the business case for sustainability indicators: what’s missing?

Delivering sustainable solutions in a more competitive world © COPYRIGHT 2009 ERM

The Business Case for Sustainability Indicators: What’s Missing?

The Business Case for Sustainability Indicators: What’s Missing?

Grace Barrasso, ERM2nd National CSIN ConferenceToronto, 2-3 March 2010

Grace Barrasso, ERM2nd National CSIN ConferenceToronto, 2-3 March 2010

Delivering sustainable solutions in a more competitive world 2© COPYRIGHT 2009 ERM

ERM is a leading global environmental consultant

ERM is one of the world’s leading providers of environmental, health and safety, and social responsibility consulting

Over 35 years of experience

Completed projects in more than 160 countries

3,500 professional staff

Worked closely with 60% of the Global Fortune 500 companies in the past five years

70% of our business is repeat

Annual revenue of $695m (FY09)

ERM has been ratedas one of theTOP THREE

all-environmental firms for the past 7 years by

the Environmental Business Journal


ERM Sustainability Services

Competitor analysis and benchmarking

Stakeholder engagement

Sustainability strategy, framework & systems

Opportunity identification and prioritization

Risk management

Metrics

Education

Energy & GHG management

Water management

Material efficiency improvements

Greening the built environment – buildings, operations, maintenance

Workplace health and safety

Third-party verification of metrics

Assessment of sustainability strategy and programs

Sustainability and Social Responsibility Reporting

Multimedia internal and external engagement and promotion strategies

Product vulnerability screening

Life Cycle Assessment

Life Cycle Management; total performance strategies

Product registration (e.g., REACH) and take-back strategies

Greener packaging and packaging reduction strategies

Strategy & Systems

Enterprise Operations

Supply Chain Management

Product Sustainability

Assurance & Reporting

Social impact analysis

Greener and more efficient transportation and distribution

Life cycle efficiency

Supplier engagement; partnerships for innovation and leadership level initiatives


Defining Sustainability

To meet the needs of the present without compromising the ability of future generations to meet their own needs

- Brundtland Commission Operating business in a manner that meets or exceeds ethical, legal, commercial and public expectation that society has for business.

- Business for Social ResponsibilityA business approach to create

long-term shareholder value by embracing opportunities and managing risks derived from economic, environmental and social developments.

- DowJones Sustainability Group Index

Sustainability Sustainable Development Corporate Social Responsibility Corporate Responsibility Corporate Citizenship

Companies use different terms...

…that essentially mean the same thing; the “triple bottom line” of:

Economic Growth Environmental Stewardship Social Progress


Sustainability as business strategy

- the world is changing

Economic growth and liberalization

Technological evolution(especially in communication)

Increased transparency

Rise of the multi-nationals

Growing concerns over environmental degradation

Increased sophistication and savvy of advocates

Clash of cultures

Wealth

Scope

Power and Influence

Expertise

New roles and responsibilities

for business

Business expansion

Globalization


Sustainability and responsible management

Increasingly seen as the management approach of the progressive, responsible company


Major Sustainability Issues Today

Corporate ethics and governance

Fair labor practices

Responsible use of influence

Climate change and energy security

Water – availability and conservation

Supply chain performance

Product life cycle impacts


The return on investment

ENERGYSAVINGS

30%

CARBONSAVINGS

35%

WATERUSE

SAVINGS

30-50%

WASTECOST

SAVINGS

50-90%

Cost

Average Green Building Cost Savings According to the Leadership in Energy & Environmental Design (LEED)

Risk

Reputation


Business Drivers for Environmental Stewardship

Facilitation Through Engagement

New project delays?

Investment: <$50k

Annual savings: $153k

Compressed Air

Resource Efficiency Product Innovation

Brand Differentiation


Major Sustainability Trends Today

Life Cycle Assessment

Advocacy

Green Building



Unilever’s extensive water strategy has addressed its own water consumption, water associated with the use of its products, and advocacy for sustainable water practices.

Holistic Approach


Major Sustainability Trends Today Collaboration

Innovative, large scope projects; CGI is working with:

Microsoft to develop online tools for 40 of the world’s largest cities to monitor GHGs

1,100 US mayors, Walmart, and 25 manufacturers to encourage the use of green products

The City of Chicago to green the Sears Tower and Merchandise Mart

USGBC to establish a green schools programs that drive energy performance



Most organizations have values – most are lofty. How does that organization assure that its values are embedded into the way it does business?


Metric Evaluation…

Do the metrics:

Inform business decisions, promote learning and demonstrate the business case?

Support the business strategy?

Engage employees and external stakeholders?

Respond to issues identified by stakeholders?

Change the behavior of individuals?

Help integrate sustainability thinking into the organization’s culture

Reflect business values and yield high benefits?

Source - GEMI


Implementing a Performance Based Program

Identify Environmental

Aspects

Identify Environmental

Aspects

Baseline Performance

Baseline Performance

Select Indicators

Select Indicators

1 2 3

EstablishTrackingSystems

EstablishTrackingSystems

Set Targets

Set Targets

4 5


Assessment: Impacts, Assessment: Impacts, Opportunities, Risks Opportunities, Risks

Strategy: Approach Strategy: Approach and Prioritiesand Priorities

Implementing Change Implementing Change

Mobilizing action: Mobilizing action: Levers and LeadersLevers and Leaders

Creating a path forward Have a process – respect it

xxxxEvery company and industry

has issues unique to them that also may impact reputation. Know your material issues…know your impacts. Engage internally.


Creating a path forward Where do you want to be?

Denial/ Discovery Defensive Offensive Transformative

Denial/ Discovery• Definitional confusion• Report > actions• Focus on Green Agenda (or just

climate change)• Difficult to move beyond learning

Offensive• Energizing the company• Create value for customers,

shareholders, employees• Can focus on efficiency or on

growth/innovation• Inject new content into existing

business processes

Transformative• Game-changing issue

for the business model• Requires relevance,

timing, champions• Focus on values,

culture, world view

Defensive• Protecting the company• License to Operate• Extended supply chains• Integrated with other efforts• Risks and expectations


Creating a path forward Determine your initial scope

• Return on equity

• Stock price growth

• Market share

• Profitability

• New market opportunities through innovative products and services

Economic Prosperity

• Eco-efficiency

• Use of renewable resources and alternative fuels

• Addressing impacts and opportunities throughout the value chain

• Green technology and design

• Support of conservation efforts and biodiversity

Environmental Stewardship

• Worker and public safety

• Local economic impacts (job creation, tax base, other investments)

• Human rights and living wage

• Stakeholder engagement and accountability

• Strategic philanthropy

Social Responsibility

While companies talk about the triple bottom line, many (initially) focus on the environmental dimension


Creating a path forward Internal engagement

Start with internal engagement

Engage executives first

Engage employees

Educate

Ask, don’t tell

Customize your approach

Engage individually

Engage team functions

Always be prepared

It’s a bit backward to start with reporting, but some do…and some must

Sustainability Report


Governance Policy, Standards, Accountability, Assurance The alignment, systems, and accountability schemes that drive

performance in other functions will drive performance in sustainability

Integrate into the business

Business Goals and Strategy

Environmental Goals and Strategy

Environmental Management System

Critical Tools (including metrics)

D R

I V E

R S

E N

A B

L E

R S


Agree on a process

Involve key decision makers

Review relevant information and data

Current company impacts and associated risks

Potential scenarios (regulatory, advocates, customers)(associated risks and opportunities)

Advocacy, leading and peer company activity

Reach consensus, if not agreement

Engage externally, as appropriate

Create talking points for internal stakeholders

Communicate broadly

Governance Policy and Positioning


Company Value “Iceberg”

Balance Sheet

Market Capitalization


IntangiblesNonfinancials - Brand Image

Reputation - Stakeholder Relationships

TangiblesFinancials


Balance Sheet


Company Value “Iceberg”: 1981

Intangibles - Nonfinancials

Tangibles - Financials


Balance Sheet

83%

17%

Arthur D. Little, The Business Case for Corporate Citizenship , 2002


Company Value “Iceberg”: 1998

Intangibles - Nonfinancials

TangiblesFinancials

29%

71%

Arthur D. Little, The Business Case for Corporate Citizenship , 2002


Sea of Demanding Stakeholders

Nonfinancials

Financials

Employees

Customers

Media

Economists

Scientists

NGOs

Competitors

Global Markets

Governments

Insurers

The Public Investors

Banks

Trade Associations


Two-Part Business Case

Nonfinancials

Financials

Employees

Customers

Media

Economists

Scientists

NGOs

Competitors

Global Markets

Governments

Insurers


Banks

Trade Associations


Mega-Issue Storm Clouds

Employees

Customers

Media

Economists

Scientists

NGOs

Competitors

Global Markets

Governments

Insurers


Banks

Water CrisisPandemics

Other …

Erosion of Trust

Pollution & HealthClimate Crisis

Trade Associations


Awakened Public - Consumers

The “Goracle factor” + Hurricane Katrina + Weird weather + Gas prices

+ IPCC reports + …(other awakeners)

• 70-80% of consumers say they are switching to “green” companies;

• 25% actually did in 2009

•LOHAS (Lifestyles of Health and Sustainability) sector:$200B in 2007 $420B by 2010 $845B by 2015


Two-Part Business Case

Nonfinancials

Financials

Employees

Customers

Media

Economists

Scientists

NGOs

Competitors

Global Markets

Governments

Insurers


Banks

Trade Associations


Economic

Environment Social

• Society/Community

• Labor Practices/

Decent Work

• Human Rights

• Product Responsibility

• Materials

• Energy

• Water

• Biodiversity

• Emissions

• Effluents and Waste

• Products and Services

• Compliance

• Transport

• Economic Performance

• Market Presence

• Indirect Economic Impact

KPIs

KPIs

KPIs30

40

9

Corporate Governance

GRI Indicators - 79


GRI Reporting Principles

MaterialityDoes the information in the report cover topics and indicators that reflect the organization's

significant economic, environmental, and social impacts?

StakeholderInclusivene

ssDoes the report identify its stakeholders and explain how it has responded to their reasonable

expectations and interests?

Sustainability Context Does the report present the organization's performance in the wider context of sustainability?

CompletenessIs the report boundary sufficient to reflect economic, and social impacts and enable

stakeholder's to assess the organization's performance?

Balance Does the report reflect positive and negative aspects?

ComparabilityAre issues presented in a manner that enables stakeholders to analyze changes in the organization's performance over time, and support analysis relative to other organizations?

Accuracy Does the report indicate data that has been measured?

Timeliness Is the information disclosed while it is recent and relevant?

Clarity Is the information understandable and accessible to stakeholders?

Reliability

Information and processes used in the preparation of a report should be gathered, recorded, compiled, analyzed, and disclosed in a way that could be subject to examination and that

establishes the quality and materiality of the information.


Characteristics of Sustainability Leaders Today

Management systemsprocesses to define, measure, monitor & assure performance

Transparencycomplete and comprehensive

Engagementstakeholders have input and influence

Global perspectivesystems are global, impacts measured locally

Performancebalanced (triple bottom line), material, detailed, easily accessible

Leadershipraise the bar for their industry; set best practice; cited by 3 rd parties

Humilityno “green washing” – sustainability portrayed as a challenge and a responsibility


Stakeholder Engagement – “New” Media

Blogs are new but this use is…Intel CSR Leadership Team talks to the public, then waits for comments

•Reporting

•Indicators and Sustainability

•Strategic Philanthropy

•Environment

•Energy

•Supply Chain Management

•EHS

•Diversity


Concluding Remarks

Sustainability indicators do not always provide the “whole picture”

Important to monetize the value of stakeholders in order to determine who has the influence over new dynamics

Sustainability reporting: can assist organizations to evaluate where they stand

Transparent indicators and to include both traditional EHS indicators and external risk factors

Importance of determining what is material to an organization is paramount

Top level commitment

Cross-functional team with collaborative leadership

Extensive internal engagement

Continuous benchmarking, emerging issue tracking, and sector analysis

Foundational policy or positioning

Strong alignment with business goals, values, and company culture

Clear connection between each program and its specific business benefits

Strategy built from the bottom up


THANK YOU FOR YOUR ATTENTION

Grace Barrasso

Senior Consultant

Environmental Resources Management (ERM)

www.erm.com

+1 514 880 6663 Cell

+1 416 646 3608 Telephone

[email protected]

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