(GUEST POST: by Pawan Mehra, Managing Director at a sustainability consulting firm cKinetics)
In our work with clients and analysis carried out at firms undertaking Sustainability initiatives, cKinetics has found the selection of metrics as a pivotal piece in building a Sustainability strategy and leading to a firm becoming more responsible (and consequently being seen as one).
Increasing thrust for responsible actions
“What are your plans for Sustainability?”, “How are you ensuring your feedstock is secure for the long term?”, “How are you coping with the increased price of energy?” or “What are you doing about water scarcity?”. These are some of the questions that are being increasingly asked of the C-suite executives by customers, investors and other stakeholders - questions revolving around the use of resources and the impacts created as a consequence.
Even the Government of India is urging the India Inc. to take responsibility by announcing a set of guidelines called the National Voluntary Guidelines for Social, Environmental and Economic Responsibilities of Business for corporates to follow.
Evolution of E & S metrics
The emergence of E&S (Environmental and Social) metrics to track responses to these questions is only natural as businesses respond to the needs of various stakeholders. It follows the age old idiom “what gets measured, gets done”. And just like other adoption curves, the adoption of E&S metrics has its own curve.
Metrics impact behavior
Because what gets measured, gets done: what gets measured gets attention. Hence deciding the measures is crucial for the strategy. Let me illustrate through a scenario involving two manufacturers, both of whom are managing their energy footprint.
‘Manufacturer A’ witnessed breakthroughs in process innovation and ‘Manufacturer B’ was given an award for its employee engagement. Both companies were able to make improvements but in different areas.
The impact of the choice of metric for ‘Manufacturer A’ was an active engagement of the engineering, R&D and product design teams. ‘Manufacturer A’ conducted energy LCAs and was able to set goals for the footprint reduction for its product range. This approach enabled the company to shape exciting breakthroughs in high-energy intensity processes of production.
The impact of the choice of metric for ‘Manufacturer B’ was a more company-wide action where every department was given goals on energy footprint per unit area that they had to manage. This also entailed participation of the engineering and design teams like in the above case; but the focus was not only on them. Rather the focus was company-wide energy used per unit area and the program led to employee engagement drives, awareness campaigns, etc. resulting in ‘Manufacturer B’ getting recognized for its far reaching program.
Variety of measures: what to choose?
While the cases outlined above talk of energy, these are as much applicable to any other parameter: water, GHG (Green House Gases), waste, etc. Also the relative measure could also vary i.e. the measure could be per employee, per unit production, per unit revenue, etc.
We have usually been asked, “what is the right metric to choose?” And the answer is that it depends on the company strategy. There is a right metric to elicit the right response at the right time. The only constants in context of selection of metrics are:
- Metrics must change and evolve, just as strategy evolves
- Metrics must be adequately granular. Too high-level and they won’t have an impact. Too narrow and it will become too expensive to manage.
Granularity of metrics: the more granular- better the results
Consider a scenarios of two retailers, both of whom have launched initiatives to manage their carbon footprint.
At first glance it may appear that ‘Retailer B’ is unnecessarily going down a route of more work, since this data is going to be aggregated at a business level. Furthermore the data in both cases can be determined by applying GHG-accounting.
However, the impact of the metrics on the product managers of ‘Retailer B’ were more concrete and gave them actionable areas to work on to create efficiencies as compared to ‘Retailer A’. ‘Retailer B’ was able to streamline its sourcing, its production and its product pricing far more granularly: by engaging the entire organization. ‘Retailer A’ on the other hand only engaged its Sustainability/ CSR team and its accounting/ reporting team.
As a result of a more granular approach, Retailer B is better positioned for a long-term response. And while we have not witnessed it as yet, a fall in the product prices is likely to be better managed by ‘Retailer B’ than ‘Retailer A’. A fall in product prices would lead to a decrease in revenue and hence an increase in GHG per unit revenue; but because ‘Retailer B’ product managers are already managing the metric at a product level their timeliness of response as well as concrete means of response are more likely to be successful.
(Originally published in http://sustainabilityoutlook.in/content/driving-responsible-business-behavior-through-metrics)
About the author:
Besides co-founding sustainability firm, cKinetics, Pawan is passionate about bringing change through market-based-interventions serving on the board of the Global Impact Investing Network (link) and actively being involved with the Give Foundation (link). He advises a number of companies in Asia and the US.