Next Generation Sustainability Metrics: Theory & Practice

2011, Number 1

NET NOTES from the Women’s Network for a Sustainable Future (WNSF)

CONTENTS

I. Network Presentation

II. Presenters

III. Key Findings

IV. Presentation


I. NETWORK PRESENTATION

This luncheon round table discussion examined the next phase sustainability metrics. With mounting interest in “integrated reporting” and the advent of new sustainability standards—from Global Reporting Initiative metrics to tools for assessing “green” consumer engagement—business appears poised on the brink of a new era of performance measurement that is likely to require greater attention to ‘social responsibility’ than ever before. It’s never been easy to measure things that aren’t easily quantifiable, but the pressure is on—and metrics ‘techniques’ may be correspondingly evolving.


II. PRESENTERS

Helle Bank Jorgensen (Moderator): US Sustainability Advisory Leader,PricewaterhouseCoopers

Mike Wallace: Director, Focal Point USA, Global Reporting Initiative

Erica Matthews: Manager, Public Policy & Sustainability, Pepsico

Margaret Lindeman: Sustainability Strategy Analyst, Corporate Energy, Environment, Safety and Health, Lockheed Martin Corporation


III. KEY FINDINGS

  • While most companies currently focus on environmental metrics, next-generation metrics are likely to measure:
    Social Issues: Many companies are starting to develop metrics to measure social impact, including issues related to gender, employee engagement and community improvement.
    Women: Many companies are creating more metrics on women’s programs, and GRI leads the way by integrating gender matrices into its framework.
    Sustainability Tradeoffs: While many companies link sustainability to the bottom line, there are few sophisticated metrics to measure potential tradeoffs. Many companies are starting to measure these tradeoffs to make better-informed decisions.
    Water: Water issues are especially hard to quantify, but more companies are stepping up the challenge to develop metrics on water.
  • Reporting on metrics helps companies maintain transparency, but lack of consistency makes it difficult to compare companies. Integrated Reporting may solve this problem by creating consistency in reporting on both financial and non-financial issues.
  • The GRI’s G4 Guidelines to be released in at the end of 2012 pave the way for integrated reporting using the IIRC framework.
  • Third-party verification of metrics increases their legitimacy.
  • Metrics shared both internally and externally help strengthen a company. Internally, metrics provide convincing evidence for executive buy-in. They also help engage employees by making company goals concrete. Externally, metrics help build a company’s reputation among investors.
  • Metrics can help make the business case for sustainability issues, but they’re not enough. The company’s work must also be factored in. Meeting sustainability performance objectives is achievable with the right level of support, but changing a company’s culture can be more challenging. It requires creative solutions.

IV. PRESENTATION

Helle Bank Jorgensen (Moderator): US Sustainability Advisory Leader, PricewaterhouseCoopers

Sustainability metrics, Ms. Jorgensen said, are becoming more and more important to business—both in conversations with stakeholders as well as within the company internally. At the same time, many companies struggle to identify what are the most relevant issues and best techniques to measure. This panel, featuring GRI, Lockheed Martin, Pepsico, and PricewaterhouseCoopers, focused on the issues companies face and best practices when it comes to metrics, Ms. Jorgensen said.

In PwC’s research, Ms. Jorgensen said, many companies mention that they need more talent management metrics. Metrics on talent are still evolving, and based on survey responses, there remains much to be done.

At the recent World Economic Forum Meeting in Davos, many companies discussed trust parameters and their role in supporting sustainability. Trust parameters help shift the lense from examining profit-making controls to examining profit with purpose. Ms. Jorgensen said that integrated reporting is a key element to linking good purpose to profitability. Ultimately, she said, embedding sustainability into business is a process of a shifting company culture. Strong metrics are instrumental to achieving this.

To increase credibility, many companies also have their metrics reports assured by a third party. Both internally and externally, CEOs, CFOs, and investors are looking for metrics that are assured by names they recognize and trust. PricwaterhouseCoopers, she said, receives more and more requests from clients to assure reports on both sustainability and finance.


Mike Wallace: Director, Focal Point USA, Global Reporting Initiative

Since its inception in 1997, the GRI has rapidly gained traction in both the private and public sectors. Mary Shapiro, chair of the US Security and Exchange Council, personally met with the GRI after observing that many investors had continually referred to GRI as the preferred standard for sustainability reporting.

As Director of its US Focal Point, launched in October 2010, Mr. Wallace explained GRI’s efforts in the US and global market. While many in the US market increasingly announce sustainability initiatives and commitments, only 12% of GRI reports in 2010 were from US companies, versus 45% from Europe. US companies, however, are increasingly looking at and reporting on non-financial measures. Even at the Federal level, government agencies and departments like the US Postal Service and US Army are setting unique examples as they have been reporting based on GRI framework for years.

As GRI prepares for the G4 Reporting Guidelines to be released at the end of 2012, now is the time for companies to speak up on the issues they face, he said. Currently, lack of consistency in reports makes it hard for stakeholders to compare companies.

The significance of integrated reporting is to link sustainability and profitability in a single standardized report. In the past four years there has been a lot of sustainability activity in the financial market, including sustainability indices introduced by NASDAQ and Bloomberg.

CLICK HERE to see what companies including GE, Avon, UPS, and Deloitte have to say about GRI! (Videos from GRI’s US focal point launch at the New York Stock Exchange on January 31, 2011)

Erica Matthews: Manager, Public Policy & Sustainability, PepsiCo

With experience at the OECD as well as PepsiCo, Ms. Matthews is familiar with metrics in both the public and private sectors. She was pleased to hear from Mike Wallace that governments are starting to use GRI. This could prove to be a bridge between the sustainability efforts of the two sectors.

In terms of “next generation,” sustainability metrics Ms. Matthews suggested three areas to watch: water issues, social issues, and tradeoffs. Water is especially difficult to address because it is a local issue, requiring local reporting. It is heavily influenced by regional factors including local access, demand, and policy. Drawing water from a water-scarce area for example has a much larger impact than drawing water elsewhere.

Although current metrics tend to favor environmental issues, metrics on social issues are likely to gain traction in coming years. The United Nations is focusing on human rights, and pressure is increasing for companies to ensure that products are sourced ethically. Ms. Matthews also suggested that metrics on women—which have been lacking in the past—are likely to gain focus.

Sustainability professionals are accustomed to thinking about sustainability initiatives as an investment that should support the bottom line. However, we are less sophisticated in our ability to evaluate other potential tradeoffs. One of PepsiCo’s commitments is to ensure sustainability initiatives are mutually supportive. For example, an effort to make a product or portfolio healthier could involve negative environmental or social impacts. These tradeoffs need be assessed in order to maximize positive impact.

Ultimately, integrating sustainability into business requires more than just numbers. While numerical indicators are immensely helpful, companies must also build sustainability strategies based on the company’s unique goals and priorities.


Margaret Lindeman: Sustainability Strategy Analyst, Corporate Energy, Environment, Safety and Health, Lockheed Martin Corporation

Since 2008, Lockheed Martin has focused its sustainability programs on reducing waste, water, carbon, and injuries/illnesses from its operations. Ms. Lindeman said that more and more investors are asking questions about issues including climate change and rare earth metals. To answer these questions, Lockheed Martin works to understand its supply chain footprint and reduce the use of hazardous materials, by finding safer alternatives.

Sustainability is linked to profitability in several ways, and metrics help companies and investors see that. For one thing, Ms. Lindeman said, being energy efficient or reducing water usage lowers costs, thus improving the bottom line. A water and energy use study showed that Lockheed Martin’s primary usage of water and energy in its facilities was for heating and air conditioning. Knowing this, the company set programs in place to reduce water and energy usage, thus reducing costs. Secondly, doing business sustainably can provide a competitive advantage as it can be a selling point for customers. A third way that Lockheed Martin finds sustainability profitable is through tax incentives from energy efficiency projects —which when rolled up at the corporate level offer sizeable deductions.

Ms. Lindeman emphasized the importance of having metrics verified to maintain consistency. Lockheed Martin is having its greenhouse gas inventory third-party-certified using the ISO standard, but unfortunately, for many factors, including water and waste metrics, there is currently no ISO standard for verification.

The use of sustainability metrics in conversations internally is just as important, and sometimes more so, than the use of metrics externally, Ms Lindeman said. Strong metrics on sustainability issues enable employees to make the business case to receive support and funding for sustainability initiatives. In doing so, one must find the issues that are most relevant and on which the company can have the biggest impact. A materiality assessment helps the company stay focused on the important issues and avoid becoming overloaded with data.

The Women’s Network for a Sustainable Future is a 501c3 organization. This issue of Net Notes was compiled by Lana Zaman.

Copyright 2008 Women’s Network for a Sustainable Future

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