Published 7 years ago.
About a 5 minute read.
Efforts to measure corporate sustainability performance are now rampant. Many companies are actively working to improve the measurement of their sustainability impact; a Google search of “corporate sustainability metrics” yields 1.25 million results. Unfortunately, it is still unclear how corporate sustainability performance should be measured. A set of standardized metrics is needed to improve sustainability measurement and reporting.
Hundreds of example economic, environmental, and social metrics are publicly available. For example, one study found nearly 600 different metrics disclosed in a sample of 94 corporate sustainability reports. Thomson Reuters has developed a database that “contains information on 5000+ global companies and over 400 metrics” related to environmental, social, and governance (ESG) issues. In an emerging initiative, the SDG Compass has already compiled an inventory of over 800 business metrics related to the new UN Sustainable Development Goals.
These initiatives provide companies with a number of reference points for their own measurement efforts. But the sheer number of metrics available may also be inadvertently sowing confusion about sustainability measurement as well. Standardized metrics are needed for three key reasons: (1) improving comparability between companies, (2) setting expectations of acceptable and unacceptable performance, and (3) addressing information overload.
First, the proliferation of metrics is healthy in some respects; it encourages companies to tailor their metrics towards issues that resonate with them. However, the incredible diversity of metrics and the different ways in which they are measured and reported make it virtually impossible to make meaningful comparisons. This is often true even for companies in the same industry reporting on the same metrics. Right now, it is difficult to know what a sustainability report will contain before it is opened. This severely undermines the credibility of the metrics.
Second, existing sustainability metrics do not generally clarify whether a company’s performance is sustainable or not. This is because very few metrics currently link to the broader sustainability context. It is not possible to measure sustainability performance without linkages to environmental and social thresholds. Reference points must come from something beyond the company’s own performance or that of its peers. Standardized metrics must explicitly incorporate these thresholds. The Science-Based Targets Initiative provides an example of how this may be done for GHG emissions.
Third, the wide availability of example metrics may encourage companies to try and measure too much. A relatively concise set of metrics is needed in order to keep decision-making and communication manageable. It is also needed to facilitate timely comparisons and linkages to defensible thresholds. Moreover, for complex issues like sustainability, increases in the amount of information available do not necessarily lead to increases in understanding. Too many metrics could lead to situations where interested parties can’t see the forest for the trees.
Developing a set of standardized sustainability metrics is not easy. Clearly, there will be debate on what the metrics should be. Different companies affect the economy, the environment, and society in a huge range of ways. Different stakeholders have widely varying interests. There is unlikely to ever be consensus on an optimal set of metrics. Efforts including the Planetary Boundaries concept and the UN SDGs provide strong starting points. Issues such as GHG emissions, water use, worker well-being, and equality could all factor into a standardized set of metrics. But differences of opinion on what those metrics should be are unavoidable.
Developing these metrics would need to be driven by some organization or group of organizations. This would include selecting the metrics, including how many there should be, and setting expectations for boundaries, data, analysis, and verification. Stock exchanges are one strong long-term possibility and may be the only way to ensure widespread uptake. A number of exchanges around the world have introduced some mandatory sustainability reporting requirements. However, these requirements vary widely and have been slow to emerge.
Other potential leaders of standardization include the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI). The GRI is currently in the process of transitioning its G4 reporting guidelines to reporting standards. However, both SASB and GRI are discretionary schemes, fail to adequately link to sustainability context, and may contribute to information overload. The extent to which companies using the guidelines produce comparable reports is also debatable. Newer entrants in the reporting space, such as the Future-Fit business benchmark, the Reporting 3.0 platform and the MultiCapital Scorecard, may also emerge as potential leaders.
No matter what the standardized metrics are, they will inevitably fail to meet the needs of all audiences all of the time. However, this is not a realistic goal for any set of metrics. There is nothing to stop companies from going beyond the standardized set of metrics in cases where it is required. Reporting on a standardized set of metrics would be a minimal expectation to improve comparability, set performance expectations, and reduce information overload. There is no need for that to stunt the development of supplemental, tailored metrics.
It’s easier than ever to collect large quantities of data. Nevertheless, companies need to spend less time reporting on dozens, or even hundreds, of metrics; they need to spend more time getting better at the things that matter most.
Standardized metrics can facilitate improved comparisons between companies, distinguish sustainable and unsustainable performance, and avoid overwhelming interested parties with information. There is substantial room for judgment in terms of what the metrics should be. There is also room for reasonable debate on how they should be measured and reported. These are all difficult choices, but they are choices that can and must be made.
Published Jul 8, 2016 3pm EDT / 12pm PDT / 8pm BST / 9pm CEST