Sustainable Development Performance Assessment

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Yet participation in these initiatives does not mean that a company is in fact becoming ... Keywords: sustainable development, corporate sustainability programs ...
Sustainable Development Performance Assessment Beth Beloff BRIDGES to Sustainability 3015 Richmond Ave. Suite 201 Houston, Texas 77098 Tel 713-520-9223 [email protected] Marianne Lines BRIDGES to Sustainability 3015 Richmond Ave. Suite 201 Houston, Texas 77098 Tel 832-561-1222 [email protected] Robert B. Pojasek Pojasek & Associates. P.O. Box 1333 E. Arlington, MA, 02474 Tel 781-641-2422 [email protected] Submitted to Environmental Progress March 26, 2004

Abstract Sustainable development is a complex concept, encompassing economic, environmental and social factors that affect the ability of an organization to survive and grow. With increasing pressure to act and report on sustainability strategies, an overwhelming number of principles, tools, results indicators and reporting formats have emerged to measure and communicate a corporation’s triple bottom line approach. Corporations make use of various initiatives and programs to demonstrate their commitment to sustainable development. Yet participation in these initiatives does not mean that a company is in fact becoming more sustainable or that it is recognizing real business value as a result.

Providing a review of some of the prevailing sustainability programs, approaches and “tools”, which companies employ, this paper will fit the value of participating in particular initiatives into a more comprehensive view of sustainability. The paper will identify how a company might leverage its participation in existing sustainability programs to 1) assess its baseline sustainability performance and form the basis for improving its overall sustainability performance, and 2) re-assess, align and integrate its sustainability objectives and actions with its business objectives and actions.

This work is the start of the development of a sustainable development performance assessment that identifies programmatic deficiencies and aligns, integrates and enhances existing “best of breed” sustainability programs. The analysis links performance and results in such a way that it can improve a corporation’s awareness of sustainability risks and opportunities. True performance is more closely aligned with value creation than simply reporting good results.

Keywords: sustainable development, corporate sustainability programs

Sustainability Framework Sustainable development, as defined by the Brundtland Commission, means “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” While this definition is commendable, the concepts are difficult to implement, operationally. In order to frame the issues that need to be considered in implementing sustainability, BRIDGES to Sustainability developed a sustainability framework. The BRIDGES Sustainability Framework makes explicit the various considerations important to the practical implementation of sustainable development in a corporation. The framework (Figure 1) includes the following perspectives:



Triple-bottom-line perspective in which the dimensions of sustainability - environmental, economic and social – are incorporated;



Lifecycle perspective that considers impacts along the lifecycle from extraction to supply, production, use, and fate;



Set of lenses through which the scope of the sustainable development problem can be defined and boundary conditions established: o

A time dimension which incorporates short term to long term, and considers impacts on future generations;

o

A place-based approach which applies to all scales of consideration, from local to global geographic issues, from parts to the whole system, and in rolled-up form, small to whole;

o

A social values context that recognizes that values are a function of people, culture and place, as well as where people perceive they fall on a needs-to-wants scale. This social context shapes and weights the importance of certain issues in a particular place for a particular group of stakeholders;

o

A resource context – resource integrity – with respect to scarcity, over-abundance, or potential to disrupt resource availability in the future. (Beloff & Beaver, 2000)

Len se s

Dimensions of Sustainability

Resources Values Place Time

Environmental Economic

Social Supply

Production

Use

Fate

Life Cycle Stages

Figure 1. BRIDGES Sustainability Framework © 2002 BRIDGES to Sustainability

Once a company understands the “big picture” and has defined what sustainability means within its corporate culture, it can utilize the sustainability framework to bring to the forefront the elements that can better inform decision-making related to a particular sustainability problem. The lenses allow a company to transform a comprehensive sustainable development framework into a practical decision-support system which addresses real world problems.

Use Programs-in-place With increasing pressure to act and report on sustainability strategies, an overwhelming number of principles, tools, indicators and reporting formats have been developed to measure and communicate a corporation’s triple bottom line approach. In addition, a number of initiatives and programs that companies utilize for more effective environmental management and pollution prevention, for instance, also support some of the goals of sustainable development. These may not, however, be incorporated into

an integrated sustainability strategy. A few of the various initiatives and programs corporations subscribe to, demonstrating their commitment to sustainable development, are highlighted below.

Principles In the 1990’s business leaders were challenged to adopt formal environmental and corporate citizenship principles or codes of conduct such as the CERES Principles, UN Global Compact, Global Sullivan Principles of Social Responsibility and Business Charter for Sustainable Development, etc. The purpose of these principles is to have companies and organizations, in widely disparate industrial sectors and cultures, work toward the common goals of environmental stewardship, human rights, social justice and economic opportunity. Endorsing companies are asked to include certain values into the implementation of internal policies, procedures, training and reporting structures. Participating companies report regularly and document their commitment to advancing social, economic and environmental principles. While endorsing a series of principles can help companies integrate principles into their strategic planning, knowing what to do does not necessarily translate into knowing how to advance sustainability issues.

Shareholder Value Integrating personal values and societal concerns with investment decisions is called Socially Responsible Investing (SRI). SRI considers both the investor's financial needs and an investment’s impact on society (SRI Forum, 2003a). For example, most SRI investments avoid companies with a poor environmental record or those thought to exploit labor in developing countries.

In 1994, The Economist spoke of "the era of the corporate image, in which consumers will increasingly make purchases on the basis of a firm's role in society: how it treats its employees, shareholders, and local neighborhoods..." Companies selling to highly educated and socially aware customers, with a global

viewpoint, can expect this to continue and indeed become more widespread: it is natural for these customers to link consumption choices to political beliefs and actions (Heal, 2001).

The trend of societal values driving consumption choices has led to the growth of a closely linked industry providing the data on which socially responsible funds base their choices. Until recently a financial manager could not research a company's environmental or human rights record as easily as its earnings forecasts. Now there are companies that screen investments, such as the Innovest Group which compiles lists of companies rated by financial and environmental performance.

Dow Jones joined this trend by introducing its Sustainability Index (DJSI) which ranks companies according to criteria believed to assess the sustainability of their contributions to society. The Westpac Eco Index in Australia (Westpac, 2000) and the FTSE introduced a range of indices covering corporate performance on environmental issues, human rights, social issues and relations with stakeholders.

But how do socially-screened funds perform, financially, when compared to unscreened investments? Several studies have publicized findings which state that the performance of socially-screened funds substantially outpace that of unscreened funds. Of 52 socially-screened funds tracked over three years by the Social Investment Forum, 67 per cent received the highest marks from either Lipper or Morningstar, companies which rate mutual funds (SRI Forum, 2003b).

Decision Support Tools While many supporters of sustainable development already believe in the business case, few know how to begin to move their companies toward sustainability. Practitioners and business managers alike recognize the need to develop practical tools to support decision-making and translate a sustainability strategy into action. The Global Environmental Management Initiative (GEMI), a non-profit organization of leading companies, developed a self-assessment tool to help companies begin to integrate sustainable

development into their business processes. The SD Planner™ is a detailed, comprehensive planning tool that companies can use to establish baseline performance, assess opportunities, set goals, develop action plans and evaluate progress towards their sustainable development objectives (GEMI, 2003).

GEMI itself noted that the SD Planner™ has some important limitations. It is designed to help companies get started in establishing goals and action plans, but it does not attempt to support decision-making about what course of action is best. The SD Planner™ is meant to be a catalyst and a practical tool, not defining a prescriptive path towards sustainability for any one company.

In 1998, the State of New Mexico Environment Department initiated an environmental award program based on the Malcolm Baldrige Quality Award model. It is called the Green Zia Environmental Excellence Program, and it culminates in an award from the governor of New Mexico. The program was originally designed to help organizations achieve environmental excellence through continuous environmental improvement. But the Green Zia is more than an award program with an environmental focus. What started out as a performance-based environmental management system has evolved into a tool to track, measure and embrace sustainability values (Green Zia, 2003).

Sustainability Indicators and Metrics As the oft-cited business principle of “what’s measured gets managed” suggests, sustainable development must be understood in terms of measurable results in order to be managed effectively. Several approaches to measure progress towards sustainability are currently being used and constantly refined. While the specific sets of measurements vary among companies that have adopted sustainability indicators, it is increasingly accepted that they should incorporate both the “triple bottom line” thinking and the idea of eco-efficiency, i.e. generating more value with less impact.

Sustainability metrics constitute one such approach that is increasingly accepted.

The metrics are

intended as simple yardsticks that are applicable across industries. They are expressed usually as ratios. In the numerator are impacts such as resource consumption, pollution effects, and land use. In the denominator are measures of desired outputs such as production and economic or social value added. Thus, the metrics follow a simple rule of thumb: the lesser the metric the better. The metrics can be designed to be scalable for different boundaries (e.g. around a process, a facility, or a business unit) and stackable along the supply chain so they are usable beyond the particular boundaries for which the calculation was performed (Schwarz et al., 2002). Well-designed metrics are easy to develop and calculate, especially with the help of automated metrics management tools such as the recently developed BRIDGESworks™ Metrics software (Tanzil et al., 2003). They can also incorporate weighting factors relative to the importance placed on each impact category by a particular stakeholder group so that they can ultimately be rolled up to one number. Using sustainability metrics would support decision makers in setting goals, gauging a company’s progress, benchmarking, and comparing alternatives, such as different raw materials, suppliers, and improvement technologies, in terms of sustainability.

Reporting Sustainability Progress Many companies are re-evaluating the way they report their corporate performance to the public by incorporating environmental and social actions and results in their corporate or annual reports. Recognizing the importance of accountability to stakeholders and learning to be more open, companies view sustainability reporting as a step towards more transparent communication. Beyond the benefit of external recognition, some companies hope to realize increased market share as a result of communicating their sustainability performance.

As companies face multiple reporting pressures there is an emerging need for consolidation, along the lines of accepted national or international reporting standards. The Global Reporting Initiative (GRI), an

effort to develop a framework for consistent sustainability reporting by companies worldwide, is fast becoming the recognized standard for sustainability reporting.

As an initiative, the GRI is considered a success having achieved broad international multi-stakeholder support and becoming an independent body in 2002. In 2002, GRI revised and improved its guidelines based on two-years of input from a wide range of stakeholders, a process which was viewed as accessible and transparent. Yet, detractors of the GRI find the guidelines of little value to smaller organizations; difficult to use at a facility level; increasingly prescriptive, limiting innovation in reporting and even reducing their use by some reporters; and requiring a huge effort to collect, analyze and report information (GRI, 2003).

Regardless of the criticism facing GRI, there is an increasing use of the GRI guidelines as a reference, if not an international standard for reporting. Other key trends emerging in good reporting practices include: •

growing use of web-based reporting;



increasing reporting of facility specific performance information; and



broader range of approaches to external verification.

Establishing the Business Value of Sustainability Initiatives There are numerous values, both financial and intangible, that companies consider in justifying their sustainability efforts. The following are some values and benefits that have ascribed to companies in search of sustainable development (Willard et al., 2002): •



License to operate



Risk reduction



Improved productivity/efficiency



Reduction

of

Reduction of costs related to hiring and retention of employees

costs

related

manufacturing and commercial sites



Stimulus for innovation/new products and services

to •

Increased market share

Growth / Shareholder Value

Access to Markets / Capital

Reputation

Community Goodwill

Innovation / New products and Services

Cost Reduction and Avoidance

Operating Efficiency

Risk Management

License to Operate

Value Drivers Environment

DJSI / Innovest

Baldridge / Green Zia

Resources

Pollutants/ Wastes Economic Internal External Social

Global Compact

Internal External General

Baldridge / Green Zia

Sustainability Management

GEMI SD Planner

Figure 2. BRIDGES Sustainability Performance Assessment © 2003 BRIDGES to Sustainability



New alliances



Enhanced access to capital/markets



Community goodwill



Increased shareholder value



Enhanced reputation

But how can a company recognize the business value of subscribing to a series of sustainability programs? A company should systematically review the various initiatives and programs from the perspective of 1) which aspects of sustainability are the programs designed to support, and 2) what are the key values/benefits that a company can derive from each effort. Figure 2 provides an overview of how one can organize such review or a sustainability performance assessment.

Using this matrix-based assessment, a company can clarify the nature of the initiatives and programs, their relationship to a corporate sustainability effort, and the desired benefits. Equally important, the assessment will help a company identify gaps in the possible value of their current sustainability efforts.

This matrix or initial “mapping” of the value of a company’s sustainability programs can identify which programs warrant additional evaluation. Additional analyses may be required to address questions of delivering value to both internal and external parties. More in-depth analyses can use focus groups or more structured consultation methods, such as the Delphi Process, which is used to eliminate bias. There are also techniques like “options financial analysis” that can help place financial value on some of the more intangible benefits.

The is an excellent tool to help a company recognize the business value of sustainability programs. The next step is for a company to determine how these efforts can be aligned to drive an organization’s performance in advancing sustainability.

Aligning Initiatives to Improve Performance In the early stages, sustainability initiatives are often spread throughout the organization, showing up in many departments and functions. Each of these programs is typically controlled in a compartmentalized fashion, in “silos,” and reside in departments/functions such as: environmental programs; health, safety and well-being programs; community and public relations; innovations; diversity and giving; supply chain management; and participation in customer program.

Sustainability is all about integration with its unique “triple bottom line.”

Projects must consider the

environment, social responsibility and economics at the same time. One of the first steps towards creating an integrated sustainability program may be to identify these projects and have them report on an informal basis to a sustainability “oversight” committee, where each “silo” manager would be represented.

Employees would work on the projects using a consistent set of tools to write formal action plans for accountability. In accepting these plans, managers become culpable as well. A Systems Approach to process improvement has provided a way to integrate these programs, featured in the US EPA publication, “An Organizational Guide to Pollution Prevention”(EPA, 2002).

As the program matures, employee teams should be encouraged to allow their projects to involve two or more silos (departments or function). In a few years, the program can develop into a fully-integrated sustainability effort. These programs foster continuous improvement by enabling “lessons learned’ to be tracked each year. The use of the Systems Approach to process improvement™ allows project and program documentation to be prepared in a consistent fashion and released to the public with transparency and visual clarity.

Tracking and Evaluating Progress/Scoring Performance With sustainability initiatives aligned, the organization needs to drive the performance of its overall program in order to move down the path to sustainability. Seeking to attain good results by tracking sustainability indicators is only a part of what needs to be done. The use of a comprehensive performance program, such as that which is based on the internationally recognized Baldrige model, is suggested.

The sustainability program can be scored on a periodic basis using this model and the improvements can be carefully tracked. Since the score is a unitless number on a 1,000-point scale, it is possible to compare the scores with other companies, regardless of size or sector. The supply chain member scores can be rolled-up into an enterprise-wide score.

What really drive performance are the six proven performance criteria from the Baldrige performance model. The criteria are: 1) Leadership, 2) Strategic Planning, 3) Customers and Other Interested Parties, 4) Information and Analysis, 5) Employee Involvement and Well-Being, and 6) Process Management.

The Baldrige model is application driven, requiring some facilities to prepare a detailed 50-page application with answers to nearly 100 questions. This extensive application is scored by a team of independent examiners. However, a shorter 22-question employee survey has been developed to extrapolate a performance score on the 1000-point basis. Standard deviations in the answers and written responses from the shorter diagnostic provide the organization with a good summary of its strengths and its opportunities to improve their performance. Whether with the 50-page application or the 22-questions survey, performance is scored and the facility uses the information to continuously improve (Pojasek, 2003a).

Sustainability results and indicators can also be scored by trained examiners using four criteria: 1. Importance to the organization 2. Planning for results and comparing to actual 3. Tracking and trending of results with explanations of the trends 4. Benchmarking results against others in the industry.

In some performance programs, the results score is rolled up into the performance score, with results receiving between 33 to 40% of the total. Other companies score the results on the same 1,000-point basis – so that two scores are provided (Pojasek, 2003b).

If sustainability performance is good, the results will also be good. They go hand-in-hand. It is a possibility to have good results when sustainability performance is not so good – you are just being lucky. Sustainability results do drive the program. However, they can be scored to allow the organization to improve the process of collecting and analyzing the results.

Summary Sustainable development is a complex idea, its concepts difficult to implement, operationally. This paper offers a practical approach for companies to leverage their participation in existing sustainability programs. This approach re-assesses, aligns and integrates sustainability objectives and initiatives with a company’s business objectives and actions.

The practical approach involves five steps: •

Frame the issues.

Frame the issues that need to be considered in implementing sustainability. Once a company understands the “big picture” and has defined what sustainability means within its corporate culture, it can transform a comprehensive sustainable development framework into a practical decision-support system that addresses real world problems. •

Use existing programs-in-place.

Companies use a range of tools, indicators and reporting formats to facilitate the development of a sustainability program and to help manage it over time. Other programs that companies utilize for more effective environmental management are not automatically recognized as part of an integrated sustainability strategy. It is important to identify places of leverage and strive to have a sustainability program in place and to use it to drive all the sustainability projects. •

Assess the value of programs.

A company should systematically review its various initiatives, to determine the benefits of participating in particular sustainability programs. The Sustainability Performance Assessment can form the basis for improving a company’s overall sustainability performance. •

Align initiatives.

By aligning and integrating existing “best of breed” sustainability initiatives a company can enhance and realize the full value of its sustainability programs. This step links performance and results in such a way that it can improve a corporation’s awareness of sustainability risks and opportunities. •

Drive performance.

A performance program like that which is based on the Baldrige model can be used to create the influences (e.g., leadership, strategic planning, employee involvement, other interested party and customer participation, etc.) that are needed to drive continuous improvement. Because sustainability performance is results-driven, it is also possible to score the results using the Baldrige model.

While there have been many early attempts to provide guidance to the sustainability projects themselves, we are finding that it is often best to provide some overall guidance and structure to the sustainability program in place instead. This will help each organization define what is best for them and create a program that will truly make them sustainable in time.

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