The Future of Metrics Is Here Today

Recap of ‘The New Metrics of Sustainable Business’ Conference at the Wharton School, Philadelphia, Oct. 24, 2011

Co-Authored with Nick Gower

Eleven years into the 3^rd millennium, the future of metrics for business integrating sustainability as a driver of value is becoming even clearer.

At the Wharton School’s Huntsman Hall in Philadelphia on October 24, 2011, “Redefining Value” was the central theme of Sustainable Brands’ Issues in Focus all-day workshop.  Industry pioneers and thought leaders gathered to share their innovative initiatives, discuss what’s working – and lessons learned to date – in seeking to thrive while accommodating slower (or negative) economic growth and the connection to human, social and environmental impacts.  

During all of October, here on Sustainable Life Media, our team at HIP Investor Inc. has been honored to guest-edit and highlight the latest “New Metrics” in action across 4 themes

• Global Strategy
• Global Products and Revenue
• Global Operations and Supply Chain
• Global Finance and Capital.

Read on for a summary of what is possible today – and for the remainder of the next 989 years in this millennium.  Thanks to KoAnn, Marianne, and Thomas of the Sustainable Life Media team for keeping all of us focused on successful pathways to the future!

Measuring What Matters – The Big Questions
Driving Shift in 21^st Century Business,  by Jules Peck

New Metrics October Editorial Feature:  Increasing Well-Being To Build Your Brand and Competitive Advantage

Via video from “across the pond” in the United Kingdom, Jules Peck of the New Economic Foundation started by showing where measuring GDP has left us (e.g. more income gaps and wealth disparity and no big gains in well-being).  Explaining the Happy Planet Index and the Genuine Progress Indicator (GPI) as alternatives to measuring GDP, Jules called for business to focus on creating real and tangible value for their customers, employees, and society simultaneously.  Boldly claiming that “economic growth is over,” Jules shared his vision of an economy focused on creating happiness instead of money.

The Metrics Of Reputation, by Jeff Smith

Jeff Smith of Prophet Inc. crystallized distinctions between “Brand” (e.g. expressions of customer expectations) and “Reputation” (e.g. behaviors of companies relative to customers). Reputation is much more sensitive than Brand, and can be demolished in an instant (think BP), but is not really owned by people who can proactively manage it.  Jeff called on companies to actively manage both to reduce risk and safety hazards. 

Best Practices In Product Metrics, by Libby Bernick

Libby Bernick of UL Global Environment’s TerraChoice delved into how to link products to customer needs and values.  Customers best relate to single, specific attributes that resonate with the purpose and form of products (e.g. green, clean), as opposed to succumbing to multi-attribute standards that might be complex, confusing or aren’t easily understood – but that procurement experts do (and require them in Requests for Proposal for corporations and governments).

Leveraging Cdp (Carbon Disclosure Project) Data To Drive Business Value, by Jim Sullivan, Michal Pelzig  and Roberta Barbieri

New Metrics October Editorial Feature: The New Metrics of Sustainable Business: In With The Old, In With The New . . .

Software and systems provider SAP, energy company Hess and spirits and beverage maker Diageo focused on a recurring theme of “Redefining Value” – how to decouple growth from environmental impacts (specifically around emissions and greenhouse gases reported in the Carbon Disclosure Project. Diageo (NYSE: DEO) shared that carbon disclosure reporting is useful for benchmarking against competitors and boosting reputation, while Hess (NYSE: HES) highlighted that proactively reporting material risks to investors and stakeholders was a key concern.  SAP’s (NYSE: SAP) online reporting platform empowers employees across the whole enterprise to strive for better results – and see the resulting impacts.  A recent analysis highlighted leaders in both GHG reporting transparency and actual efficient performance was correlated with attractive financial performance.

Context Based Metrics: Taking Sustainability Literally, By Mark McElroy

New Metrics October Editorial Feature: GRI Responds to ‘Enforce or Explain’

An appeal for even more data – specifically comparisons not only to competitors, but to the carrying capacity of society – was advocated by Mark McElroy.  For example, water use by companies should consider supply of water available regionally.  Mark’s sustainability quotient: S (sustainability) =  A (actual impact) divided by N (the “normative” impact, or supply of available resources).

Scarcity translates resource intensity into impact. Otherwise, we may never seen how close the limits we approach. Mark’s focus on Context resonated all day long.

Poverty Footprinting: Valuing Business Contribution To Development, By Heidi Koester and Jonathan Jacoby

Coca Cola (founded in 1886; NYSE: KO) and Oxfam described an innovative approach to create a more sustainable operating environment by reducing poverty around their bottling plants and supply chain.  Oxfam, a collaborative non-profit with a mission to find lasting solutions to poverty and injustice, along with PwC as impact accountants have accepted the daunting task of measuring Coca Cola’s poverty footprint (starting in El Salvador and Zambia).  Holistic systematic thinking on the end-to-end supply chain helps to highlight opportunities to boost income for rural farmers, create more sustainable communities, and mitigate future business and community risks through measuring the “footprints” of poverty – and how best to reduce it through new metrics of wealth, health and trust.

Human Value Added: People On The Balance Sheet, By R. Paul Herman

New Metrics October Editorial Feature: Let’s Value People as an Asset, and Bring Financial Statements into the 21st Century

On campus at Wharton, finance professor Alex Edmans has shown that the “Best Companies to Work For,” when built into a portfolio, can be financially attractive as investments.  However, there are no companies in the US that track “people as an asset” on the financial statements. Rather, people are expenses on the income statement – more likely to be cut than invested in.  Paul Herman of HIP Investor Inc. showed a handful of companies in India who created a “new metric” – valuing people as appreciating assets, and calculating a return on human-resource assets, including Infosys (Nasdaq: INFY).

Integrating Financial, Ecological, Social And Health Metrics To Drive Business Process, Change And Reporting, by Dave Stangis

Dave Stangis, VP of Sustainability for Campbell Soup (NYSE: CPB), and previously of Intel, highlighted the share of product revenue classified as “better for you” as a new metric.  Campbell’s calculates it is #2 in percent of revenue from this metric, after Group Danon (the Dannon Company).  Recently, Campbell’s also classified product revenue by the “milligrams of sodium per serving” in products – a new form of revenue accounting based on health and nutrition. 

Moving Environmental Impact Onto The Balance Sheet, by Reiner Hengstmann and Tom Beagent

New Metrics October Editorial Feature: Measuring Eco and Social Impacts to Redefine Business Value: PwC & Puma

What’s a next-generation profit-and-loss statement look like? It includes the value of carbon and water, and the associated impacts on society.  For Puma the footwear company, it made 200 million GBP (British Pounds) in profit last year, but the potential carbon and water valuation adds up to almost half of that amount – though it includes the tier 1 through tier 4 suppliers.   With the guidance and analysis of PWC, Puma estimated a price of 66 Euros (about US$85) per ton of carbon dioxide equivalent, and about 80 euro-cents ($1.25) per cubic meter of water used. This approach seeks to understand strong indicators of emerging risk and better understand the potential of peak resources.

Valuing Eco-System Services: Inside A Business-Social Partnership,
by Judy Gunderson and Michelle Lapinski

Dow Chemical (NYSE: DOW) in collaboration with The Nature Conservancy.  Again a practice of contextual metrics, TNC has been helping Dow Chemical to value ecosystem services, and incorporate that into their project planning.  Recently, deciding to build a wetland to treat grey water reduced the price of the project to 3% of the originally proposed water treatment plant and added to society for environmental education, as well as beautification. 

Modeling The Shared Value Of Industry Collaboration, by John O’Connor

Lastly, John O’Connor expanded everyone’s minds with his models of “Shared Value of Industry Collaboration.”  This “new metric” may have reminded some of quantum physics, but what was clear was that John, a veteran of the World Bank and IMF has a unique grasp on valuing intangible liabilities as well as assets.  John uses the foremost of social science to reconcile a top-down exercise with a bottom-up procedure; his passion as well as his sheer intelligence inspired the audience of more than 100 innovators, pioneers and corporate members. 

SUMMARY AND SYNTHESIS

This powerful day came to a close with our passionate moderators and hosts reminding us of a few points that echoed throughout the day: 

• Innovative companies survive and thrive – by finding the new metrics of the future
• We have new answers, but also need to communicate them effectively to all stakeholders
• Sustainability is a revolution in inter-connectivity – unleashing new opportunities.

Now is the time for us to be inspired, take action and “Redefine Value” together.

Special thanks to Gil Friend of Natural Logic and Andrew Winston of Eco-Advantage for co-managing the day along with Paul Herman of HIP Investor Inc.;  the IGEL program at Wharton; media sponsor CFO.com; and program sponsors SAP and PwC.

R. Paul Herman* created the HIP (Human Impact + Profit) methodology for entrepreneurs, companies and investors worldwide to realize how quantifiable sustainability can drive financial performance.

Herman advises investors, designs HIP portfolios, and manages the HIP 100 Index -- all applying "The HIP Scorecard" featured in his 2010 book (The HIP Investor; Make Bigger Profits by Building a Better World; John Wiley & Sons), Fast Company magazine, business school curricula, and at www.HIPinvestor.com.

Herman's financial acumen was honed at the Wharton School and McKinsey & Co., and he accelerated social entrepreneurs at… [Read more about Paul Herman]