Sustainability Performance Metrics and KPIs

Focusing on the concept of eco-efficiency, we perform an extensive analysis on the relation between corporate eco-efficiency and several dimensions of financial performance. Using a large database containing monthly scores for the period December 1996 - December 2002, we find evidence suggesting that the virtues of a strong corporate eco-efficiency policy can be significant from a financial perspective.

Guenster et al

Caption 27: Enel's corporate social responsibility

Enel's corporate social responsibility is incorporated in its Business Plan, which maps out the path to economic growth within a strategic framework of environmental protection and social development.

With the aim of setting up a planning and control process that combines economic, environmental and social results (the so-called "triple bottom-line"), Enel has created a system of data collection that compiles information at quarterly intervals and, using a series of specific indicators, is able to:

  • illustrate the most important initiatives the Company is undertaking to improve sustainability;
  • detect any deviation from corporate goals so that prompt corrective action may be taken.

The compilation and processing of financial and non-financial data relating to key performance indicators (KPIs) for sustainability require the participation both of the Corporate area, for cross-cutting issues, and of Divisions/Companies, for specific themes directly related to their areas of activity. This system contributes to the implementation of the social responsibility goals that are an integral part of the Company's long-term development strategies and are used in compiling the annual Sustainability Report.

Key Challenge

Using performance metrics and KPIs in an organizational context to measure environmental, social, and economic impacts, and to ensure the delivery of strategic (and sustainability-related) objectives. This requires using and understanding non-accounting measures.

Background

Developing a list of performance metrics and KPIs is not difficult (a list of widely used sustainability KPIs is at Caption 29), but using them in an organizationally specific context can be challenging. Sustainability performance measures and KPIs help organizations to establish progress against sustainability goals (see Caption 27) and to ensure that they cover their environmental, social, and economic impacts, especially when it is difficult to measure sustainable development directly. Before settling on metrics and KPIs, it is necessary to understand how they are best used and incorporated into internal management, and therefore how they can help to support better external reporting. The development of indicators in the area of social performance measurement has received less attention than in the environmental area. Rather than reinvent the wheel, this report provides useful references to supporting resources that can help in defining metrics and KPIs.

Key Considerations

Developing and using Eco-Efficiency Indicators: Eco-efficiency relates to energy use, water use, contribution to global warming, and waste. It links monetary and physical information for decision-making, so that an eco-efficiency indicator relates product or service value in terms of turnover (or profit) to the environmental impact of energy, materials, and water consumption, as well as volumes of waste and emissions. It is represented by the ratio of a monetary measure to a physical measure, and can be seen as the ratio of 'value added' to 'environmental impact added' per unit, where 'environmental impact added' is equivalent to the sum of all environmental impacts that are generated by a product or activity. An example eco-measure is $ per ton of emitted CO2. Socio-efficiency can be seen as the ratio of 'value added' to 'social impact added', where 'social impact added' represents the sum of all negative social impacts originating from an organization or a particular product or process. An example indicator is 'value added in $' relative to the number of staff accidents.

Eco-efficiency indicators can help in the preparation of an eco-efficiency statement that depicts environmental and financial effects of transactions and activities, by grouping them into broader classes according to their environmental and financial characteristics. An eco-efficiency statement can have the following hierarchy:

  • Element: the broad areas or groupings of financial and/or environmental issues of concern to stakeholders, e.g., contribution to global warming, energy requirement, waste, assets, liabilities, equity, income, and expense.
  • Item: an item or groups of items is information related to a specific element, e.g., a specific greenhouse gas, an energy source used, a type of waste, sales, cost of purchased goods and services.
  • Indicator: is a specific measurement of an individual element that is used to track and demonstrate performance related to the element through recognizing and measuring items. A given element may have several indicators for different items.

The United Nations Conference on Trade and Development (UNCTAD) has produced a guide for users and preparers of eco-efficiency indicators. A Manual for the Preparers and Users of Eco-Efficiency Indicators strives to improve and harmonize methods, so that organizations are able to report such indicators in a standardized format for comparison across organizations. Such KPIs can be useful when preparing external reports, and it is important to recognize that eco-efficiency works in both developed and poorer economies. Organizations in developing economies can achieve big improvements in areas where resources were previously not used efficiently (see case study). Using eco-efficiency indicators is only one part of improving eco-efficiency and environmental performance. The business case for eco-efficiency is covered in the World Business Council for Sustainable Development publication Eco-efficiency: creating more value with less impact.

Developing and using Socio-Efficiency Indicators: Some organizations are also actively broadening their sustainable development activities by using socio-efficiency indicators to understand social impacts, and therefore social performance. Selecting indicators is not necessarily difficult, but again, it is important for an organization to set out its business case, the social objectives and value added it might seek to achieve, and how these relate to its business and sustainable development strategy. BASF (a Chemicals company), for example, includes social responsibility data in its reporting, but within a value added statement that shows what the company has created through its social responsibility activities, and as part of a wider CSR strategy.

Presenting Indicators: Managers need to consider how to present metrics and KPIs in their internal and external reporting. One element of this is the presentation itself, but another relates to providing context. For example, the total volume of wastewater generated each year might be better considered with an estimate of the total treatment costs of wastewater each year. If an estimate of the purchase value of raw materials lost in wastewater is included, the cost information may be compelling enough to trigger action to reduce those costs, which often will also reduce environmental impact. An example of an eco-efficiency scorecard is found in Unilever's 2006 Sustainable Development Report. Caption 28 includes guidance on the use of KPIs in external business reporting.

Identifying other metrics and KPIs: It is impossible to pick measures and KPIs off the shelf. Their identification and selection is specific to the context of an organization and its industry. However, there are many sources of guidance on selecting and using performance measures and KPIs. In some jurisdictions, governments have provided guidance. In some cases, these are tied to the requirements for management commentary reporting. For example, in the UK, Trucost worked with the UK Government's Department for Environment Food and Rural Affairs to produce the latest guidance on environmental reporting: Environmental KPIs - Reporting Guidelines for UK Business. These Guidelines are designed to help businesses address their most significant environmental impacts, and to report on them in a way that meets the needs of current regulation, such as found in the Business Review.

The Global Reporting Initiative and its GRI Reporting Framework (covered in the Wider Stakeholder perspective - see Wider Stakeholder Perspective) also provides comprehensive standard disclosures that many organizations are finding useful to help frame their KPIs.

UNCTAD has also produced Guidance on corporate responsibility indicators in annual reports. This includes a review of measurement methodology for selected indicators. Selected indicators include:

  • Trade, investment linkages: total revenue, value of imports vs. exports, total new investments, and local purchasing;
  • Employment creation and labour practices: total workforce, employee wages and benefits (with breakdown by employment type, employment contract, and gender), total number and rate of employee turnover;
  • Technology and human resource development: expenditure on research development, average hours of training per year per employee (broken down by employee category), and expenditure on employee training;
  • Health and safety: cost of employee health and safety, work days lost to occupational incidents;
  • Government and community contributions: Payments to governments and voluntary contributions to civil society;
  • Corruption: Number of convictions for violations of corruption-related laws or regulations and amount of fines paid/payable.

Caption 28: The Report Leadership project undertaken by the Chartered Institute of Management Accountants, Pricewaterhousecoopers and Radley Yeldar recommends that a clear link should be made between strategic priorities and KPIs, and they should be published together. In their Generic annual report, KPIs are used in a way so that there is:

  • A clear distinction between output measures and KPIs;

  • An early mention of where the KPIs can be found;

  • A clear link between strategy and KPIs, and a strategy progress statement giving the key measures of success for each strategic priority;

  • A definition for each KPI, and prior year comparisons of performance and targets for the forthcoming year;

  • Disclosure on KPIs at both a group and segmented level (depending on data availability); and

  • An explanation of the actions taken by management to improve/maintain their performance around each KPI.

These suggestions should apply also to the use of sustainability-related KPIs. For example, the use of KPIs in relation to a sustainability target should be rooted to the organization's strategy and actions taken by management to improve their performance.

Caption 29: Widely used Sustainability KPIs under each of the three pillars of sustainability

This list of widely used KPIs has been taken from a selection of sustainability reports, and serves as set of example KPIs. Many of these KPIs feature in the GRI Reporting - see Format and Content of Sustainability Reporting

Economic

  • Revenues

  • Operating costs

  • Employee wages and benefits

  • Payments to providers of capital

  • Payments to government in taxes

  • Research and development expenses

  • Sustainable innovations

  • Customer satisfaction

  • Relevant product/service ranges

  • Product safety and quality

  • Capital and exploration expenditure

  • Contributions to local economic development

Environmental

  • Investments in environmental protection

  • Greenhouse gas emissions

  • Spills

  • Water use and fresh water withdrawal (for use in production processes or as drinking water)

  • Waste (hazardous and non-hazardous)

  • External perception of environmental performance

  • Environmental and polluting fines

  • Fleet fuel economy

  • Facility energy consumption

  • Internal energy consumption

  • Business travel

  • Paper consumption

  • Non-compliance with regulations and voluntary codes

  • Sites with a (certified) environmental management system

Social

  • Raise awareness and uphold organization's values, code of conduct, and principles

  • Total workforce by employment type, contract, and region

  • Hours worked

  • Staff turnover by age group, gender, and region, and job creation

  • Benefits for full-time and part-time employees

  • Education and training expenditure and average hours per employee

  • Percentage of employees receiving regular performance and career reviews

  • Flexible working arrangements

  • Number of environmental specialists

  • Employee satisfaction

  • Senior management remuneration and bonuses related to sustainable development

  • Fatalities (employees/contractors)

  • Rates of injury

  • Transport accidents

  • Lost-time injury frequency

  • Gender diversity

  • Child labor

  • Contracts cancelled with suppliers due to incompatibility with business principles

  • Contribution to communities

  • Breaches of customer privacy and losses of customer data.

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