking the SDGs, GRI Standards, and ESG variables SDG

8

TARGET

GRI Standards

GRI Standards detail description 207-1 Approach to tax 207-2 Tax governance, control, and risk management 207-3 Stakeholder engagement and management of concerns related to tax 207-4 Country-by-country Tax reporting 202-1 Ratios of standard entry level wage by gender compared to local minimum wage 203-2 Significant indirect economic impacts 413-2 Operations with significant actual and potential negative impacts on local communities

1.1

207-1,2,3,4

1.2

202-1, 203-2

1.3

207-1,2,3,4

1.4

203-2, 413-2

1 No poverty

1.5

ESG Human Capital development Employee turnover Resilience- focusing on the financial stability and the management of related risks Community Relations- how companies engage with local communities (including indigenous peoples) through community involvement, community development and/or measures to reduce negative impacts on local community

1.a 1.b 2.1 2.2 2.3

411-1, 413-2

2.4

411-1 Incidents of violations involving rights of indigenous peoples 413-2 Operations with significant actual and potential negative impacts on local communities

2.5 2.a

Community Relations- how companies engage with local communities (including indigenous peoples) through community involvement, community development and/or measures to reduce negative impacts on local community

2 Zero Hunger

2.b 2.c 3.1

3 Good Health and well-being

3.2

401-2

3.3

403-6b, 10

401-2 Benefits provided to full-time employees that are not provided to temporary or parttime employees 403-6b A description of any voluntary health promotion services and programs offered to workers to address major non-work-related health risks, including the specific health risks addressed, and how the organization facilitates workers’ access to these services and programs. 403-10 Work-related ill health 403-9 Work-related injuries 403-6 Promotion of worker health 203-2 Significant indirect economic impacts 305-1 Direct (Scope 1) GHG emissions 305-2 Energy indirect (Scope 2) GHG emissions 305-3 Other indirect (Scope 3) GHG emissions 305-5 Reduction of GHG emissions 305-6 Emissions of ozone-depleting substances (ODS) 305-7 Nitrogen oxides (NOx), sulfur oxides (SOx), and other significant air emissions 306-1 Waste generation and significant waste-related impacts 306-2 Management of significant wasterelated impacts 306-3 Waste generated 306-4 Waste diverted from disposal

(continued)

2  Developing a Synthetic Index of Business Sustainability

36 Table 2.1 (continued) 3.4 3.5

403-10 403-6b

3.6 3.7

403-9 403-6

3.8

203-2, 403-6

3.9

305-1,2,3,5,6,7, 306-1,2,3,4, 4039,10

Occupational Health and Safety

Access to Basic Services- access to essential products or services such as health care services and products to disadvantaged communities or groups4

3.a 3.b 3.c 3.d

4.1

404-1 Average hours of training per year per employee

4.2

4 Quality Education

4.3

404-1

4.4

404-1

4.5

404-1

Human Capital development

4.6 4.7 4.a 4.b 4.c 5.1

202-1, 404-1,3, 405-1,2, 406-1

5.2 5.3 5 Gender Equality

5.4

203-1, 401-2,3

5.5

102-22,24, 405-1

5.6

5.a

6.1 6.2

6.4

303-1,2,4, 3061,2,3 303-1,3,5, 306-1

6.5 6.6

6 Clean Water and Sanitation

elimination of discrimination in respect of employment and occupation

% employed women (gender equity) 2.Board diversity

203-1 Infrastructure investments and services supported 401-2 Benefits provided to full-time employees that are not provided to temporary or parttime employees 401-3 Parental leave

5.b 5.c

6.3

202-1 Ratios of standard entry level wage by gender compared to local minimum wage 404-1 Average hours of training per year per employee 404-3 Percentage of employees receiving regular performance and career development reviews 405-1 Diversity of governance bodies and employees 405-2 Ratio of basic salary and remuneration of women to men 406-1 Incidents of discrimination and corrective actions taken

6.a

304-1,2,3,4, 3061,3,5 303-1a,c

6.b

303-1a,c

303-1 Interactions with water as a shared resource 303-2 Management of water dischargerelated impacts 303-3 Water withdrawal 303-4 Water discharge 303-5 Water consumption 306-1 Waste generation and significant waste-related impacts 306-2 Management of significant wasterelated impacts 306-3 Waste generated 306-5 Waste directed to disposal 304-1 Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas 304-2 Significant impacts of activities, products and services on biodiversity

Water usage and conservation

(continued)

2.2 A New Indicator for Measuring Businesses’ Sustainability

37

Table 2.1 (continued) 304-3 Habitats protected or restored 304-4 IUCN Red List species and national conservation list species with habitats in areas affected by operations 303-1a A description of how the organization interacts with water, including how and where water is withdrawn, consumed, and discharged, and the water-related impacts the organization has caused or contributed to, or that are directly linked to its operations, products, or services by its business relationships (e.g., impacts caused by runoff) 303-1c A description of how water-related impacts are addressed, including how the organization works with stakeholders to steward water as a shared resource, and how it engages with suppliers or customers with significant water-related impacts. 7.1

7 Affordable and Clean Energy

7.2

302-1,2

7.3

302-1,2,3,4,5

7.a 7.b

8 Decent Work and Economic growth

8.1

201-1

8.2

201-1, 203-2, 404-1,2

8.3

203-2, 204-1

8.4

301-1,2,3, 3021,2,3,4,5

8.5

102-8, 202-1,2, 203-2, 401-1,2,3, 404-2,3, 405-1,2

8.6

401-1

8.7

408-1, 409-1

8.8

102-41, 402-1, 4031,2,3,4,5,7,8,9,10 , 406-1, 407-1, 414-1,2

8.9 8.10. 8.a 8.b

302-1 Energy consumption within the organization 302-2 Energy consumption outside of the organization 302-3 Energy intensity 302-4 Reduction of energy consumption 302-5 Reductions in energy requirements of products and services

201-1 Direct economic value generated and distributed 203-2 Significant indirect economic impacts 404-1 Average hours of training per year per employee 404-2 Programs for upgrading employee skills and transition assistance programs 204-1 Proportion of spending on local suppliers 301-1 Materials used by weight or volume 301-2 Recycled input materials used 301-3 Reclaimed products and their packaging materials 302-1 Energy consumption within the organization 302-2 Energy consumption outside of the organization 302-3 Energy intensity 302-4 Reduction of energy consumption 302-5 Reductions in energy requirements of products and services 202-1 Ratios of standard entry level wage by gender compared to local minimum wage 202-2 Proportion of senior management hired from the local community 401-1 New employee hires and employee turnover 401-2 Benefits provided to full-time employees that are not provided to temporary or part-time employees 401-3 Parental leave 404-2 Programs for upgrading employee skills and transition assistance programs 404-3 Percentage of employees receiving regular performance and career development reviews 405-1 Diversity of governance bodies and employees 405-2 Ratio of basic salary and remuneration of women to men 408-1 Operations and suppliers at significant

Energy consumption Energy Productivity (Energy use minus renewable energy generated by the company)

Resilience- focusing on the financial stability and the management of related risks

Employee turnover

Elimination of all forms of forced and compulsory labour. 2. Abolition of child labour Human rights

(continued)

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2  Developing a Synthetic Index of Business Sustainability

Table 2.1 (continued) risk for incidents of child labor 409-1 Operations and suppliers at significant risk for incidents of forced or compulsory labor 402-1 Minimum notice periods regarding operational changes 403-1 Occupational health and safety management system 403-2 Hazard identification, risk assessment, and incident investigation 403-3 Occupational health services 403-4 Worker participation, consultation, and communication on occupational health and safety 403-5 Worker training on occupational health and safety 403-7 Prevention and mitigation of occupational health and safety impacts directly linked by business relationships 403-8 Workers covered by an occupational health and safety management system 403-9 Work-related injuries 403-10 Work-related ill health Disclosure 406-1 Incidents of discrimination and corrective actions taken Disclosure 407-1 Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk Disclosure 414-1 New suppliers that were screened using social criteria Disclosure 414-2 Negative social impacts in the supply chain and actions taken

9.1

201-1, 203-1

9.2 9.3 9 Industry, Innovation and Infrastructure

9.4

201-1, 203-1

9.5

201-1

201-1 Direct economic value generated and distributed 203-1 Infrastructure investments and services supported

Innovation Capacity-R&D

9.a 9.b 9.c 10.1 10.2

10 Reduced Inequalities

10.3

102-8, 401-1, 404-1,3, 405-2

10.4

207-1,2,3,4

10.5 10.6 10.7 10.a 10.b 10.c 11.1

401-1 New employee hires and employee turnover 404-1 Average hours of training per year per employee 404-3 Percentage of employees receiving regular performance and career development reviews 405-2 Ratio of basic salary and remuneration of women to men 207-1 Approach to tax 207-2 Tax governance, control, and risk management 207-3 Stakeholder engagement and management of concerns related to tax 207-4 Country-by-country reporting

11.2 11.3

203-1

203-1 Infrastructure investments and services supported

11.4

304-2

304-2 Significant impacts of activities, products and services on biodiversity

11.5 11.6

305-5, 306-2

11.7

305-5 Reduction of GHG emissions 306-2 Management of significant waster related impacts 413-1 Operations with local community

Board diversity

Land Use and Biodiversity Emissions, Effluents and Waste management

(continued)

2.2 A New Indicator for Measuring Businesses’ Sustainability

39

Table 2.1 (continued) 11 Sustainable Cities and Communities

11.a

413-1

engagement, impact assessments, and development programs

Community Relations- how companies engage with local communities (including indigenous peoples) through community involvement, community development and/or measures to reduce negative impacts on local communities

11.b 11.c

12 Responsible Consumption and Production

12.1 12.2

301-1,2,3, 3021,2,3,4,5

12.3 12.4

303-1, 3051,2,3,6,7, 3061,2,3,4

12.5

301-2,3, 306-2

12.6 12.7 12.8

417-1

12.a 12.b 12.c

13.1

201-2, 3021,2,3,4,5, 3051,2,3,4,5

13.2 13 Climate Action

13.3 13.a 13.b

14.1

306-1,3

14.2

304-1,2,3,4, 3065 305-1,2,3,4,5,7

14.3

14 Life below Water

14.4 14.5 14.6 14.7 14.a 14.b 14.c

Disclosure 301-1 Materials used by weight or volume Disclosure 301-2 Recycled input materials used Disclosure 301-3 Reclaimed products and their packaging materials Disclosure 303-1 Interactions with water as a shared resource 305-1 Direct (Scope 1) GHG emissions 305-2 Energy indirect (Scope 2) GHG emissions 305-3 Other indirect (Scope 3) GHG emissions 305-6 Emissions of ozone-depleting substances (ODS) 305-7 Nitrogen oxides (NOx), sulfur oxides (SOx), and other significant air emissions 306-1 Waste generation and significant waste-related impacts 306-2 Management of significant wasterelated impacts 306-3 Waste generated 306-4 Waste diverted from disposal Disclosure 417-1 Requirements for product and service information and labeling 201-2 Financial implications and other risks and opportunities due to climate change 302-1 Energy consumption within the organization 302-2 Energy consumption outside the organization 302-3 Energy intensity 302-4 Reduction of energy consumption 302-5 Reductions in energy requirements of products and services 305-1 Direct (Scope 1) GHG emissions 305-2 Energy indirect (Scope 2) GHG emissions 305-3 Other indirect (Scope 3) GHG emissions 305-4 GHG emissions intensity 305-5 Reduction of GHG emissions 306-1 Waste generation and significant waste-related impacts 306-3 Waste generated Disclosure 304-1 Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas Disclosure 304-2 Significant impacts of activities, products and services on biodiversity Disclosure 304-3 Habitats protected or restored Disclosure 304-4 IUCN Red List species and national conservation list species with habitats in areas affected by operations Disclosure 306-5 Waste directed to disposal 305-1 Direct (Scope 1) GHG emissions 305-2 Energy indirect (Scope 2) GHG emissions

Carbon footprint / GHG (eg. CO2) emissions and management Product Governance Emissions, Effluents and Waste (excluding GHG emissions) management Resource Use (excluding energy and petroleum-based products)

Carbon footprint / GHG (eg. CO2) emissions

Emissions, Effluents and Waste (excluding GHG emissions) management Particulate Matter Productivity

Water usage and conservation

(continued)

40

2  Developing a Synthetic Index of Business Sustainability

Table 2.1 (continued) 305-3 Other indirect (Scope 3) GHG emissions 305-4 GHG emissions intensity 305-5 Reduction of GHG emissions Disclosure 305-7 Nitrogen oxides (NOx), sulfur oxides (SOx), and other significant air emissions 15.1

304-1,2,3,4, 3063,5

15.2

305-1,2,3,4,5,7

15.3 15.4 15.5 15.6 15 Life on Land

304-1,2,3,4, 3065

15.7 15.8 15.9 15.a 15.b 15.c

16.1

403-9,10, 410-1, 414-1,2

16.2

408-1

16.3

102-16,17, 206-1, 416-2, 417-2,3, 418-1

16.4

16 Peace, Justice and Strong Institutions

16.5

205-1,2,3, 415-1

16.6

102-23,25

16.7

10221,22,24,29,37, 403-4

16.8 16.9 16.10. 16.a 16.b

418-1

Disclosure 304-1 Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas Disclosure 304-2 Significant impacts of activities, products and services on biodiversity Disclosure 304-3 Habitats protected or restored Disclosure 304-4 IUCN Red List species and national conservation list species with habitats in areas affected by operations 306-3 Waste generated Disclosure 306-5 Waste directed to disposal 305-1 Direct (Scope 1) GHG emissions 305-2 Energy indirect (Scope 2) GHG emissions 305-3 Other indirect (Scope 3) GHG emissions 305-4 GHG emissions intensity 305-5 Reduction of GHG emissions Disclosure 305-7 Nitrogen oxides (NOx), sulfur oxides (SOx), and other significant air emissions Disclosure 403-9 Work-related injuries Disclosure 403-10 Work-related ill health Disclosure 410-1 Security personnel trained in human rights policies or procedures Disclosure 414-1 New suppliers that were screened using social criteria Disclosure 414-2 Negative social impacts in the supply chain and actions taken Disclosure 408-1 Operations and suppliers at significant risk for incidents of child labor Disclosure 206-1 Legal actions for anticompetitive behavior, anti-trust, and monopoly practices Disclosure 416-2 Incidents of noncompliance concerning the health and safety impacts of products and services Disclosure 417-2 Incidents of noncompliance concerning product and service information and labeling Disclosure 417-3 Incidents of noncompliance concerning marketing communications Disclosure 418-1 Substantiated complaints concerning breaches of customer privacy and losses of customer data Disclosure 205-1 Operations assessed for risks related to corruption Disclosure 205-2 Communication and training about anti-corruption policies and procedures

Land Use and Biodiversity

Elimination of all forms of forced and compulsory labour

Political Engagement and Public Policy / adoption of anti-corruption policy Business ethics Board diversity

Human rights elimination of discrimination in respect of employment and occupation

Disclosure 205-3 Confirmed incidents of corruption and actions taken Disclosure 415-1 Political contributions Disclosure 403-4 Worker participation, consultation, and communication on occupational health and safety

(continued)

2.2 A New Indicator for Measuring Businesses’ Sustainability

41

Table 2.1 (continued) 17.1

207-1,2,3,4

17.2 17.3 17.4 17.5

207-1,2,3,4

207-1 Approach to tax 207-2 Tax governance, control, and risk management 207-3 Stakeholder engagement and management of concerns related to tax 207-4 Country-by-country reporting

Political Engagement and Public Policy

17.6 17.7 17.8 17 Partnerships for the Goals

17.9 17.10.

Supply chain management

17.11 17.12 17.13 17.14 17.15 17.16 17.17 17.18 17.19

Sources: 1. SDG (www.sdgcompass.org), 2. Linking the SDGs and the GRI Standards (https://www.globalreporting.org/media/lbvnxb15/ mapping-sdgs-gri-update-march.pdf), 3. ESG variables- from UN Global Compact, the Banca Italia- https://www.bancaditalia.it/media/ approfondimenti/2019/informativa-esg/index.html, CorporateKnights- https://www.corporateknights. com/wp-content/uploads/2020/07/2020-Global-100_Methodology.pdf. Sustainalyticshttps:// www.sustainalytics.com/docs/default-source/meis/definitionsofmeis. pdf?sfvrsn=8e7552c0_4 (Links last accessed on January 2022)

a business (i.e., business sustainability variables) can be mapped to the targets of the SDGs, helping to monitor the direct or indirect contributions of a business to the sustainable development goals. To highlight the possible influences of businesses’ actions on the SDGs we present Table 2.1, which shows the links between the Sustainable Development Goals (SDGs), specifically the targets, with variables from GRI and ESG. These linkages are based on a more detailed analysis of the meanings of the indicator variables. The connections we have made provide a picture of what for-profit corporations can do to contribute to the SDGs, considering their non-financial measures (GRI), and variables representing the investment evaluation of being sustainable (ESG). The first two steps in the construction of the ABR  INDEX are the theoretical framework and the selection of the variables. The theoretical framework we consider to select the variables for the ABR INDEX construction is presented Table 2.3, where the 3 or 4 dimensions of sustainability is considered. Fourth dimension because we consider the governance dimension from ESG. Selected individual indicator variables are combined to obtain a single indicator or measure. For this reason, the relevance of the variables to sustainability, their coverage, as well as their measurability are the selection criteria. The choice of the variables is crucial since ultimately it dictates the strength and weakness of the indicator (Bianchi & Biffignandi, 2020; OECD, 2008).

Table 2.2  Synthesized ESG indicator variables Environmental Carbon footprint/GHG (e.g., CO2) emissions2,3 Indicators Particulate Matter Productivity3 Sulphur oxides (SOx) and nitrogen oxides (NOx) emissions3 Emissions, Effluents and Waste (excluding GHG emissions) management4 Carbon – Own Operations (operational energy use and GHG emissions) management4 Carbon – Products and Services (the energy efficiency and/or GHG emissions of its services and products during the use phase) management4 Energy Productivity (Energy use minus renewable energy generated by the company)3 Energy consumption2 Water usage and conservation2,3 Waste Produced3 Volatile organic compounds (VOC)3 Land Use and Biodiversity4 Resource Use (excluding energy and petroleum-based products)4 Social % Employed women (gender equity) 2 or elimination of discrimination in Indicators respect of employment and occupation1 % Women employed in management/women in Executive management or Boards2,3 Supplier Sustainability3 Employee turnover3 Community Relations- how companies engage with local communities (including indigenous peoples) through community involvement, community development and/or measures to reduce negative impacts on local communities4 Access to Basic Services- access to essential products or services such as health care services and products to disadvantaged communities or groups4 Human rights1,4 Elimination of all forms of forced and compulsory labour1 Abolition of child labour1 Data Privacy and Security4 E&S Impact of Products and Services (i.e., product safety and quality)4 Occupational Health and Safety4 Employee injury/ lost time incidents rate3 Human Capital- includes the management of risks related to scarcity of skilled labor through retention and recruitment programmes4 Product Governance4 Pension fund status3 Supply chain management Governance Resilience- focusing on financial stability and the management of related risks4 Indicators Political Engagement and Public Policy / adoption of anti-corruption policy2 Bribery and Corruption4 Board diversity2 Sustainability Pay Link (link to pay of executives for achieving company sustainability goals)3 Business ethics4 Clean revenue3 Tax transparency / percentage tax paid3 Innovation Capacity-R&D3 Source(s): UN Global Compact1, the Banca Italia2 (https://www.bancaditalia.it/media/approfondimenti/2019/informativa-­esg/index.html (Last assessed on September 2021), CorporateKnights3 (https://www.corporateknights.com/wp-­c ontent/uploads/2020/07/2020-­G lobal-­1 00_ Methodology.pdf) (Last assessed on September 2021), Sustainalytics4 (https://www.sustainalytics. com/docs/default-­source/meis/definitionsofmeis.pdf?sfvrsn=8e7552c0_4) (Last assessed on September 2021)

Table 2.3  Table of Correspondent. GRI, ESG, ISTAT variables and SDGs GRI ESGs ENVIRONMENTAL VARIABLES Energy consumption GRI 302. Reduction of Energy Productivity energy consumption Carbon – Own Operations Reductions in energy (operational energy use requirements of products and GHG emissions) and services Management

GRI 303 Water recycled and reused

Water usage and conservation

GRI 301 Recycled input materials used GRI 306 Management of significant waste-related impacts

Emissions, Effluents and Waste (excluding GHG emissions) management Resource Use (excluding energy and petroleumbased products)

Carbon footprint / GHG GRI 305 Reduction of Green House (e.g., CO2) emissions Particulate Matter Gas (GHG) emissions Productivity Sulphur oxides (SOx) and nitrogen oxides (NOx) emissions Emissions, Effluents and Waste (excluding GHG emissions) management

ISTAT

SDGs

Installation of efficient machinery, systems and / or appliances that reduce energy consumption Thermal insulation of buildings and / or construction of buildings with low energy consumption Installation of plants for the production of electricity from renewable sources Installation of plants for the production of thermal energy from renewable sources Installation of cogeneration or trigeneration and / or heat recovery systems Purchase of electric or hybrid vehicles Containment of withdrawals and water consumption Wastewater treatment aimed at containing and controlling pollutants Reuse and recycling of wastewater Savings on the material used in the production processes. Use of secondary raw materials (production process waste recovered and returned to production) Separate collection and recycling of waste Waste management aimed at containing and controlling pollutants Containment of atmospheric emissions Containment of noise and / or light pollution

Goals 7, 8

Goal 6

Goal 8, 6, 3

Goal 11, 12, 13, 14, 15, 3

(continued)

44

2  Developing a Synthetic Index of Business Sustainability

Table 2.3 (continued) GRI GRI 308 New suppliers that were screened using environmental criteria SOCIAL VARIABLES GRI 403 Workers representation in formal joint management–worker health and safety committees Health and safety topics covered in formal agreements with trade unions *

ESGs Supplier Sustainability

ISTAT use of suppliers who have already adopted processes to reduce the environmental impact of their activities

SDGs Goal 12, 17

Occupational Health and Safety

Health initiatives of collective interestE

Goal 3

Supply chain management Participation of the company in area or supply chain collective bodiesE GRI 401 * Extension of the duration Parental leave of parental leaveI Human Capital- includes Acquisition of personnel GRI 401 in difficult conditions the management of risks New employee hires and above the quota required related to scarcity of employee turnover by lawI skilled labor through retention and recruitment Maintaining high programmes employment levels even in the presence of reduced profitsI urban and/ or territorial Community RelationsGRI 413 regeneration initiatives of how companies engage Operations with local collective interestE with local communities community engagement, (including indigenous impact assessments, social welfare initiatives of and development programs peoples) through collective interestE Operations with significant community involvement, initiatives to combat community development actual and potential poverty and social and/or measures to reduce hardshipE a negative impacts on negative impacts on local humanitarian initiatives of local communities communities collective interestE sports-related initiatives of collective interestE general cultural and informational initiatives (that is, not connected to the company activities) of collective interestE

Goal 8 Goal 8, 1

Goal 11, 1, 2, 3, 4, 8

(continued)

2.2 A New Indicator for Measuring Businesses’ Sustainability

45

Table 2.3 (continued) GRI GRI 403-1. Occupational health and safety management system GRI 403-2. Hazard identification, risk assessment, and incident investigation GRI 416-1. Assessment of the health and safety impacts of product and service categories * GRI 404-2. Programs for upgrading employee skills and transition assistance programs

ESGs Occupational Health and Safety

ISTAT safety of personnel in the workplaceI safety of production processesI

E&S Impact of Products and Services Product Governance

safety of the products and services soldI

Data Privacy and Security

security of company information systemsI good practices related to Goal 8, the professional 5 development of personnelI good practices related to the protection of equal opportunities for staffI Extension of the duration of leave for serious reasons Flexible working hours (arrival, departure, breaks, etc.)I Flexible working hours (arrival, departure, breaks, etc.)I Agile smart workingI Remote workingI

Human Capital development

ECONOMIC VARIABLES Resilience- focusing on GRI 201-1. Direct economic value generated the financial stability and the management of related and distributed risks GRI 203-1. Infrastructure Innovation Capacity-R&D investments and services supported

SDGs Goal 3, 8

Revenues GOP value added

Goal 8, 9

Investments in digitalization, Investments in R&D Investments in training Investments in international activity

Goal 9, 8, 11, 12, 4, 17

Source: Our processing of variables from GRI standards, 2020, ISTAT, and ESG (from the table of Synthesized ESG indicator variables) a The social variables in the table of correspondence (Table 2.3) are categorized under internal and external activities, using the superscript letters I and E attached to the end of the activity/variable

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2  Developing a Synthetic Index of Business Sustainability

Continuing with the selection of the variables for our ABR INDEX, the second part is finding the linkage among variables from ISTAT with GRI and ESG variables, by comparison, and connecting them with the SDGs. Hereunder we explain the new classification. 2.2.1.2 A New Classification of Sustainability: Connection between GRI-ESG-ISTAT variables Taking into account the existing literature and the classifications proposed in various projects, our idea is that a sustainability index on businesses should consider aspects which are relevant at micro level as well as aspects that are important at macro level. For this reason, we carefully compared the GRI, the ESG and the ISTAT classifications and we tried to capture the common variables or the connections between them. The task is to propose a simplified list of variables to measure sustainability. This classification aims to describe micro and macro level aspects of sustainability. Using this new classification and the Business Census Italian data, we compute a sustainability indicator on businesses in Italy by the following dimensions: social (internal and external), environmental, and economic, taking into consideration the SDGs framework. Business sustainability and well-being activities refer to the business actions that are captured under the 3 or 4 dimensions (environment, social, economy, and governance) to promote the protection of the environment, social equity, and economic progress (Riccardini et al., 2020). The actions of businesses towards sustainability can be measured using indicators to help keep track of businesses sustainability progress. Sustainable and well-­being activities are a lot and those that are measurable may be aligned to key frameworks or guidelines (Siegerink et al., 2022). For businesses, the common frameworks or guidelines are the GRI and ESGs. They are important because they provide some indicators that seek to measure or promote sustainable practices of b­ usinesses for sound economic gains. The SDGs are those goals we want to achieve for all human well-being, and as part of the contribution of businesses to these goals we have to use the specific businesses major guidelines and frameworks as GRI and ESG (Riccardini et al., 2020). Italy being the geographical area under study in this work, the Italian Statistical Institute (ISTAT) performed a business census, and the survey comes with variables for the sustainable and well-being practices of businesses in Italy. The task for us is to build a composite indicator on business sustainability and well-being practices from the set of variables from ISTAT.  Most companies build and report on their sustainability actions using one or a mixture of the various frameworks, with the ESG and GRI being widely used. Hence, to select the variables to build the composite indicator, we use the common frameworks or guidelines as standards to compare with the variables from ISTAT. Some methods of selecting appropriate variables to use in a composite indicator include the fuzzy method, principal component analysis, experts selecting variables

2.2 A New Indicator for Measuring Businesses’ Sustainability

47

based on their experience in the field, using a standard framework developed for the phenomenon being studied, etc. Our selection criterion is using globally accepted standard frameworks, and to select the variables for the analysis we compare the available ISTAT variables (from the Business Census 2019 and the Business Register of Italian businesses) to the standard sustainability frameworks (see Table 2.3). There is no standard set of ESG variables available. For this analysis we use some common ESG indicator variables from Banca Italia, the Global Compact, and ESG report by third-party reporters (Table 2.2). In comparing the list of ISTAT variables to the targets of the SDGs, we build a bridge from micro-level sustainability (business sustainability) to macro-level (the SDG). In this way, we can connect also the activities of Italian firms that promote individual targets of the SDGs and calculate the contributions of businesses on a macro level to the SDGs.

2.2.2 Data Treatment, Normalization, Transformation and Aggregation 2.2.2.1 Data Treatment and Preliminary Statistics After the variables are selected, it is important to scan data to check for issues such as missing information, outliers, etc. This can be done by computing simple summary statistics to understand the distribution of the data. In some cases, an outlier may affect the overall performance of the indicator. Hence when we run simple summary statistics, we can identify any outlier, identify their influence on the data, and decide whether to keep or remove them. Missing data values in analysis can be very disturbing, as it may cause biased estimation because most statistical models work on complete observations of the variables (Salgado et al., 2016). Types of missing data values include missing completely at random (MCAR), missing at random (MAR), structurally missing, and missing not at random. The MCAR is when the missing data values are completely missing in the data with no obvious pattern. This type of missingness is difficult to assume unless the method involved in collecting the data is known. Missing not at random is the type where information or data values are not recorded by respondents because of their personal reasons. An example is when a respondent refuses to answer a question like, what is your source of income? Structurally missing data is for our study the most important thing to look out for. This is when data values are missing for obvious reasons or missing on purpose. In our analysis, we may encounter missing or zero values in a variable for some economic divisions. This may be structurally the case because there may be an economic division or a sector with no known enterprise involved in a particular sustainable activity. This is why we say sustainable activities are industry-specific, and hence the reason why it is more important to be careful in our variable selecting process.

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2  Developing a Synthetic Index of Business Sustainability

Another reason for structural missing data value could be the outcome of data manipulation such as converting a dataset from wide to the long structure, or from actual values to log transformation. This manipulation from raw data to dataset ready for dissemination can result in missing data values. For example, when a respondent in a survey record zero (0) as an income, and the data is transformed with a log function before dissemination, the end-user will identify missing cases where the income was zero (0). This is because a log (0) is undefined. When we have data missing values, we can treat it with missing value imputation methods such as maximization likelihood (ML) methods, mean/mode imputation, regression methods (RM), K-nearest neighbor imputation (KNN), etc., (Peng & Lei, 2005). In other cases, the observations or variables with missing values are completely dropped from the data, which happens mostly with structural missing data. We check our data for missing cases and treat them accordingly. To validate the data for the analysis, we check if there is any indicator variable that has a value = 0 for more than 2 economic divisions (i.e., our unit of observation). Here, value = 0 means the firms of that economic division were not involved in the said activity represented by the indicator variable. We mentioned earlier that sustainability indicators are industry-specific (Yadav et al., 2017). Therefore, there is a possibility that some variables will have 0 case or data value for some sectors/ economic divisions, meaning that activity is not feasible for those sectors. Therefore, using these variables will reduce the score of the economic divisions that by default are not represented by the indicator variable. This may lead to an unfair composite score. Unless in the case of missing data which can be corrected by going to the source of the data for the unreported value, we will drop any such variable with more than one sector reporting 0 observation. 2.2.2.2 Correlation Analysis Once data has been checked and any errors corrected, a preliminary analysis in the form of multivariate analysis is needed to study the overall structure of the dataset. This is a general step in a multidimensional study. A multivariate analysis is useful for assessing the data’s suitability and guiding subsequent methodological choices. The analysis helps to identify statistically similar indicators, for example, through correlation analysis, and helps interpret the results of the synthetized indicator (OECD, 2008). We talk about correlation analysis as it is the easiest way to find a relationship between variables. The correlation analysis is performed only on a pair of variables, i.e., it is a bivariate analysis that identifies any linear association between variables. When we try to build an indicator, it is important to identify any relationship between a pair of variables. Correlation analysis can provide insights into what could be exploited in the analysis. An example is that we can have a positive correlation between an environmental activity and an economic variable, and this could be useful in having further analysis to identify this relation and what could be the cause. The correlation between two variables, however, does not explain a causal

2.2 A New Indicator for Measuring Businesses’ Sustainability

49

relation. The correlation (traditionally known as Pearson’s correlation) between two variables, also known as the degree of correlation is given by: corr  xi x j  

E  xi x j   E  xi  E  x j 

 

 

E xi 2  E  xi   E x j 2  E  x j  2

2





 x  x  x  x  x  x   xi  xi

j

j

2

i

i

j

2.

j

This correlation measures the linear association between the variables. In the case where the relationship between variables is nonlinear (e.g., when a scatter plot shows no linear relation), a more robust analysis is Spearman’s correlation which assesses the monotonic relationships4 (whether linear or not) between two ­variables. The Spearman’s correlation is a modified Pearson’s correlation that works on the ranks of the original variables, and the coefficient is given as corr  Rxi Rx j  





 Rx  Rx Ry  Ry



  2



 Rx  Rx  Ry  Ry



2

The general rule of correlation analysis is that the coefficient, ρ (or r for sample correlation coefficient) is [−1,1]. When ρ =1 we have a perfect direct relationship, and when ρ = −1 there is a perfect inverse relationship. For ρ approaching zero, we have less to no correlation. In statistical analysis, identifying the correlation coefficient, ρ is not enough to conclude on the relationship between two variables. This is because the sample size affects the significance of the correlation analysis. Hence it is important to test the significance of the correlation analysis to be able to conclude with some degree of confidence, the relationship identified. The test carried out is the test of the r n2 significance of the correlation coefficient. This test is given by: t  , which 1 r2 follows a t-distribution with n – 2 degrees of freedom, where r is the correlation coefficient and n is the sample size. 2.2.2.3 Correlation Between Selected Indicator Variables Table 4.6 reports the Pairwise correlation coefficients between our selected variables. Generally speaking, we obtain high positive correlation coefficients among variables. These suggest a homogenous nature between the elements of sustainability among Italian businesses. If we go back to the structure of the dimensions of sustainability (discussed in Chapter. 1.4), the correlation results here  suggest the

 The term monotonic relationship is a statistical definition that is used to describe a scenario in which the size of one variable increases as the other variables also increases or decreases, or vice versa. A monotonic relationship can be linear or non-linear with an increase or decrease occurring at different rates between two variables. 4

50

2  Developing a Synthetic Index of Business Sustainability

dimensions of business sustainability are interlinked in a positive way, and thus each element must be treated with equal importance by businesses who wish to practice the actions. 2.2.2.4 Transformation, Weighting, and Aggregation Herein we report how we built our final sustainability index. The index formula is a result of the type of data present for analysis (i.e., data obtained from ISTAT). The method of transformation and aggregation of data to construct the ABR INDEX are presented as follows. We consider the data as matrix A = xij containing the set of individual sustainable indicators with positive polarity, where i = 1, 2, …, n and j = 1, 2, …, k. The indicator variable(s), Xj follows a count variable. That is, the values of the variables represent the number of participants from each sector i, for each variable/activity j. From the data, each unit of observation, i.e., economic sector i, we have the total number of participants, ti. From here we calculate the sustainability index as follows: xij 1. we transform the data using the formula5: pij = ti 2. we apply the simplified aggregation method: ABRINDEXi 

M pi 2  S pi 2 M pi

M pi and S pi are the mean and standard deviation of the transformed indicator variables for each sector i. The sign ± corresponds to the polarity of the individual indicators with respect to the relationship of the indicator variable to the phenomenon under study. The decision to use + or – (the polarity) is dependent on the phenomenon (Farro et  al., 2018). If increasing values of the index for the measured phenomenon corresponds to a positive effect, the – sign is used. By simple language we can explain this as measuring business sustainability, if we expect higher values of the index to mean businesses are more sustainable, then the INDEX with the M pi 2  S pi 2 negative sign/polarity is used, i.e.: ABRINDEXi  . M pi 2.2.2.5 How We Compute the ABR INDEX The sustainable index is derived from the simple linear sum of normalised variables with adjustment made because of data variability. Given the matrix, A = xij, we compute  From the data, each indicator variable is measured on the number of businesses performing the said activity (we will see this in the data description). Ideally, we want for each activity the maximum number of businesses from each sector to perform the activity. Hence, we find the proportion of businesses performing the various activity by each sector. Following this data transforming approach, the sector with a value close to 1 for each variable will have the highest CI score irrespective of the aggregation method we will use. 5

2.2 A New Indicator for Measuring Businesses’ Sustainability

51

j 1

LAi  w j pij



(2.1)

k

the linear sum oftransformed variables together with their weights. Where k = total number of variables, wj = jth indicator weight, pij = transformed indicator variables. Indicators are weighted and aggregated according to the underlying theoretical framework. The set of variables that we can combine to form a composite indicator may come with different degrees of importance. This warrants the need for weighting. Individual indicator variables can be weighted in such a way to reflect the importance of each variable in the synthesized indicator (Becker, et al., 2017). For our analysis, we apply equal weights, wj = 1/k to represent the equal importance of the various activities  (which we discussed in  Section 2.2.2.3), also suggested by the experts who collaborated at the ISTAT questionnaire. Assigning unequal weights means some activities are more important than others, thus we choose to apply equal weight. The general rule of thumb for assigning weights is j 1that the sum of weights equals one, and each weight must between one and zero: w j  1, 0  w j  1 k

With equal weights, i.e., w1  =  w2  =  …  =  wk  =  1/k, then the linear sum  from Eq. 2.1 becomes, j 1

LAi  w j pij  M pi (2.2)



k

where M pi is the mean value for economic division i. The indicator variables for the composite indicator have unbalanced values. The presence of unbalanced values is common in composite indicator construction (De Muro et  al., 2011). Hence, we can apply the penalization factor S pi cvi , where cvi =

S pi M pi

.

The factor S pi cvi is used to penalize the economic divisions with unbalanced values of the selected indicator variables. Where values of indicator variables for an observational unit are balanced, the penalization factor S pi cvi = 0 . The aim of the penalty is to reward units of observations that, mean being equal, have greater balance among the values of the indicators (Farro et al., 2018). The ‘penalty’ is based on the coefficient of variation, and it is zero if all the values are equal (De Muro et al., 2011). Applying the penalization factor to LAi we have obtain the index as Eq. 2.3

ABRINDEXi  LAi  S pi cvi (2.3)

negative sign because we are in the positive polarity. When we consider equal weights in the index, i.e., substituting  Eq. 2.2  into Eq. 2.3 we have the Index as

52



2  Developing a Synthetic Index of Business Sustainability

ABRINDEXi  LAi  S pi cvi  M pi  S pi cvi



(2.4)

Simplifying (Eq. 2.4) gives; ABRINDEXi 

M pi 2  S pi 2 M pi



(2.5)

And M pi and S pi are the mean and standard deviation of the transformed indicator variables, for each sector i. We have shown how we compute the new ABR INDEX starting with a simple linear aggregation method. From this point we refer to the simplified form of the Eq. 2.4, i.e. Eq. 2.5 when we talk about the sustainability Index. The differences and advantages of using our index over others (and here we compare with two common composite indexes, the linear aggregation method and MPI, and the index by Riccardini et al., 2020) are: (i) Linear aggregation methods, like the simple linear aggregation with equal means, that use traditional normalisation methods will result in estimates that are not consistent with the definition of our sustainability measure. This is because of the normalisation methods. Also, the linear aggregation fails to consider the variability in the data. (ii) The second method we consider is the Mazziotta Pareto index (MPI). Although MPI corrects for the variability in the data, it is computed with an adjusted z-score standardisation. This, as we have discussed, leads to estimates that are not consistent. (iii) Our ABR INDEX is a company-level indicator that considers sustainable environmental, social and economic activities and tries to give a measure of the intensity of sustainability in Italian companies by economic sector and company size. Having said this, it is important to compare the ABR INDEX with the index by Riccardini et al. (2020) since they use similar data. This will help highlight the importance of the ABR INDEX and show why it is an improved measure of the intensity of sustainability in Italian companies. Riccardini et al. (2020) work on the previous business survey data (the year 2017) by ISTAT. They built a simple index to measure the degree of intensity of sustainability of companies in Italy. They define the latent variable “sustainable y 1

companies”, as ly  Xy , where ly = 1 is maximum sustainability and ly = 0 is n

absence of sustainability. The sustainable index, ly is a latent variable that measures the degree of intensity by the (n) number of sustainable activities by a X business. To assess/calculate the sustainability of a group of businesses (here could be manufacturing businesses or business with 50 or more employees), the arithmetic averages of the latent variables/sustainability indices of the individual companies in the group is calculated. This average value of the calculated latent variable of each company within the group is the sustainable index for the group. Although a different formula, the concept behind the index by

2.2 A New Indicator for Measuring Businesses’ Sustainability

53

Riccardini et  al. (2020) is quite similar to ours, however, the sustainability index by Riccardini et al. (2020), does not account for variability in sustainable activities within the group of businesses. It is the account of variability that makes the ABR INDEX an improved index to measure the intensity of sustainability in Italian companies. We give a hypothetical scenario to explain why the methods are similar but with different concepts or approaches. Assuming we have 4 companies, and 10 identified sustainable actions. Each company answered they participate in these actions as given in the table below. 1 for yes, the company is involved in a given sustainable activity, and 0 for no. total action action action action action action action action action action actions 1 2 3 4 5 6 7 8 9 10 (out of 10) Company 1 0 1 1 1 0 1 0 1 0 6 A Company 1 1 0 1 1 1 1 1 1 0 8 B Company 0 1 1 1 1 1 1 0 1 1 8 C Company 0 1 1 0 1 1 1 1 0 1 7 D The approach by Riccardini et al. (2020), is that they will identify the individual sustainability intensity

Company A Company B Company C Company D

Intensity 6 8 8 7

assuming companies A, B, and C belong to manufacturing industries, then group sustainability = average(6,8,8)/10 = 0.733333 Our approach is in this way, Assuming companies A, B, and C belong to manufacturing industries, and we want to calculate the group sustainability, we calculate the total number of companies involved in each action action 1 Company A 1 Company B 1 Company C 0 Total 2 companies in the action

action 2 0 1 1 2

action 3 1 0 1 2

action 4 1 1 1 3

action 5 1 1 1 3

action 6 0 1 1 2

action 7 1 1 1 3

action 8 0 1 0 1

action 9 1 1 1 3

action 10 0 0 1 1

2  Developing a Synthetic Index of Business Sustainability

54

In this way it is easy to understand how each action is given importance. For Example, actions 8 and 10 are not so important (low intensity) since only 1 out of 3 companies participates in actions 8 and 10 We then calculate the proportion of the number of businesses in each action. Here is where we have our transformation formula, where ti = 3. ti represents the total number of businesses for the observational unit i, which here is the group of manufacturing businesses A, B, and C action 1 Company A 1 Company B 1 Company C 0 Total 2 companies in the action Proportion 0.6667

action 2 0 1 1 2

action 3 1 0 1 2

action 4 1 1 1 3

0.6667 0.6667 1

action 5 1 1 1 3

action 6 0 1 1 2

action 7 1 1 1 3

1

0.6667 1

action 8 0 1 0 1

action 9 1 1 1 3

0.3333 1

action 10 0 0 1 1

0.3333

After computing the proportions, we compute the average of the proportions, LAi action action action action action action action action action action 1 2 3 4 5 6 7 8 9 10 Company A Company B Company C Total companies in the action Proportion

1

0

1

1

1

0

1

0

1

0

1

1

0

1

1

1

1

1

1

0

0

1

1

1

1

1

1

0

1

1

2

2

2

3

3

2

3

1

3

1

0.6667 0.6667 0.6667 1

1

0.6667 1

0.3333 1

Average value

0.3333 0.733333

After we have calculated the average of the proportions, we compute the final index for the manufacturing industry as: group sustainability (ABR INDEX) = average of the proportions - penalization factor. The average value of the proportions obtained here is the same as the group sustainability using Riccardini et al. (2020) approach. Mathematically the two approaches provide the same value, and therefore we say they are similar, but the approaches are different. The advantage of our index over that of Riccardini et al. (2020), aside from the approach, is the introduction of the penalization factor, which considers variations in the intensity of activity as discussed in. Their index makes it difficult to consider these variabilities and thus our index is an improved method to measure the intensity of sustainability in Italian companies

2.3 Methodology for Analyzing Sustainability and Profitability and Productivity

55

In summary, we have identified the structure of our data and hence developed a synthetic indicator that considers the property of the data and the objective for building the indicator 2.2.2.6 Validating a Synthetic Indicator This step helps to check to a certain level how robust the synthetic index is. We will conduct some tests to check the sensitivity of the indicator, in particular when a different normalization is used and when the penalization factor is excluded from the index. The two instances of testing how the indicator behaves when a different normalisation is used or when the penalization factor is removed from the index are described as: 1. When the penalization factor is excluded from the index, i.e. absence of S pi cvi , j 1

the index becomes

w p j

ij

 LAi . In this way, we can calculate the sustainability

k

intensity using LAi and check the difference in results, and why excluding the penalization method will produce values which are not consistent with our measure of sustainable intensity. 2. When the penalization factor is included in the index, but a different data transformation is applied, for example the z-score standardization, the index becomes, M z 2  Szi 2 M zi  Szi cvi  i . Note that this is different from the ABR INDEX, as it M zi does not involve the transformed data, pij =

xij

. ti We estimate and compare the index values using these approaches in paragraph 3.6. These validation tests are linked to the importance and advantages of the ABR  INDEX as discussed above. Some detailed results of these analyses are reported in the tables, Tables 4.1, 4.2, 4.3 and 4.4 of Appendix.

2.3 Methodology for Analyzing Sustainability and Profitability and Productivity The composite indicator ABR INDEX is a synthetic measure to represent the level of sustainability for business. It is interesting to analyze the possible link between the sustainability ABR INDEX and businesses economic performance. Businesses’ economic performance can be measured by several indicators. These include

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2  Developing a Synthetic Index of Business Sustainability

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization),6 revenues, labor productivity, profitability, among others. It is interesting for us to understand the relation between the sustainability profiles of businesses and the economic performance indicators. We analyze this relation using the linear regression model. The linear regression is used to estimate the relation between sustainability level (measured by ABR INDEX) and level of profitability and productivity. The simple linear regression is a linear approach to model the relationship between a dependent variable and one or more independent variables (Wooldridge, 2015). To perform the regression analysis, the used estimation method is the ordinary least-squares (OLS) estimation. The OLS model is defined by matrix 𝑌=𝑋𝛽+𝜀. With dependent term, 𝑌, independent variable(s), 𝑋, model coefficient estimate(s), 𝛽 and the error term, 𝜀. The estimated models in our analysis are

Profitability  constant   1  ABRINDEX    1  employed size   



Productivity  constant   2  ABRINDEX    2  employed size    (2.7)



(2.6)

The dependent variables are Productivity level and Profitability level, which are our proxies for businesses economic performance. The variable ABR  INDEX is the measure of sustainability of businesses. We control for business heterogeneity using the control variable available to us. The control variable is the size of businesses, here measured by employment size. Two approaches can be applied with the control variable. The first is using actual values of the employment size, i.e., total number of employed. In this way, the coefficient estimate, β1 in Eq. 2.6 is explained as: an increase in number of employed has a β1 outcome on Profitability. The second way is using employment class groups. Here we identify the class categories that businesses fall under. These categories are businesses with employeed sizes from 3–9 employed, 10–19 employed, 50–99 employed, 100 or more employed: a modified version of the standard Italian size class by employment. This approach involves the use of class dummy variables to represent the employment size categories and produce more than one β1 estimate. The model(s) using the dummy variables for the four class groups will become:

Profitability / or Productivity  constant  

 ABRINDEX   C1  class1   C 2  class2    C3  class3    (2.8)

 EBITDA, in Italian is similar to MOL –Margine Operativo Lordo-. It is the real result of the company’s business and it is used inside financial and economic balance sheet for analysis purpose connected to the stock. 6

Bibliography

57

class1–3 are the dummies for the employment groups, C1–3 are the coefficients estimates. Note that in using n-number of dummies in a regression model, the final model produces n-1-number of dummies. The coefficient estimates are explained as: all things equal, businesses belonging to the class group 3–9 employed, (class1) will change their Profitability or Productivity by C1, and so on. The simple regression model is used because our focus is to perform a simple analysis to understand the relations. Dealing with sustainability actions of businesses and the effect that it has on business’ economic performance, randomized control trials or methods like before-after comparison can be used to check the effect of being sustainable. Causality tests, like Granger causality, can also measure the cause-and-effect relationship of being sustainable (Chang & Kuo, 2008). The analysis we perform however is not on the direct effect of being sustainable, but to estimate the relationship of being sustainable on business’ economic profiles.7

Bibliography Ahmad, S., & Wong, K.  Y. (2019). Development of weighted triple-bottom line sustainability indicators for the Malaysian food manufacturing industry using the Delphi method. Journal of Cleaner Production, 229, 1167–1182. Artiach, T., Lee, D., Nelson, D., & Walker, L. (2010). The determinants of corporate sustainability performance. Accounting and Finance, 50, 31–51. Bianchi, A., & Biffignandi, S. (2020). Workplace social environment indicator: A comparative analysis of European regions. Social Indicators Research, 1–20. Chang, A. Y., & Cheng, Y. T. (2019). Analysis model of the sustainability development of manufacturing small and medium-sized enterprises in Taiwan. Journal of Cleaner Production, 207, 458–473. Chang, D. S., & Kuo, L. C. R. (2008). The effects of sustainable development on firms' financial performance–an empirical approach. Sustainable Development, 16(6), 365–380. Chiappini, R. (2012). Les indices composites sont-ils de bonnes mesures de la compétitivité des pays? Hal.archives-ouvertes. De Muro, P., Mazziotta, M., & Pareto, A. (2011). Composite indices of development and poverty: An application to MDGs. Social Indicators Research, 104(1), 1–18. Dialga, I., & Le Giang, T. H. (2017). Highlighting methodological limitations in the steps of composite indicators construction. Social Indicators Research, 131(2), 441–465. Farro, A. L., Maggino, F., & Mazziotta, M. (2018). Composite indicators for measuring Well-being of Italian municipalities. Sapienza università di Roma. Department of Social and Economic Sciences.

 Similar work can be found in ISTAT (2019), Rapporto annuale, Cap.5 or a more detailed analysis, but only for social components of sustainability, can be found in: T. Artiach, D. Lee, D. Nelson, L. Walker, The determinants of corporate sustainability performance, Accounting and Finance 50 (2010) 31–51. Another recent study, but only for the environmental component of sustainability, can be found in: S. De Santis, R. Monducci (2021), Sostenibilità ambientale, profili strategici e performance delle imprese manifatturiere italiane, in Rivista di Politica economica n. 1. 7

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Freudenberg, M. (2003). Composite indicators of country performance: A critical assessment (OECD science, technology and industry working papers, 2003/16). OECD Publishing. https:// doi.org/10.1787/405566708255 GRI. (2020). Global reporting initiative. Available at: https://www.globalreporting.org/standards/. Accessed 25 Sept 2021. ISTAT. (2019). Rapporto annuale 2019, capitolo 5 su “Benessere, competitività e crescita economica”, pp. 11–14. Liu, G. (2014). Development of a general sustainability indicator for renewable energy systems: A review. Renewable and Sustainable Energy Reviews, 31, 611–621. Mazziotta, M., & Pareto, A. (2013). Methods for constructing composite indices: One for all or all for one. Rivista Italiana di Economia Demografia e Statistica, 67(2), 67–80. Mazziotta, M., & Pareto, A. (2018). Measuring well-being over time: The adjusted Mazziotta– Pareto index versus other non-­compensatory indices. Social Indicators Research, 136(3), 967–976. OECD. (2008). Handbook on constructing composite indicators. Methodology and user guide. ISBN 978-92-64-04345-9. Peng, L., & Lei, L. (2005). A review of missing data treatment methods. Intelligent Information Management System and Technology, 1, 412–419. Perez, V., Guerrero, F., Gonzalez, M., Perez, F., & Caballero, R. (2013). Composite indicator for the assessment of sustainability: The case of Cuban nature-based tourism destinations. Ecological Indicators, 29, 316–324. Pislaru, M., Herghiligiu, I. V., & Robu, I. B. (2019). Corporate sustainable performance assessment based on fuzzy logic. Journal of Cleaner Production, 223, 998–1013. Riccardini, F., Bachelet, M., Bressan, G., Conigliaro, P., De Rosa, D., & Vazquez, D. (2016). Sviluppo e benessere sostenibili. Una lettura per l’Italia. Universitalia. Riccardini, F., De Santis, S., Spinelli, V., & Tersigni, S. (2020). Businesses behaviors and sustainable development., Istat – Experimental Statistics. Salgado, C. M., Azevedo, C., Proença, H., & Vieira, S. M. (2016). Missing data. Secondary analysis of electronic health records. , 143–162. Salvati, L., & Carlucci, M. (2014). A composite index of sustainable development at the local scale: Italy as a case study. Ecological Indicators, 43, 162–171. Siegerink, V., Shinwell, M., & Žarnic, Ž. (2022). Measuring the non-financial performance of firms through the lens of the OECD Well-being framework: A common measurement framework for “Scope 1” Social performance (OECD Papers on Well-being and Inequalities, No. 03). OECD Publishing. https://doi.org/10.1787/28850c7f-­en Walesiak, M. (2018). The choice of normalization method and rankings of the set of objects based on composite indicator values. Statistics in Transition. New Series, 19(4), 693–710. Wooldridge, J. M. (2015). “The simple regression model”. Introductory econometrics: A modern approach (6th ed., pp. 20–57). Cengage Learning. ISBN 978-1-305-27010-7. Yadav, S.  S. K., Abidi, N., & Bandyopadhayay, A. (2017). Development of the environmental sustainability indicator profile for ITeS industry. Procedia Computer Science, 122, 423–430.

Chapter 3

Application of the Sustainable Index: A Feature of Sustainability in Italian Businesses

Abstract  This chapter is organized as follows. The first step is a description of data and source of data. We analyze the data on Italian business activities, following the connection we make between the data variables and the targets/goals of the SDGs, as part of the data description. This provides a way to identify the contribution of Italian businesses to achieving the Sustainable Development Goals. In the next step in this chapter, we present the analysis process and compute the ABR INDEX of Italian business sustainability by sector and size under environmental sustainability, social sustainability (considering separately internal and external social sustainable activities), economic sustainability, and overall sustainability level. A use of the proposed ABR INDEX is to allow us to investigate the relationship between sustainability and productivity and profitability. The chapter presents the results of this analysis where we investigate the relevance of being sustainable. In addition to this, we discuss the differences with our ABR INDEX and other composite indicators at business level. Keywords  Contribution of Italian businesses to SDG · ABR INDEX of Italian business sustainability by sector and size under environmental, social and economic sustainability · Relationship between sustainability and productivity and profitability This chapter is organized as follows. The first step is a description of data and source of data. We analyze the data on Italian business activities, following the connection we make between the data variables and the targets/goals of the SDGs, as part of the data description. This provides a way to identify the contribution of Italian businesses to achieving the Sustainable Development Goals. In the next step in this chapter, we present the analysis process and compute the ABR INDEX of Italian business sustainability by sector and size under environmental sustainability, social sustainability (considering separately internal and external social sustainable activities), economic sustainability, and overall sustainability level. A use of the proposed ABR INDEX is to allow us to investigate the relationship between sustainability and productivity and profitability. The chapter presents the results of this analysis where we investigate the relevance of being © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Riccardini et al., Sustainable Practices in Italian Businesses, SpringerBriefs in Environmental Science, https://doi.org/10.1007/978-3-031-28177-8_3

59

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3  Application of the Sustainable Index: A Feature of Sustainability in Italian Businesses

sustainable. In addition to this, we discuss the differences with our ABR INDEX and other composite indicators at business level.

3.1 Introduction In this chapter the results of our study are presented. The aim of our research is threefold. Starting with the first aim, we compute (according to the methodology and variables classification criteria presented in Chap. 2) the ABR INDEX of Italian businesses by sector and size on the environment, social, and economic dimensions. There are two specific innovations in the construction of the index: the first one relates to the selection criteria of the variables. The criteria are in line with the comparison between business standard classification and the search for the common variables and their connection to SDGs. The second innovation corresponds to the aggregation method we adopted, (described in Chap. 2). For the second aim, we focus on the identification of the effect of the level of sustainability on the level of profitability and labor productivity. The hypothesis to be tested is that higher level of sustainability has a positive effect on level of profitability and level of productivity. In this context we anticipate that actions in favour of sustainability will play a role in influencing economic performance. Some analysis (ISTAT, 2019; Riccardini et al., 2020) demonstrated the positive relation between adoption of sustainable actions and economic performance, in particular labour productivity. Following this type of analysis, we also estimate the relation between businesses sustainability (measured by the synthetized indicator) and the economic performance of businesses (measured by labor productivity and profitability). As a third aim, we provide some analyses and comments on Italian businesses contribution to SDGs, by classifying businesses according to international standards (GRI) and to variables analyzed with the ISTAT Census data. This chapter is organized as follows. Paragraph 3.2 describes the data and the source of our data. Business sustainability actions are considered as one of the indicators useful in analyzing the performance of the businesses and their behavior toward sustainability. Therefore, in paragraph 3.3, a descriptive analysis of the Census data with respect to the type and number of sustainability actions taken from the businesses is presented. Paragraph 3.4 follows with a discussion of the results of the computed sustainability index. In paragraph 3.5, we provide some comments on how sustainability in Italian businesses play a role on various SDGs, i.e., Italian businesses’ contribution to the SDGs. Next, (paragraph 3.6) we highlight the characteristics of the sustainability ABR INDEX we have proposed and used in the analysis of the Italian businesses. We do this by comparing the results of the index, ABR INDEXi to other composite indicators that may be used for the purpose of our analysis. Finally, (paragraph 3.7) some analyses to investigate the relationships between sustainability level and productivity and profitability are presented. At the end (paragraph 3.8) a syntesis of results closes the chapter, with some suggestions for the future research and for policy agenda.

3.2  Data and Source of Data for Our Analysis

61

3.2 Data and Source of Data for Our Analysis In this study we use data from the Italian Permanent Business Census and the Italian Business Register, all sourced from the Istituto Nazionale di Statistica, ISTAT. The Permanent Business Census was carried out on firms between May and October 2019 and the reference year of the collected data is 2018. A sample of 280,000 Italian businesses with at least 3 employees were surveyed. They are representative of over 1,000,000 of firms and corresponding to 24% of total Italian firms of Industries and Services and to the 84.4% of value added. They occupy the 76.6% of employed persons and the 91.3% of employees. The firms were asked to respond to a multipurpose survey questionnaire, and information provided by the firms was processed in compliance with the legislation on the protection of statistical confidentiality and personal data. The results of the survey are disseminated in aggregate form, which can be accessed on the ISTAT website. In the questionnaire section devoted to sustainability, most of the data are dichotomous variables that try to capture the behavior of company. For each surveyed business some economic variables of monetary value were also collected from the Business registers. The final output of the dataset is in aggregation form by economic sector (NACE 2007, ATECO 2007 classification). Variables coming strictly from the census (aggregated by economic sector, at 2-digit level) are used for the computation of the environmental and the social indicator, whereas data coming both from the census and business register are used for the economic indicator variables. ISTAT sustainable indicator variables coming from the Permanent Business Census are composed of variables categorized under five main questions/macro actions. These are: 1. the strategies for environmental sustainability, 2. strategies to improve occupational well-being and collective interest, 3. initiatives of collective interest external to the company, 4. strategies for the benefit of the area in which the company operates, 5. safety and security aspects inside or outside the company. Each of the five macro actions are made of divisions and subdivisions. The strategies for environmental sustainability are grouped under 3 divisions with a total of 22 indicator variables. The strategies to improve occupational well-being and collective interest are collectively grouped under 2 divisions with a total of 16 indicator variables. The initiatives of collective interest also are composed of 8 indicator variables, forming a single group. The strategies for the benefit of the area in which the company operates are composed of 2 divisions with a total of 12 indicator variables. The safety and security aspects inside or outside the company are also composed of 6 indicator variables. Figure 3.1 indicates a clearer breakdown of the indicator variables presented by ISTAT. The variables for the empirical analysis are selected among the ISTAT indicator variables that are reported in the table of correspondence (Table 2.3, in Chap. 2). The list of the final selected variables for the empirical analysis is presented in Table 3.1.

62

3  Application of the Sustainable Index: A Feature of Sustainability in Italian Businesses

ISTAT Sustainable Indicator Composition

Main Questions

1

2

3

4

5

Divisions

3

2

1

2

1

22

16

8

12

6

Indicator Variables

Source: our own depiction of how ISTAT Permanent Business Census 2019 is presented

Fig. 3.1  Breakdown of ISTAT Sustainability Indicator variables

3.3 Sustainability Actions in the Italian Businesses Analyzing the 2018 census data published by ISTAT on environmental and social aspects of sustainability on Italian companies, an estimate of 66.6% of companies with 3 or more employees (surveyed companies) recorded that were carrying out actions to reduce the environmental impact of their production activities. 68.9% of the surveyed companies recorded they were engaged in various actions to improve occupational well-being, equal opportunities, parenting, and work-family reconciliation. 64.8% of the surveyed companies recorded they took actions to improve the level of safety and security in their company or the territory in which they operate (Fig. 3.2). From Fig. 3.2, there are three 3 macro actions that are more widespread in Italian businesses: 1. increase safety and security aspects inside or outside the company, 2. strategies to improve occupational well-being, and 3. strategies for environmental sustainability. These are the actions that are also more directly related to the enterprise production process. Less practiced are the external social sustainable activities, such as supporting or implementing initiatives for the benefit of the local productive fabric (29.4% of businesses) and the support or implementation of initiative of collective interest (31.3% of businesses). Analyzing the economic sectors, increasing security and safety activities were carried out more by businesses in the ‘Industries in strict sense’ sectors than in the ‘Services’ sectors. In particular 81.4% of businesses in E- Water supply, sewerage, waste management, 77.1% of businesses in B- Extraction of minerals from quarries and mines, and 76.1% of businesses in Constructions (all belonging to ‘industries in strict sense’) were involed in activities to increase security and safety. Activities to reduce the environment impact was pursued mostly by the sectors E- Water supply, sewerage, waste management and of B- Extraction of minerals from quarries and mines, but also by the sectors Q- Health care and social assistance and CManufacturing sectors (see Fig. 3.3) below for breakdown of macro actions by economic sectors). These are sectors with more then 70% of businesses involved in

3.3  Sustainability Actions in the Italian Businesses

63

Table 3.1  List of variables used for the empirical analysis Environment variables evn1 Installation of efficient machinery, equipment and/or appliances that reduce energy consumption evn2 Thermal insulation of buildings and/or construction of buildings with low energy consumption evn3 Installation of plants for the production of electricity from renewable sources evn4 Installation of plants for the production of thermal energy from renewable sources evn5 Installation of cogeneration or trigeneration and / or heat recovery systems evn6 Purchase of electric or hybrid vehicles evn7 Containment of withdrawals and water consumption evn8 Wastewater treatment aimed at containing and controlling pollutants evn9 Reuse and recycling of wastewater evn10 Savings on the material used in the production processes evn11 Use of secondary raw materials (production process waste recovered and returned to production) evn12 Separate collection and recycling of waste evn13 Waste management aimed at containing and controlling pollutants evn14 Containment of atmospheric emissions evn15 Containment of noise and / or light pollution evn16 Use of suppliers who have already adopted processes to reduce the environmental impact of their activities Economic variables eco1 Investing in digitalization eco2 Investing in training eco3 Investing in international activity eco4 Investing in R&D Social variables Safety and Security aspects safe1 Safety of personnel in the workplace safe2 Safety of production processes safe3 Security of company information systems safe4 Safety of the products and services sold Internal activities I-soc1 Good practices related to the protection of equal opportunities for staff I-soc2 Good practices related to the professional development of personnel I-soc3 Extension of the duration of leave for serious reasons I-soc4 Flexible working hours (arrival, departure, breaks, etc.) I-soc5 Agile smart working I-soc6 Remote working I-soc7 Extension of the duration of parental leave (continued)

64

3  Application of the Sustainable Index: A Feature of Sustainability in Italian Businesses

Table 3.1 (continued) I-soc8

Acquisition of personnel in difficult conditions above the quota required by law I-soc9 Maintaining high employment levels even in the presence of reduced profits External activities/ Initiative of Collective Interest E-soc1 Health initiatives of collective interest E-soc2 Participation of the company in area or supply chain collective bodies E-soc3 Urban and or territorial regeneration initiatives of collective interest E-soc4 Social welfare initiatives of collective interest E-soc5 Initiatives to combat poverty and social hardship E-soc6 Humanitarian initiatives of collective interest E-soc7 Sports-related initiatives of collective interest E-soc8 General cultural and informational initiatives (that is, not connected to the company activities) of collective interest

enironmental and social sustainability main actions

Source: variables from ISTAT data, Permanent Business Census 2019, and Business Register

Increase security levels within the company or in the territory where the company operates

64.8

Support or implement initiatives for the benefit of the local productive fabric

29.4

Support or implement initiatives of collective interest

31.3

Improve working well-being

68.9

Reduce the environmental impact

66.6 0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

percentage of businesses

Source: our data processing on ISTAT data, Permanent Business Census 2019

Fig. 3.2  Businesses that in 2018-year period carried out environmental and social sustainability actions, by type of macro action (value in percentages)

reducing their environmental impact. The activities to improve working wellbeing were pursued mostly by businesses in Q- Healthcare and social assistance (77.1%), P- Education (76.1%), K- Financial and Insurance sectors (74.1%), and Water supply, sewerage, waste management (74.7%). Considering the size of business, measured by number of employed, findings show that sustainability activities participation level is greater as firm size increases, and this is in all size classes. From the data, we estimate more than 80% of large firms (business with 500 or more employed) are involved in various actions to reduce environmental impact, and improve working well-being and external area well-­being, Fig. 3.4. There are differences in the sustainability orientation of businesses between large and small industries. These differences for instance can be linked to the different factors in play. For example, large enterprises have strict regulatory

3.3  Sustainability Actions in the Italian Businesses

65

Increase security levels within the company or in the territory where the company operates Support or implement initiatives for the benefit of the local productive fabric Support or implement initiatives of collective interest Improve working well-being Reduce the environmental impact S - Other service activities R - Artistic, sporting, entertainment and fun activities Q - Healthcare and social assistance

Italian businesses economic sector, Ateco 2007

P - Education N - Rental, travel agencies, business support services M - Professional, scientific and technical activities L - Real estate activities K - Financial and insurance activities J - Information and communication services I - Accommodation and restaurant services activities H - Transport and warehousing G - Wholesale and retail trade; repair of motor vehicles and motorcycles F - construction E - Water supply; sewerage, waste management and remediation activities D - Supply of electricity, gas, steam and air conditioning C - Manufacturing activities B - Extraction of minerals from quarries and mines 0.0

10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

percentage of businesses

Source: our data processing on ISTAT data, Permanent Business Census 2019

Fig. 3.3  Businesses that in 2018-year period carried out the macro actions, by economic sectors (value in percentages)

requirements from National or European laws to report on their non-financial behavior. Another concern is the industry-specific requirements and organizational structure that businesses must obey. Some specific sectors will have a more uniform pattern on their sustainability orientation which is influenced by their organizational or production processes. Large firms can invest in sustainability much more than small ones due to their more complex production process.

66

3  Application of the Sustainable Index: A Feature of Sustainability in Italian Businesses

Increase security levels within the company or in the territory where the company operates Support or implement initiatives for the benefit of the local productive fabric Support or implement initiatives of collective interest

businesses class group, measured by mnumber of empolyees

Improve working well-being Reduce the environmental impact 500 and above employed 250-499 employed 100-249 employed 50-99 employed 20-49 employed 10-19 employed 3-9 employed 0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

percentage of businesses Source: our data processing on ISTAT data, Permanent Business Census 2019

Fig. 3.4  Businesses that in 2018- year period carried out environmental and social sustainability actions, by class size (value in percentages)

3.4 The Sustainability ABR Index In this section we report and discuss the results of the analysis with the ABR INDEXi, both as a general synthetic index and on various breakdown classification. First, we consider the breakdown by sustainability dimensions: environment, social and economic. Afterwards we present and discuss the ABR INDEX on social sustainability aspects classified by internal, external and safety issues. The ABR INDEX allows us to make comparisons between economic sectors/division and company size and understand the relevance of the environmental, social and economic components. Obviously, and subsequently, the complexity of the sustainability model should be investigated more, together with the other factors of competitiveness. However, owing to data availability, this is not possible in this work. Table 3.2 shows the results and rankings of the Italian economic divisions under ATECO 2007, of the general ABR INDEXi and various breakdown classifications.

0.10533

0.10445

0.09716

E38: waste collection, treatment and disposal activities, materials recovery

C24: manufacture of basic metals

I55: accommodation

0.0855

0.08574

F42: civil engineering

C17: manufacture of paper and paper products

0.08835

C29: manufacture of motor vehicles, trailers and semi-trailers

0.0954

0.11019

Q87: residential care activities

K64: financial service activities, except insurance and pension funding

0.12329

D35: electricity, gas, steam and air conditioning supply

0.0964

0.12892

E36: water collection, treatment and supply

C22: manufacture of rubber and plastic products

0.13812

15

14

13

12

11

10

9

8

7

6

5

4

3

2

0.15349

0.1405

1

Rank

0.18121

GENERAL INDEX

All Dimensions (a)

C20: manufacture of chemicals and chemical products

C11: manufacture of beverages

C21: manufacture of basic pharmaceutical products and pharmaceutical preparations K65: insurance, reinsurance and pension funding, except compulsory social security

2 Digit NACE 2007

0.13898

0.13391

0.13473

0.03733

0.15741

0.12883

0.17610

0.16976

0.08952

0.16691

13

15

14

52

9

16

5

6

29

7

4

0.17831

3

0.18170 2

32

0.08728

0.20675

1

Rank

0.21147

INDEX

ENIRONMENTAL (b)

0.37065

0.35435

0.46791

0.49258

0.43525

0.33259

0.41571

0.36901

0.23859

0.38756

0.49141

0.53750

0.44500

0.77825

0.68555

INDEX

41

43

16

13

24

50

28

42

64

34

14

9

20

1

2

Rank

ECONOMI(c)

0.00133

0.00898

0.00313

0.15530

0.00130

0.03837

0.00451

0.01683

0.10698

0.06224

0.04805

0.03460

0.06787

0.21281

0.11903

INDEX

SOCIAL (d)

62

51

60

2

63

29

56

42

5

18

23

32

14

1

3

Rank

0.10419

0.08799

0.12078

0.16013

0.11011

0.09906

0.09412

0.11630

0.15257

0.12313

0.09356

0.13908

0.11108

0.28939

0.20684

INDEX

44

59

30

14

38

51

56

32

20

29

57

23

35

1

4

Rank

Internal Social DimeIon (e)

0.02205

0.04173

0.03082

0.11957

0.03002

0.05197

0.03289

0.03959

0.04392

0.04919

0.06145

0.04931

0.07162

0.13455

0.09478

INDEX

63

19

35

2

36

9

27

24

17

13

8

12

4

1

3

Rank

External Social Dimension (f)

0.58308

0.57962

0.61826

0.44012

0.62474

0.51326

0.59883

0.58449

0.46656

0.51155

0.64719

0.69980

0.65021

0.50153

0.75562

15

18

10

56

9

32

12

14

44

34

6

2

4

36

1

Rank

Safety and Security (g) INDEX

Table 3.2  Sustainability ABR INDEX and ranking of Italian economic divisions, results of the various dimensions of sustainability. Year 2018

3.4  The Sustainability Index 67

0.07248

0.07212

0.07189

0.07158

0.07095

0.07092

F41: construction of buildings

P85: education

J60: programming and broadcasting activities

C10: manufacture of food products

R93: sports activities and amusement and recreation activities

C25: manufacture of fabricated metal products, except machinery and equipment

Table 3.2 (continued)

0.07296

C18: printing and reproduction of recorded media

0.0741

0.07569

C26: manufacture of computer, electronic and optical products

Q86: human health activities

0.07722

C19: manufacture of coke and refined petroleum products

30

29

28

27

26

25

24

23

22

21

20

19

0.0774

0.07723

18

17

16

Rank

0.08144

0.0817

0.08389

GENERAL INDEX

All Dimensions (a)

C23: manufacture of other non-metallic mineral products

E37: sewerage

C28: manufacture of machinery and equipment n.e.c.

B: mining and quarrying

R91: libraries, archives, museums and other cultural activities

2 Digit NACE 2007

60

0.02248

0.11680

0.07581

0.09638

18

35

26

65

11

0.14734 0.00831

28

50

21

10

8

20

0.09272

0.03743

0.10508

0.15661

0.16335

0.10690

17

12

0.14541 0.11985

44

Rank

0.04819

INDEX

ENIRONMENTAL (b)

0.39986

0.22696

0.26691

0.38648

0.40904

0.21531

0.35361

0.43966

0.54544

0.43386

0.30187

0.33939

0.49610

0.22890

0.40577

INDEX

32

67

60

35

30

69

44

22

7

25

56

47

11

66

31

Rank

ECONOMI(c)

-0.01190

0.04220

0.02230

0.10778

0.09093

-0.01470

0.01704

0.06139

0.01013

-0.03580

-0.02430

0.01569

0.00388

0.00858

0.09753

INDEX

SOCIAL (d)

33

0.11501 19

13 64

0.16152 0.07935

68

27

39

0.08296

61

70

19

0.15352 8

0.06616

63

0.08161 70 4

47

0.10194 41

21

71

67

45

37

43

7

Rank

0.14524

0.06540

0.07409

0.10344

0.11040

0.10486

0.18860

INDEX

48

75

72

43

57

53

6

Rank

Internal Social DimeIon (e)

0.02817

0.03909

0.04467

0.06622

0.06584

0.02954

0.02082

0.04245

0.02507

0.01865

0.02744

0.04063

0.02965

0.03962

-0.01570

INDEX

45

25

14

6

7

38

65

18

57

71

50

20

37

23

75

Rank

External Social Dimension (f)

0.57619

0.41862

0.47821

0.39724

0.44331

0.50740

0.52804

0.58171

0.65017

0.68850

0.54171

0.55103

0.62707

0.53961

0.52618

INDEX

19

61

40

64

53

35

28

16

5

3

24

22

7

25

29

Rank

Safety and Security (g)

68 3  Application of the Sustainable Index: A Feature of Sustainability in Italian Businesses

Table 3.2 (continued)

0.0557

0.06081

M74: other professional, scientific and technical activities

M70: activities of head offices, management consultancy activities

0.06119

H51: air transport

0.05598

0.06187

J59: motion picture, video and television programme production, sound recording and music publishing activities

N79: travel agency, tour operator and other reservation service and related activities

41

0.06456

N77: rental and leasing activities

0.06057

0.06565

G45: wholesale and retail trade and repair of motor vehicles and motorcycles

0.05951

0.06583

C30: manufacture of other transport equipment

C13: manufacture of textiles

0.06661

C27: manufacture of electrical equipment and of non-electric domestic appliances

M72: scientific research and development

40

0.06719

H53: postal and courier activities

44

43

42

39

38

37

36

35

34

33

32

0.06759

C32: other manufacturing

31

Rank

0.06763

GENERAL INDEX

All Dimensions (a)

R90: creative, arts and entertainment activities

2 Digit NACE 2007

0.03522

54

67

31 42

0.08757 0.04947 0.00303

55

40

0.05858 0.03497

51

37

0.07262 0.03738

30

19

0.08798

0.11064

25

36

0.07489 0.09840

23

57

Rank

0.10361

0.03070

INDEX

ENIRONMENTAL (b)

0.48560

15

29

3

0.41067

53

0.32101

18

8

23

39

45

27

19

48

37

51

Rank

0.67474

0.45637

0.53752

0.43629

0.37685

0.34687

0.41616

0.45159

0.33414

0.38434

0.33013

INDEX

ECONOMI(c)

0.07342

0.07070

0.06294

0.00219

0.05916

0.03924

0.06442

0.02726

0.00898

-0.01420

-0.00290

0.02909

-0.00510

0.07328

INDEX

SOCIAL (d)

11

13

16

61

20

28

15

37

50

69

0.09647

0.16480

0.15782

0.20360

11

16

6

54

10

9

0.17174 0.17016

8

28

0.12593 0.18217

58

41

0.09123

0.10654

31

25

0.13425

36 0.11650

55

66

65

18

Rank

0.09530

INDEX

0.15408

12

Rank

Internal Social DimeIon (e)

51

0.05159

0.04400

10

16

15

0.02603 0.04401

28

31

72

30

54

67

59

56

44

32

Rank

0.03262

0.03186

0.01860

0.03197

0.02543

0.02031

0.02400

0.02508

0.02849

0.03159

INDEX

External Social Dimension (f)

0.38265

68

63

23 0.40825

43 0.54386

41

8

51

31

30

20

11

45

21

52

Rank

0.46666

0.46849

0.62491

0.44956

0.51674

0.52218

0.57583

0.60543

0.46422

0.55219

0.44630

INDEX

Safety and Security (g)

3.4  The Sustainability Index 69

49

0.05341

0.0524

G46: wholesale trade, except of motor vehicles and motorcycles

0.05008

0.04732

0.04651

0.04618

0.04561

J61: telecommunications

M71: architectural and engineering activities, technical testing and analysis

R92: gambling and betting activities

M75: veterinary activities

S95: repair of computers and personal and household goods

Table 3.2 (continued)

0.05038

F43: specialized construction activities

59

58

57

56

55

54

52

51

0.05194

0.05157

50

47

0.05234

C16: manufacture of wood and of products of wood and cork, except furniture, manufacture of articles of straw and plaiting materials

H52: warehousing and support activities for transportation Q88: social work activities without accommodation

C31: manufacture of furniture

48

0.05492

C15: manufacture of leather and related products

46

0.05528

C33: repair and installation of machinery and equipment

45

Rank

0.05546

GENERAL INDEX

All Dimensions (a)

E39: remediation activities and other waste management services

2 Digit NACE 2007

0.04439

-0.00070

0.03227

46

68

56

63

58

0.02624 0.01616

24

22

71

39

27

43

38

33

34

Rank

0.10280

0.10365

-0.00610

0.06147

0.09287

0.04841

0.07185

0.08190

0.07815

INDEX

ENIRONMENTAL (b)

57

33

0.39593 0.29714

65

0.23369

6

0.55680 12

59

0.27551

0.49443

58

72

0.16799 0.28329

55

52

0.32329 0.31548

49

61

40

54

Rank

0.33379

0.25874

0.37430

0.32067

INDEX

ECONOMI(c)

0.01305

0.03593

0.03464

0.04367

0.07469

-0.02530

-0.02460

0.08953

0.02564

-0.02020

0.03083

0.01108

-0.00780

0.00476

INDEX

SOCIAL (d)

45

30

31

25

10

74

73

9

38

71

35

47

67

55

Rank

0.10181

0.10632

0.10209

0.13790

0.20484

0.07092

0.06233

0.12890

0.12816

0.07540

0.11397

0.06243

0.09938

0.10985

INDEX

48

42

46

24

5

69

74

26

27

66

34

73

50

39

Rank

Internal Social DimeIon (e)

0.02173

0.03131

0.02341

0.03988

0.01875

0.02336

0.02345

0.06969

0.02891

0.02571

0.02881

0.02799

0.02525

0.02756

INDEX

64

33

61

21

70

62

60

5

41

52

42

47

55

49

Rank

External Social Dimension (f)

54

50

0.45207 0.44063

74

0.30782

39

0.48054

47

26

0.53452

0.46226

33

58

0.43502 0.51190

46

27

0.53001 0.46288

38

67

17

13

Rank

0.48724

0.38921

0.58168

0.59423

INDEX

Safety and Security (g)

70 3  Application of the Sustainable Index: A Feature of Sustainability in Italian Businesses

0.03257

0.02804

0.02507

I56: food service activities

K66: activities auxiliary to financial services and insurance activities

L68: real estate activities

0.00886

75

74

73

72

71

70

69

68

67

66

-0.01120

-0.00130

-0.04010

-0.00600

0.01566

0.02163

-0.01210

0.03611

0.04028

72

69

75

70

64

61

73

53

48

45

74

-0.01660 0.04678

62

49

47

41

66

Rank

0.01622

0.03945

0.04396

0.05356

0.00536

INDEX

ENIRONMENTAL (b)

70 38

0.21433 0.37765

0.61338

0.34312

0.61536

0.38528

0.44295

0.16266

0.49815

0.15043

0.17798

0.22587

5

46

4

36

21

74

10

75

71

68

17

73

0.16521

0.46253

63

26

Rank

0.24418

0.42858

INDEX

ECONOMI(c)

Source: our data processing on ISTAT data, Permanent Business Census 2019 and Business Register

J62: computer programming, consultancy and related activities

0.01

0.01838

N78: employment activities

J63: information service activities

0.01933

M69: legal and accounting activities

0.021

0.03446

S96: other personal service activities

N80: security and investigation activities

0.03517

C14: manufacture of wearing apparel

65

64

0.03656

0.03591

63

0.0373

M73: advertising and market research

62

61

60

Rank

0.04107

0.04368

H50: water transport N81: services to buildings and landscape activities N82: office administrative, office support and other business support activities

0.04512

H49: land transport and transport via pipelines

GENERAL INDEX

All Dimensions (a)

J58: publishing activities

2 Digit NACE 2007

21

59

7

44

34

52

24

49

0.24136

0.10831

0.26368

0.09673

0.16304

0.04203

0.09854

0.06401

0.07232

0.08523

0.15531

0.14497

0.11073

0.07855

0.10009

0.15980

INDEX

3

40

2

53

12

75

52

72

68

60

17

22

36

65

49

15

Rank

Internal Social DimeIon (e)

0.41131 0.33174

69 53 29

0.01880 0.02551 0.03246

0.46745

68 22 74

0.01966 0.03964 0.01358

66

0.32403

58 0.02492

0.02064

0.48954

73

0.01721

0.42026

0.33181

0.23463

46 0.02813

0.39228

0.37999

0.45832

60

70

42

72

37

75

66

69

71

62

48

57 26

59

0.43316

0.03390

73

0.31972

0.43988

49

55

Rank

0.45432

0.44048

INDEX

34

43

48

40

39

Rank

Safety and Security (g)

0.03101

0.02878

0.02759

0.02906

0.02950

INDEX

External Social Dimension (f)