Sustainability: Measure It to Improve It
There is a saying: “What gets measured gets done.” These words are especially true for companies that are incorporating sustainability in their practices. The growing interest among stakeholders in the management of sustainability by corporates have led to an increase in the measurement of ESG (Environmental, Social and Governance) metrics. But to start measuring ESG effectively, it is crucial that you identify the issues that could affect the business.
Companies use materiality assessment to identify areas that are most important for them. These material topics are selected based on the company’s impact on the environment and on how the external environment impacts the company. In other words, materiality can be considered as an approach that helps companies set an objective with logical reasoning.
After completing the materiality assessment, organizations focus on ESG efforts to measure their progress, track goals, analyze the effectiveness and evaluate the impact. One of the benefits of focusing on ESG metrics is that companies can unlock challenges that help them maintain competitive advantage over other industry players. Besides, these metrics matter to conscious stakeholders as they make decisions related to sustainability.
Identifying Key Metrics
After the selection of material topics, the next step is identifying the key metrics from that material topic which needs to be tracked. Through key metrics, you can justify the right decisions. These Key Performance Indicators (KPIs) can be decided with the help of global frameworks like Global Reporting Initiative (GRI) and/or External Standards like SASB Standards, CDP etc., to which companies need to report.
Understanding KPIs for sustainability (also known as SPIs) can help you track specific metrics and give you a detailed look into your business and its performance. Some of the common key performance indicators are:
- Quantitative indicators
These are measured in numbers and include time, currency, weight, etc.
- Qualitative indicators
These types of KPIs include opinions, properties, and traits. It answers the ‘why’ instead of the ‘how’.
- Leading indicators
These indicators predict the change including the number of new patents, innovations, or perception.
- Lagging indicators
This indicator helps reflect upon the outcome of any initiative. It shows the effectiveness of business decisions compared to the desired outcome.
- Input indicators
This indicator helps measure resources used during the business process such as staff time, liquid cash, and equipment.The SPIs help in defining performance goals and metrics and can be classified into economic performance indicators, social performance indicators, and ecological performance indicators.
- Economic performance indicators measure the financial progress that includes the number of products sold, company turnover, and market share.
- Social performance indicators measure the company’s success in providing a safe work environment for employees. This measurement incorporates labor practices, human rights, diversity, wages, and benefits.
- Ecological performance indicators involve GHG emissions, waste generated, biodiversity, land use, and many more. This indicator includes the progress of a company in protecting the environment.
The SPIs are crucial tools to measure the performance, and monitor and report on future progress.
After the SPIs are set up and the business starts recording necessary data, the measurement process begins. While collecting data, consistency and accuracy are areas of concern for a business. This process requires assigning the responsibility of data collection to the sustainable management firms like Goodera that manage the performance of your sustainability initiatives across locations and communicate relevant information to your stakeholders. Organizations can fulfil their audit requirements and report as per multiple global standards through sustainability frameworks.
Talking about sustainability frameworks, GRI is the most widely used framework because of its multi stakeholder focus for a given material topic. It provides an overall guideline with flexibility to modify/alter the KPIs according to the requirements.
On the other hand, SASB as a Standard is Sector and Industry specific with a given set of KPIs that need to be reported upon for a sector-industry combination. Also, SASB is heavily focused on investors as stakeholders and therefore, mostly tracks the ESG issues most relevant to financial performance of the company.
Once the material topics & KPIs are selected, targets can be set based on improvement expectations for a given material topic in alignment with the goals that need to be achieved. If the time horizon for targets is long term, key milestones for the near term should also be in place. These targets can be across diverse material topics ranging from:
- Carbon footprint
- Energy consumption,
- Equity & inclusion, and
- Waste reduction rate
Science-based target initiative (SBTi) has also become a consistent practice in organizations looking forward to a clearly defined path to reduce emissions. The SBTi defines agreement rules to reduce emissions in line with the Paris Agreement goals to limit the global temperature.
This initiative is the by-product of a partnership between the United Nations Global Compact, the World Resources Institute, and the Worldwide Fund for Nature. These three bodies have come together to help companies provide technical assistance/ expert resources to make them commit to a target, report company-wide emissions, and progress against targets on an annual basis.
Measuring the progress of KPIs against a target gives a goal to achieve. Also, target-setting helps in driving innovations, increasing stakeholder confidence, improving profitability, and managing brand reputation. What is more challenging after setting those KPIs is monitoring the impact of the initiatives and reporting on your ESG performance.
With Goodera, you can overcome the challenge of tracking and reporting as it offers a software that measures your company’s social impact and reports your performance to the stakeholders directly through the dashboards. To know more about the offering, contact us today.