New Metrics
Redefining Value:
The New Metrics of Sustainable Business - The SB Community Weighs In, Part Two

We believe that nothing can drive faster organizational response to a changing business environment – or facilitate realignment between corporate functions or within value networks — than a shift in the metrics used to track success. In 2011 Sustainable Brands launched a series of conversations on this topic, both online and via the New Metrics of Sustainable Business Conference, convened again in 2012, and againnext week, September 24-25, 2013, in Philadelphia. The goal has been to bring together thought leaders from business, non-profits and academia to realize three objectives: understand the rapid progress toward developing and implementing New Metrics globally; advance the state of the art through focused discussions based on case studies; and nurture the emergence of new mental models to deliver and benefit from new forms of value.

About a month ago, we published a white paper entitled Redefining Value: The New Metrics of Sustainable Business, providing a recap of key themes and takeaways from New Metrics ’12, in the form of reflections on recent lessons and framing of forthcoming opportunities. It was meant mostly as a way to set the stage for future work and does not claim to be a comprehensive review or a thorough collection of relevant case studies. New Metrics leaders in our community are convening this week at New Metrics ’13 for up-to-the-minute updates and more leading-edge conversations — a jump-off point on the path to our next New Metrics paper, as well as upcoming hands-on work within our corporate member group and the broader Sustainable Brands community.

While we are working on capturing all the market-leading content New Metrics ’13 brings, we thought we’d share a few more highlights from the multitude of responses we received after publishing the white paper. (See more responses in part one.)

Ed Davis, Experienced Environmental Director Sykesville, Maryland, USA; former Director of Environmental Affairs at Constellation Energy in Baltimore, Maryland, USA:

Overall, I found the white paper to be very good, even though unexpectedly much of the paper felt more like a framing of the challenges being faced by those of us trying to advance sustainability than what in practical terms to do about new metrics. Perhaps it’s just the engineer in me, but I was anticipating a little more concise summary of the metrics discussions to date with then some forward-looking info about next steps to allow participants this September to be up-to-speed for the next engagement. The cited examples from specific companies were good for acknowledging some of the business efforts brought to light during conference discussions. I agree with the last chapter’s comments on sense of urgency, involvement of all hands, rate of progress and need for boldness, but it was still a little unclear at the paper’s end if there was consensus on some details of the groundwork and what that means for direction of the 2013 continued metrics discussion in Philadelphia.

Eventually, it seems SB New Metrics conferences should host discussions on:

• the critical aspects of normalizing metrics — e.g. avoid having a false view of sustainability progress when not based on a clear unit of product or when companies reduce impact through buying and selling assets/operations; avoid making false comparisons of one company to another, or the same company year-over-year; and
• the design and influence of labels and ratings, which can be positive when they identify and reward leadership or negative when they are inaccurate or simply become an exercise of figuring out how to get a good score without truly improving product or service-level sustainability.

In the end, it sounds like recent discussions have raised many great perspectives on sustainability which certainly deserved attention in the white paper in order to figure out strategies for metrics improvement going forward. Here are a few of my perspectives:

• From years in corporate environmental management, I certainly appreciate the hard work necessary on details of meeting compliance requirements, but even driving negative impacts toward zero to keep old processes going is not as important as challenging ourselves and being willing to take some risk to boldly search out superior ways to meet the needs of customers. Quarterly results and traditional ROI factors definitely dominate; especially during economic times where just staying in business short-term creates difficulty for managers to not scale back R&D expenditures and other reinvestment. I hope New Metrics of success move us beyond the old mindset of “willingness to pay extra for greener performance” to sustainability practices that are inherently superior from an economic and business success standpoint, as well as the right approach in consideration of environmental and social problems.
• Regarding the question of changing foundational business values, I guess I hold more to the view of addressing business purpose, although I think it is really about redefining success and then evolving the application of corporate values. I’m definitely NOT a believer in having accountants or statisticians effect the necessary change. Great metrics can be devised, but they will never receive the due attention until business leaders are fully convinced that these metrics translate into both short-term and long-term business success. The purpose of many businesses is correctly defined in their vision, mission and core values but there somehow needs to be collective or at least unselfish effort on finding best solutions. That is one reason I enjoyed my past involvement in energy company industry-wide associations; there was a focus on resolving issues for the whole industry rather than just one company gaining an advantage over competitor companies.
• There is much room for error even with a suite of metrics encompassing all areas of the triple bottom line. While it is important to compile a company’s overall results (e.g. carbon footprint, water footprint, ecological footprint, energy use, employee satisfaction, etc.) to get an idea of business sustainability progress, that does not always reveal the ability of a company to address triple bottom line considerations on a case-by-case basis. It is not desirable to have super “green” results in only one area of the business, while publicized social initiatives happen in other areas or while high profit margins come from areas with mediocre social or environmental performance.
• Lastly, my standard caution about proclaiming success or “achieving” sustainability — don’t expect a one-time change from current practices to a clearly defined ideal state, or a static endpoint. In the spirit of continuous improvement, businesses should focus on taking concrete steps while continually striving to be “more sustainable” based on long-term goals while realizing the need for ongoing assessments and adjustments. Our understanding of impacts and the condition of our environment and communities are changing, known resources and user demands are changing, operational capabilities are improving through technological advances, and our degree of influence over external factors can grow as respect is earned and maintained. Goals and metrics need to evolve along the way too.

Karl Ostrom, PhD, Co-Director, Network for Business Innovation and Sustainability (NBIS) in Seattle, Washington, USA:

The positive aspects of this paper speak for themselves; it is my perception of its unseen limitations to which I am giving voice. Thank you for making it freely available!

I appreciate your background assumptions regarding the urgency that we face in advancing sustainable business practices because of extraordinary environmental and societal challenges. Also, I agree that we need to drill down to the level of mental models in order to scale up our progress. That we need to go to systems thinking, lifecycle thinking, take into account externalities and do anticipatory thinking to target the future — all of these are aspects of moving toward improved metrics.

On the other hand, I am skeptical of your optimism regarding contemporary advancements in sustainable business. Yes, there is mounting evidence that awareness is growing and that business needs to be part of the solution. Increased social enterprise is inspiring. But, on the whole, mainstream business is not moving beyond incrementalism in their sustainability initiatives; and consumers, despite increasing awareness, have not advanced their actual purchasing habits towards ‘deep green’ since 2008. Behaviorally, we for the most part are stalled.

Regarding the paper’s thesis about better metrics being the key to scaling up sustainable business practices, I believe they contribute to heightened awareness; but they do not necessarily lead to more advanced sustainability behaviors. The incredible fact is that despite being the first generation to have factual information about planetary ecosystems, we have not yet been able to translate better metrics into actions, which would turn us away from planetary suicide.

New Metrics are an important step towards sustainability, but they are only part of the answer. In fact, focusing on metrics without taking into account the broader context of change drivers, runs the danger of distracting us from the holistic pursuit of change.

A theme highlighted in the paper, and throughout much of the sustainability literature is,

“Sustainability represents the single biggest profit and innovation opportunity of the 21st century.” “The greater the problem, the greater the profit opportunity — and our sustainability-related problems are enormous.”

This theme of profitable sustainability emerges from well-intended efforts to induce companies to accelerate their sustainability initiatives. This incentive works for eco-efficiency initiatives such as reducing greenhouse gas emissions that in turn reduce energy bills and reducing those types of wastes that save money (e.g.: heat, packaging, water, etc.) and it also works for reducing risks associated with rare resources and potential carbon taxes. It also has some value for creating employee policies that result in reduced turnover expenses, etc. The theme of profitable sustainability has been extended by touting the message that when “hard” dollar (tangible) values don’t pencil out with sustainability initiatives, sustainable behaviors will nevertheless prove to be valuable in the long run because of “intangible” reputational value. Unfortunately, reputational value (popularity) is also part of stock price bubbles, which periodically can burst. Perhaps this is why we frequently have a difficult time getting CFOs on board with sustainability initiatives?

In his Wall Street Journal podcast, “The Case Against Corporate Social Responsibility,” Aneel Karnani states, “Can companies do well by doing good? Yes — sometimes.” Beyond regarding profitable sustainability as conditional, he also fears that overblowing this proposition can lead to ignoring “real solutions to these problems.”

Your paper’s construction of a philosophical divergence between the redefinition of corporate purpose and profitability is a dichotomy that I find limiting. What a dichotomy of direction tends to exclude are alternative foci, such as fixing flaws in the marketplace so that profitability can better reward social purpose and reduce externalization of environmental social costs onto the Commons.

The recounting of McElroy’s efforts to move sustainability metrics beyond comparison with their internal baseline and toward comparison with contextual environmental and social challenges adds an important dimension to your discussions. Unfortunately, I find his solutions falling short. He, for example, in his Excel worksheets geographically limits looking at carbon footprints to Scope One and Two when usually Scope Three represents by far the largest environmental impact. Regional contextualization is extremely important, but we are now breaching planetary ecosystem boundaries as well.

I chaff a bit about your repeated praise of Walmart. Yes, they lead the pack when it comes to eco-efficiencies that can increase profitability. But their model of squeezing suppliers and excluding labor unions from collaboration is part of what leads their 2nd and 3rd tier suppliers to have to make their way with the cheapest labor, and cheapest labor conditions that can be found worldwide. You won’t find Walmart asking their suppliers about the prices they need to run appropriately prosperous, sustainability oriented factories; or find them lobbying for living wages either in the USA or in Bangladesh!

Overall, placing my critique of your paper in context, may I say that I really appreciate all of the initiatives to improve metrics that you have summarized well. It is a very important contribution to keeping these diverse quests and conversations going.