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Industry-Specific Metrics: The Future of Corporate Sustainability

Corporate sustainability is developing at lightning speed. We are moving from an era in which sustainability was a piecemeal process focusing on marketing and communications to one in which metrics are integrated into the strategic and operational model of a business. Until recently, normal practice was to identify and implement a few ‘green’ actions, initiate a branding campaign based on these actions, and maybe slap an eco-label on products. Co-authored with Alison Edwards

There are a couple of problems with this approach, and a focus on transparent, operational sustainability metrics can go a long way towards fixing these issues.

The first issue is that a firm’s overall environmental impact, and the benefits of its sustainability actions, need to be transparent to the public. More and more, consumers are demanding transparent information on sustainability, and delivering this information can be key to business success. Consumers are increasingly weary of claims made in marketing information or labeling schemes because there is no obvious connection between the label and actions implemented, much less to a measured reduction in impact. This means that the added brand value of sustainability can be lost without clear, transparent information to back it up.

Second, and more importantly, the actions taken may or may not be the most strategic and cost-effective ones to improve a firm’s overall environmental footprint. While some actions clearly save money, such as energy efficiency improvements or building commissioning, they are not necessarily the sexiest from a marketing point of view. However, they will support the firm’s bottom line, and, if couched in the right terms (i.e., a percent reduction in total energy/carbon footprint), they can indeed have marketing value. On the other hand, switching to biodegradable packaging has marketing value but its impact isn’t clear. While biodegradable packaging sounds eco-friendly, if information isn’t available the consumer may question whether this action had environmental benefit, and they may wonder how much this actually improves the overall footprint of the product and the company as a whole.

Focusing on transparent, operational metrics can address these problems. A metrics approach allows a company to be transparent. Performance metrics can be readily communicated to the public, like an eco-label, and they also carry real information to the customer. Sustainability metrics also work as reliable benchmarks from which all potential actions can be compared, strategy can be assessed, and a course can be set - both environmentally and financially. With a clear vision, strategy, and concise metrics, decision makers can easily identify the right actions to pursue.  Of course, certain actions will have better marketing value than others, and estimates of this value can also be incorporated into the financial impacts of an action.

For sustainability metrics to have maximum impact, they need to arise from, and be strategically integrated into, core decision-making practices within a firm in a similar fashion to financial metrics used in business decisions. For example, in addition to net cash flow and gross margin, a firm may also track gallons of water per pound of product, or energy consumed per unit of product. When sustainability metrics are concise, this is possible and becomes a benefit to the bottom line, marketing, and environmental goals.

What does it mean to integrate sustainability metrics into business practice? It means that sustainability metrics are used in decisions to inform design choices, source materials, build new facilities, and select transportation modes. It means that metrics are strategically chosen - taking a company's business model, goals, operations, and its industry specific metrics into account.  The metrics then help guide the company towards achieving its sustainability goals over time.

The next question, clearly, is what metrics to use, and how to collect the required information. This is where the sustainability field is currently evolving.

There are two main issues to consider here. First, the right metrics to use will vary by industry according to the environmental impacts it creates. Havard’s Hauser Center created a guide for industry-specific sustainability indicators and noted that each industry should rate the importance of all issues in the universe of potential sustainability issues and prioritize which should be included in a standardized set of metrics. It’s a unique process for every industry. For example, biodiversity issues may be important in the paper industry and relatively unimportant in the automobile industry. The opposite may be the case for a product’s impact on health. In this respect, standardized industry-specific metrics are still in the development phases.

Second, many aspects of the environment are difficult to quantify. For example, it’s fairly simple to quantify GHG emissions or water usage in a concise metric. On the other hand, impacts on biodiversity or toxicity are much harder to quantify, involve some assumptions, and inevitably, no matter our level of rigor, rely on subjective interpretations of environmental values. Because comprehensive approaches to sustainability involve more than GHG emissions and water usage, many industries are currently working on developing metrics that more comprehensively reflect sustainability. 

To be useful, tracking and improving upon sustainability metrics must benefit the firm’s bottom line. This can occur in numerous ways. Some metrics may be of direct interest to customers and will affect their purchasing decision. For example, an automobile’s miles per gallon rating is important to a potential customer, as is the wattage of a bulb or the efficiency of an air conditioning unit. Other metrics may be more useful for minimizing operations costs, such as btu per square foot of building space or gallons of water per pound of product. For compliance purposes, grams of nitrous oxide emissions per revenue ton mile will be critical for the shipping industry. Finally, shareholders and investors are concerned about regulatory risk and are increasingly interested in corporate sustainability. Thus, in the airline industry, for example, metric tons of CO2e per revenue passenger mile could a critical metric. Soon, initial metrics will become standardized within many industries, and an inquiry into the fundamental performance of a firm will include not only financial metrics but sustainability metrics as well, allowing peer-to-peer comparisons of environmental and social impact.

Despite clear benefits, sustainability performance metrics are still unevenly developed in various industries. A Deloitte report on sustainability showed that in the retail sector, 55% of firms did not have any formal packaging reduction metrics, 45% had no recycling metrics, and 30% had no waste reduction metrics. In the consumer products sector, metrics are more relatively more widely adopted; within recycling metrics, over 60% of firms track total waste recycled per year, rate of recycling, and percent of recycled content. In addition, compliance drives most metrics currently tracked. According to a study by the National Academy of Sciences on industrial environmental performance metrics, pollutant releases are tracked by the four industries discussed in the report, while only three track material use and recycled content. In addition, supply chain metrics are either non-existent or emerging in these four industries, even though more than half a product’s footprint can originate in the supply chain. In all, sustainability metrics have a ways to go until they are fully integrated into the business model. A report by the Canadian Financial Executive Research Foundation showed that while 93% Canadian firms surveyed believe that it is important to report sustainability performance to senior management, only 38% actually do so. The lack of a clear, effective, and standardized way of doing so could be a critical barrier. 

The good news is that several industry groups are taking bold and important steps to create sustainability rating tools. These include the Green Guide for Health Care, AASHE’s STARS rating system for higher education institutions, the Outdoor Industry Association EcoIndex, the Sustainable Apparel Coalition’s Apparel Index, the Stewardship Index for Specialty Crops, and several others. Most of these are in pilot or initial phases. These systems are an excellent first step, as well as an important means to define best practices within an industry. These tools, once perfected, can help serve as a roadmap towards sustainability. The following table, which is by no means comprehensive, lists some of these sustainability rating tools, along with some comparative information. Almost all of these initiatives involve collaboration between private and non-profit actors, and the broader the stakeholder participation, the more legitimate these will become.

Comparing Various Industry-Specific Sustainability Tools

IndustryNameCompletionLeadershipCurrent UsageMetrics-basedAreas Covered
Green BuildingLEEDEstablishedNon Profit with IndustryBroadNoNew Construction, Existing Buildings, others
Higher EducationAASHE STARSPost-PilotNon ProfitBroad, InitialNoEducation, Research, Operations, Planning
ApparelApparel IndexPilotIndustry with Non ProfitCore GroupLimitedMaterials, Packaging, Mfg., Transport, Use, EOL
Outdoor EquipmentEcoIndexPilotNon ProfitCore GroupLimitedMaterials, Packaging, Mfg., Transport, Use, EOL
ElectronicsEICCEstablishedNon Profit with IndustryBroadNoLabor, Environment, EH&S, Ethics
Solar PVSolar Scorecard1st RoundNon ProfitLimitedNoEOL, Supply Chain, Chemical Use, Disclosure Design, Construction & Operation
Health CareGGHCPilotNon ProfitLimitedNoDesign, Construction & Operation
Food IndustryStewardship IndexPre-PilotNon Profit and IndustryLimitedWill BeEnvironment, Labor, EH&S, Fair Pricing
HospitalityGreen Hotels GlobalEstablishedPrivateUnclearYesCarbon, Water, Waste

However, nearly all of these systems are points-based, similar in approach to U.S. Green Building Council’s LEED program. Points are accrued for various actions, and a final score or rating is given. In our opinion, these rating systems suffer from the same issues described at the start of the article – it is difficult for the consumer to understand what 8 points out of 10 for supply chain management or a ‘Silver’ rating means for the environment or the firm’s overall footprint. In addition, it is very difficult for firms to prioritize strategic action based on points systems. To be integrated into core decision-making practices, performance metrics should be specific, measureable, comparable, reliable and capable of being reported in normalized formats. They should be strategic in terms of a company's business model, goals, and operations.  Ideally, companies leading the charge will help those metrics evolve for the entire industry. Consumers often take this form of leadership into consideration through product and company loyalty.

Several of these new rating systems acknowledge the need to move to a metrics-based approach, or are in the process of developing industry-specific metrics. To do so will require leadership, good science, time, and stakeholder involvement. And the benefit is immense: if early sustainability efforts can be benchmarked against meaningful metrics, both the public and senior leadership will have a better sense of what sustainability means and how to get there. From our experience, helping clients fully integrate these types of metrics into core business strategy is critical to reaching and exceeding targets. 

Industry-specific sustainability metrics are important measuring sticks, and will likely be used both for public reporting and to tailor the appropriate metrics, strategy, and operations for each firm. As industry-specific metrics drive operations, firm-level operations will also help refine metrics. So even in this early stage of evolution, leading organizations need to participate in this process to achieve more sustainable operations and more transparent relationships with stakeholders. This will be a benefit for both their bottom line and the planet.

Comments

Industry Specific Sustainability Tools

James,
I like your thinking. Thanks for allowing me to share my thoughts. I really appreciate the simple chart you’ve shown that compares the various industry-specific sustainability tools and certifications. As a procurement professional I work with large brand companies who understand the broad outreach of sustainability initiatives and choose to partner with supply chain partners who are like-minded. When developing sustainability goals it would be great to use such a chart as a tool to make sure all touch points within the company are being addressed. I’m one who agrees there needs to be common language and criterion, but not grading or tiers of who’s doing what, more or better. I’m not sold on requiring another new certification logo etc., just as long as there are supporting documents to claims. Just send me to the official criteria verifier’s website with a list of who’s legit and I’m a believer. I just want to know that a company is measuring, documenting and continually improving with genuine interest and passion.

My breadth of experience is in the printing industry. This industry includes the print manufacturers of all the printed marketing displays, packaging, direct mail, collateral and products for all the industries you’ve noted in your chart. I encourage you to add the Printing Industry and the Sustainable Green Printing Partnership (SGP) to your chart. Many times corporations don’t recognize the so-called ancillary activities, like printing, are an important cog in their supply change and do consume large percentages of budgets. Through smart sustainability initiatives companies can not only achieve their printing-related environmental goals, but most likely will also save money through implementation of better business practices that are a probable outcome.

SGP http://www.sgppartnership.com is an independent, not-for-profit organization providing a benchmark for print facilities’ sustainability endeavors. SGP criteria covers the PRODUCT, input materials used to product products such as substrates, inks and coatings; the PROCESS, the manufacturing process involving press equipment and supporting technology; and the ENVELOPE, the facility in its entirety, its energy consumption, employees, and supporting activities. Since 2008 SGP has provided third party verified, whole-facility certification including annual reporting of continuous improvement of sustainability plans and best practices. SGP printers are gaining preferential status from corporate procurement buyers; a commendation for doing what’s right for the entire supply chain.

I thought it was important for you and your readers to be aware of SGP, since it is the industry standard in the printing sector. Thanks for listening.

Keep up the great work!

Interesting post. I'm not

Interesting post. I'm not sure why consumers would understand performance metrics better than a label. When there are multiple performance metrics, it can be quite challenging for consumers to know which metrics are most important and how the metrics should be weighted relative to one another. It's hard to see how this would be easier to understand than a label that aggregates multiple indicators into a single score.

In any case, I'm not sure why it has to be an either/or situation. Rating systems could provide a single easy-to-understand score as well as the metrics/indicators that went into the score. That way, people who just want a quick answer to the question of what product or service is most sustainable can look at the aggregate scores and people who want to dig deeper can look at the actual metrics as well.

Full disclosure: I helped create the STARS rating system and now serve as chair of the STARS Steering Committee. (BTW, we're just beginning work on the first major revision and we'd very much welcome suggestions for how to incorporate more metrics in STARS.)

on labels, metrics, and STARS

Thanks for your comment Julian, good food for thought. I have worked on two STARS assessments for California universities this year, and some of what I wrote is based on those experiences. I think the campuses learned a lot about what a roadmap to sustainability looks like, and overall there were immense benefits from the process. On the other hand, STARS doesn’t offer a rubric on how to decide the order of what comes next. A set of concise metrics could become a new benchmark that the university could slowly integrate into decision-making. If these could be framed in similar terms to normal decision-making practices, even better. I would love to give input for the next round of STARS.

As far as the public potentially not understanding performance metrics, it is up to the industry or sector to determine the short list of metrics that will make the most sense to the public while maintaining as complete a view of sustainability as possible. Once well established, these could potentially be turned into a meaningful labeling scheme. I was in Kohl’s today and, over the loudspeaker, a voice announced that their building uses 2/3 the energy of an average building. That makes sense to me. I was in downtown Phili earlier this week, and I saw a sidewalk cleaning machine with a label – ‘Green Machine’. I have no idea what that means.

Thanks for responding! It's

Thanks for responding! It's true that STARS lets schools decide how they wish to improve their score. However, I think it does provide some guidance in the form of the point allocation - certain actions earn more points than others. The point allocation is still far from perfect (in significant part due to the fact that there's often no completely objective way to determine which actions are most important) but there is a mechanism in place to help participants decide how to proceed.

I see you point when comparing a single metric with a simpel binary label. It is clearly easier to understand what the metric means. The problem I think is that sustainability is related to a large number of metrics, and I think presenting all of them together would become to be much less understandable to the average person than a single aggregate score or multi-level rating system, especially for comparative purposes.

Anyway, suggestions for improvement to STARS are always welcome. Feel free to send them to stars@aashe.org at any time to get them entered into the record.


James Barsimantov, Ph.D., is principal and cofounder of EcoShift Consulting, a firm that specializes in metrics-based sustainability and climate strategy. James received his doctorate in Environmental Studies from UC Santa Cruz with a focus on environmental economics and resource management.… [Read more about Dr. James Barsimantov]


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