In January 2014 at the World Economic Forum in Davos, Corporate Knights unveiled its annual Global 100 Most Sustainable Companies rating, with biotechnology company Biogen Idec placing second. What's behind this strong showing? One likely reason: Sustainability Context, an approach to corporate management Biogen has embraced by measuring its performance “in the context of the limits and demands placed on environmental or social resources at the sectoral, local, regional, or global level,” according to the Global Reporting Initiative (which coined the concept in 2002).
You see, four years ago Corporate Knights shifted its Global 100 methodology toward a context-based approach (as I pointed out at the time) by embedding a screen calling on companies to increase their resource efficiency by a factor of four (400%) over 2 decades, or about 6% per year. In other words, the Global 100 uses a proxy of Sustainability Context as one of its primary criteria, so it makes sense that a company such as Biogen using this approach would score highly. And the ratings world is only heading further in this direction, as the Global Initiative for Sustainability Ratings (GISR) recently codified ‘SustyContext’ as one of its 12 Principles, and a just-released survey in the SustainAbility Rate the Raters series asks if ratings are “appropriately considering sustainability context.”
So, what's the story behind Biogen Idec's adoption of Context-Based Sustainability? And more importantly for advancing the #SustyGoals series, exactly how is Biogen using CBS to set its sustainability goals and targets?
To find out, I spoke with Hector Rodriguez, Senior Director of Global EHS & Sustainability at Biogen Idec, which generated about $6 billion in sales in 2013 from medicines that address diseases such as multiple sclerosis, non-Hodgkin’s lymphoma and rheumatoid arthritis. As well, I spoke with Mark McElroy, Executive Director of the Center for Sustainable Organizations (CSO), which is helping Biogen with this work. My dialogue with both follows below.
Bill Baue: How did Biogen decide to employ Context-Based Metrics to set its sustainability goals and targets?
Hector Rodriguez: Our first exposure to context-based metrics was in 2008 when we started thinking about how to set goals. As with most companies, we were simply struggling with the question of what goals to set and how we should set them. We wanted to avoid setting fixed or arbitrary goals such as reducing our energy use by 10%, water by 15%, waste by 20%, simply because the numbers sound good. We saw that as being a kind of uninformed way of setting goals, and so what we did back then was employ a variant of Context-Based Sustainability.
Baue: A variant of CBS — how so?
Rodriguez: We set goals in what we referred to as an Environmental Index. We took the position that as we moved on into 2009, 2010, and beyond, we would only invest in those projects that had the greatest potential benefits from an environmental perspective. And while none of the underlying environmental investments was fixed, the overall Index was. Specifically, we wanted to target a 15% reduction in our environmental footprint by 2015. But how we got to that target was not prescribed.
It was then that we heard Mark McElroy speak when he was at Deloitte while attending a training program there, which is where we gained a fuller appreciation for CBS. It helped us to think about how best to allocate our 15% target to specific areas of impacts. Then and now, of course, we feel it’s the most appropriate and correct form of sustainability metrics, because it takes into account local conditions and ecological thresholds.
Baue: How does CBS take local conditions into account in ways that align with Biogen Idec's needs?
Rodriguez: In our case, the environmental variable of greatest importance to our company is water, because we use tremendous amounts of it in making our products. So we started by looking at our manufacturing facilities in Denmark, North Carolina and Massachusetts, and quickly recognized that in Denmark and Massachusetts, water wasn’t much of an issue. In North Carolina, however, particularly in the area where our plant is located in the Research Triangle Park (RTP) area, water had become a significant issue, especially in the recent past.
To us, that was context right there — why should we be investing in water-saving initiatives in Massachusetts and Denmark, when it was in North Carolina where we were facing water scarcity issues? Of course we were and still are investing in improving our efficiencies in all of our facilities, but the question was, why prioritize those two facilities when the issues or concerns or problems were most likely to come out of our facility in RTP?
Baue: So, the way CBS focuses on local conditions helped you identify the North Carolina facility as the highest priority in terms of using water more sustainably. And that required setting context-based sustainability goals and targets by modeling future social, environmental, and economic conditions. Turning next to Mark, then, how does CBS handle these intertwined challenges?
Baue: Ok, I want to delve into the details of just how you're enacting this modeling at Biogen Idec, but first, can you explain this distinction? How is it that context-based metrics enable sustainability goal-setting and operational target-setting, whereas conventional intensity and absolute targets can't discern sustainability performance and therefore can only be used for operational target-setting?
McElroy: Well, the answer lies in your question. Conventional intensity and absolute targets are devoid of limits or thresholds, and thereby do not express sustainability targets at all. To say that an impact target is lower or less intense than some other level is not to say that it will be sustainable at all. Rather, it's just different from the status quo and only begs the question. Sustainability targets must be expressed relative to social and environmental conditions on the ground, as it were. That is what context-based targets (and metrics) are designed to do. They describe what impacts would have to be in order to be sustainable, because they bring contextually relevant social and environmental thresholds explicitly into play. They tell us what a sustainable rate of water consumption would have to be, for example, by comparing actual or target rates of use with actual rates of availability — in other words, they compare levels of demand with allocations of supply. Intensity and absolute targets do no such thing.
What's more, once context-based targets have been set at levels that are empirically sustainable, we can then express them in conventional terms. It is in that way that context-based target setting allows us to finally answer the question of how much is enough, or how much is not enough, when attempting to set goals in conventional terms. Every level of impact that is sustainable in context-based terms, that is, has its corresponding levels of absolute and intensity performance. But we must first determine the former before we can define the latter, assuming it is sustainability performance we're talking about.
Baue: So that tees us up to dig into the details. Walking us through step-by-step, how specifically do you go about determining threshold-based models for future impacts – how do you then express those as context-based goals and targets; and how do you translate those context-based targets into conventional metrics that managers can implement?
McElroy: First, context-based metrics, like performance metrics in general, are more or less time-independent. In other words, they can be applied to the past, present or future at a practitioner's discretion. Future applications simply require projections for the data values of interest. In the case of GHG emissions, for example, our context-based carbon metric calls for an organization to project or estimate its future emissions, and also its revenue and gross margins. We use the financial data to help set thresholds for what an organization's thresholds or allowable emissions should be in future years, and to also express performance in relative or intensity-based ways. From there, the metric then calculates performance in the same way it does for years in the past, except of course with forecasted data we're calculating performance in the future.
Next, by modeling different combinations of values for future emissions and financial data, we are able to determine what the right combination(s) would have to be in order to score or perform sustainably from a context-based perspective. Once we have done that, we simply observe what the corresponding measures are from an absolute or intensity perspective, since our metric simultaneously calculates performance in those terms as well.
The first step, then, is to model a future scenario that is sustainable. For areas of impact like water use or GHG emissions, a "sustainable" context-based score is defined as any value of 1.0 or less, since it would mean actual water use or GHG emissions are no more than a maximum allowable level according to a science-based standard. Exceeding such a threshold would produce a score of greater than 1.0 (a bad thing), since it would mean that water use or emissions are actually above sustainable levels.
So the most conservative (worst) case would be to model future performance such that the score achieved in a given year is 1.0, and then simply observe what the corresponding measures would be in conventional terms (absolute and intensity). This would make it possible for organizations to say something like, "Well, in order to achieve a minimally sustainable score (1.0) in the year 2020, our absolute emissions would have to be no more than 'X tonnes' and our emissions intensity would have to be no more than 'Y tonnes per dollar of revenue,' " or some such.
Forecasting performance in context-based terms thereby makes it possible to determine what maximum allowable emissions can be (in conventional absolute and intensity terms), while still being sustainable. Targets can then be expressed in such terms (absolute and intensity) for use by managers at the plant and operational levels. It is in this way that context-based metrics can be used to both set and validate targets in conventional terms, and at the same time answer, in definitive ways, the questions of how much is enough or how much is not enough.
Baue: And Hector, this is precisely what drew you to CBS, right?
Rodriguez: Exactly! Context-based sustainability is logical, it’s rational, it demands some thought, it demands analysis, and to us it’s the smart way of setting goals. My only wish is that it was easier to explain to internal and external stakeholders, because once you understand it, it’s plainly obvious that it’s the only way to go.