New Metrics
Companies Committed to Sustainability But Which Rely on Old-Economy Metrics Will Never Get There from Here

A close friend and colleague of mine, Joe Firestone, once pointed out that along with new conceptions of the world (i.e., new paradigms) come corresponding requirements for new measurement models. We simply cannot measure things in old ways when the things we’re trying to measure are entirely new. New constructs usually call for new metrics.

This problem is by no means new. Consider, for example, Newton’s invention of calculus in the 17th century. In order to make headway in his development of gravitational theory (a new paradigm at the time), Newton had to invent a new math because the old one in place was not up to the task. As David Wootton puts it in his book, The Invention of Science, “… calculus was a new tool for thinking, and without it Newton would not have been able to formulate his account of gravitational attraction.”

So, what is a measurement model, anyway? A measurement model is a map of a conceptual territory with indicators included – a cognitive map, if you like. It tells us what needs to be measured, and how, in order to quantify or qualify a concept. For Newton, it all started with the elliptical orbits of planets. Why elliptical and not circular, or some other pattern? Once a theory had been developed as to what the answer might be, a new measurement model was required to test it. Thus was calculus born in the mind of Newton.

Accounting for Sustainability

Sustainability is a new conception, too – a new paradigm that calls for a measurement model of its own. Listen to how Jane Gleeson-White put it in her very fine book, Six Capitals, Or Can Accountants Save the Planet?:

In terms of the history of accounting, the need for something like integrated reporting announces that the exclusive reign of double-entry bookkeeping is over. It can still yield important information, but it can no longer tell us everything we need to know about a firm or a nation, not even in financial terms.

To be clear, sustainability is nothing if not a new kind of integrated performance concept, albeit one that is also scrupulously attentive to limits: limits in natural resources on Earth; limits in human, social and constructed capitals; and limits in economic capital. And whereas our prevailing measurement models in the past for assessing the performance of firms or whole nations were not necessarily sensitive to such limits, today they absolutely must be in order to be relevant and meaningful.

And therein lies the rub: most of what passes for mainstream practice today in terms of assessing the sustainability performance of organizations, economies and even nations fails to take resource limits explicitly into account. We passionately dedicate ourselves to the doctrine of sustainability, and yet we continue to rely on measurement models forged in the nineteenth century in which the concept of sustainability itself was nowhere to be found (see Figure 1).

As I say, this is vintage nineteenth-century thinking straight out of a time when for all intents and purposes there were no limits to take account of – certainly not environmental ones. Instead, success in business was all about maximizing efficiencies, throughput and revenue, too.

Frederick Taylor, the late nineteenth-/early twentieth-century poster child advocate of industrial efficiency, wrote in his 1911 management classic, Principles of Scientific Management, that all businesses should, among other things, strive for:

• “Maximum output, in place of restricted output,” and
• “The development of each man to his greatest efficiency and prosperity”

This was the spirit in which relative and intensity metrics were born. They were designed, that is, to support open-ended growth economies in which maximized throughput with the highest efficiency in production was the goal. This was the age of incrementalism.

So why in the world are we still today using the same metrics to measure and report sustainability performance when our goals today couldn’t be more different? Maximizing energy and material throughput in the economy is anathema to sustainability. Improved efficiency, for its part, is fine, but not in the service of open-ended throughput. Why not? Because intensity metrics – the metrics of choice for assessing efficiency – do not measure throughput relative to limits; they are oblivious to that.

Harmonizing Metrics with Mission

Let’s be frank. Any organization that is genuinely committed to sustainability can’t possibly know how it’s doing unless it is also using metrics and indicators that take social, economic and environmental limits and thresholds explicitly into account. And if that same organization is publishing sustainability reports chock full of intensity-based goals and outcomes, it is a walking contradiction. The only way it could possibly hit its sustainability goals (which themselves may be suspect if expressed in intensity terms) is by having zero impacts in the case of, say, GHG emissions, or else by accident.

But even going to zero only qualifies as sustainable for certain kinds of impacts, usually environmental ones. Having zero impacts in the case of social and economic sustainability would be a disaster. And yes, sustainability necessarily involves all areas of impact, not just environmental ones. Even a company with the most laudable environmental record can still be unsustainable on the whole if its social and economic performances are deficient. Sustainability is a multidimensional construct (social, economic and environmental), subject to limits and thresholds in all cases. Our metrics must be conceived accordingly.

This kind of thinking, of course, would have been alien to Frederick Taylor. Limits? What limits? Why, then, do so many firms still cling to Tayloristic metrics even as they proclaim their allegiance to sustainability?

Context-Based Thinking

I don't know if it is always the case that the arrival and adoption of new measurement models generally follows the arrival of their corresponding revolutions, but it certainly seems so with sustainability. But that is not to say, of course, that a sustainability-oriented measurement model does not exist. Indeed, it does: Context-Based Sustainability (CBS). While the principle behind CBS (Sustainability Context) has been around for at least 15 years, its actual adoption in practice has been sluggish at best. This has to change if sustainability, the concept, is to have any chance of success.

To inform those of you who may not already be familiar with the concept, CBS calls for the identification of organization-specific standards of performance in social, economic and environmental terms and which are grounded in limits. First, we identify the stakeholders to whom related duties are owed, and then we identify the standards of interest. The latter are determined by first understanding the associated limits and thresholds (e.g., the maximum assimilative capacity of the Earth’s atmosphere to absorb carbon emissions) and then we assign organization-specific shares of the obligation to respect them.

If it helps, you can think of this as involving three preparatory steps:

1. Identify stakeholders along with duties and obligations owed to them to manage one’s impacts on vital resources/capitals across the Triple Bottom Line;
2. For each impact, identify the associated limits or thresholds involved that must be maintained (i.e., their carrying capacities); and
3. Specify an organization-specific allocation of the duties and obligations owed in #1 to maintain the carrying capacities identified in #2.

Once context-based sustainability standards have been identified, actual impacts in the same areas can be assessed and compared to them. Impacts that comply with the standards are sustainable; impacts that do not are unsustainable. Simple as that.

How to Proceed

Organizations interested in testing and evaluating CBS can turn to multiple sources for inspiration and guidance, including companies around the world that have already done so themselves, if only to a small degree. They include Agri-Mark (Cabot Creamery Cooperative), Autodesk, Ben & Jerry’s (Unilever), Biogen, BT, City of Palo Alto, EMC, Ford, Lockheed Martin and New Chapter (Procter & Gamble). All 293 companies currently involved with the Science-Based Targets Initiative can also be counted as practitioners of CBS, at least insofar as their GHG emissions are concerned.

Book-length publications on the subject of CBS and how to do it as co-authored by yours truly can also be had: Corporate Sustainability Management (Earthscan, 2012); The MultiCapital Scorecard (Chelsea Green Publishing, 2016). All of the tools, methods and metrics contained in these books are free for the taking and open-source for end-user applications. For goodness sake, use them!