Continuous improvement? Measure what matters!
While using accounting techniques for social and environmental impacts hasn’t taken off, focus on better performance can define essential company metrics
In 2011, sportswear brand Puma was hailed for developing a new way of measuring the value and risk associated with its non-financial impacts. The company’s world-first environmental profit and loss (EP&L) statements helped the business value the greenhouse gas and water consumption impacts of its operations and supply chain at some €95m, for example.
Using elements such as equity weighting, future damage discounting and inflation adjustments, Puma had devised emerging methodologies to calculate costs to the company of carbon dioxide output and water usage, among other things. And now, Puma’s parent company Kering is applying similar EP&L methodologies across all of its brands, including Gucci, Stella McCartney and Volcom.
The adoption of targeted metrics as a helpful indicator of the economic benefits created by adopting sustainability measures – from carbon reduction, to the implementation of social-focused initiatives – is growing. Understanding what is happening in a community – and the impact your business is having, positively or negatively – is hugely important, especially at a time when more and more stakeholders demand greater transparency and disclosure. Metrics and measurement can help assess progress, enable target setting and determine business value being achieved.
It is interesting then, that six years on from the launch of the EP&L, something that was lauded as a game-changer in non-financial impact measurement, has not really gained much traction, with very few businesses following in Kering and Puma’s footsteps and bringing accounting standards across to measure sustainability progress.
There have been other pockets of activity, largely driven by non-profits such as the B Team whose Future Bottom Line Challenge is encouraging big businesses to “expand corporate accountability beyond financial gains” to include those all-important negative and positive contributions to the economy, environment and society.
And then there’s Dow Chemical Company, which has been looking at “nature’s value to a company”, joining forces with Shell and Swiss Re to explore the business case for green infrastructure.
But with no standard method of measuring triple bottom line successes – particularly when getting to grips with social impacts – companies continue to find it hard to devise meaningful and robust ways to measure sustainability. And with too many variables in measuring progress, it has been tough to develop accurate metrics.
Sandy Stash, executive vice-president for safety, operations, engineering and external affairs at Tullow Oil, says her company – like so many others – is more focused on continuous improvement when it comes to sustainability performance. “Tying that back to the day-to-day tasks and the ongoing projects is what really counts for us in continuing to be a partner of choice.”
That’s not to say that sustainable business metrics and measurement are not important. But if non-financial impact measurement is to be meaningful, it demands greater collaboration, with many more companies adopting the same methodologies.
Compare and contrast!
“The power is in the benchmarking,” Stash says. “What I don’t like is contrived ways of attributing financial benefits to something; it has to be a credible formula if you’re going to quantify social benefits that have been created.”
Better measurement can trigger bigger transitions that protect companies for the longer term. Kering’s use of EP&L for Stella McCartney, for example, has seen the brand swap out leather from its list of raw materials used (largely because of the huge environmental footprint associated with cattle farming), and start using recycled cashmere as opposed to virgin cashmere (which has 100 times the impact per kilogram of wool).
However, to be able to continuously improve, the trick is, of course, to focus on the right data points. Stash argues that companies need to see how they stack up against their competitors and establish where they need to make improvements. “But if the metrics are ill-defined, not fairly quantitative, precise or benchmarkable, they are just not going to be used.”
Sandy Stash is among the expert panellists at Innovation Forum’s conference on how business can measure the impact and return on investment of corporate sustainability, 22nd-23rd June in London. Full details available here.
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