Posts tagged ‘metrics’
The Considerable Challege of Setting Goals
Bruce Klafter
Inside most companies it may seem at times that we are virtually awash in goals, targets, objectives, incentives and other means of spurring us to action. Like many things in life, “too much of a good thing” can be counterproductive, but there is no question carefully formulated goals are critical to environmental, health and safety (EHS), and sustainability programs. As the great philosopher Yogi Berra once stated: “If you don’t know where you are going, you’ll end up someplace else.”
On October 19 at the NAEM Forum, we are going to explore a number of questions related to goal setting, but principally the “how” of it.
What makes setting an enterprise wide sustainability goal a tricky proposition? Here are some of the factors I believe come into play:
- A good deal of data is required and in many cases our data is missing, incomplete or lagging;
- Benchmarks are important, but can be misleading because no two companies are situated in exactly the same place;
- Multi-year goals are usually advisable, but the longer the duration of the challenge, the greater the uncertainty that creeps in. How many of us accounted for a global recession in 2009?
- Top-level participation is essential, but a certain amount of background is necessary and time and attention are hard to come by;
- How ambitious does your company wish to be, i.e. how far should the goals be stretched or how much risk of failure will be tolerated?
- How do the goals relate to overall company strategy or do you have the right people in the room to set the goals?
- What will it cost to attain the goals (a near certain question from your friendly CFO)?
Please add your questions to the mix and we will answer them all at the Forum (at least that’s my goal!)
Bruce Klafter is Managing Director for Environmental, Health and Safety (EHS) at Applied Materials, Inc., where he also heads Corporate Responsibility and Sustainability. He will be speaking during the “Sustainability: Defining your Program, Setting the right Goals” session as part of NAEM’s EHS Management Forum on Oct. 19-20 in Tucson.
When it comes to ESG metrics, materiality matters
As one of the first employees of Ceres and a leader in developing the Global Reporting Initiative, Mark Tulay has been involved with socially responsible investing for 20 years. His latest project is the Global Initiative for Sustainability Ratings, an effort to identify the most material metrics for measuring a company’s sustainability performance. We caught up with him this week to learn more about the landscape today and the role the GISR will play in the future of sustainability analytics.
GT: When Ceres started out, it was one of the first attempts to use metrics as a foil against environmental disaster. Why did you think that data could help prevent another oil spill?
MT: Around the time of the Valdez oil spill, it was unheard of to have a conversation about environmental performance at the board level. One of the things this effort at transparency did was take accountability to the highest level of the company. You can never tell how many disasters transparency prevents but when you have that disclosure, you have accountability and if you have accountability, you have an effort at performance and a strive for a common goal. And before Ceres, we didn’t have that.
GT: GRI was a game-changer, but a decade later, many publicly traded companies still don’t disclose environment, social and governance (ESG) information. Do you think this will change? If so, why?
MT: More has happened in the last three years than in the previous twenty, combined. When I started twenty years ago, less than one in every $20 of assets under management looked at environmental performance. Now, with the proliferation of investment vehicles such as the Dow Jones Sustainability Index, one of every 10 dollars in the U.S. is associated with at least one component of integrating ESG performance.
One out of ten is significant and many feel this is kind of a tipping point for closer evaluation of these metrics. So that’s the opportunity. These investors are sticky; they’re longer-term, they’re the kind of investors that IR folks usually covet. Until now, the investor relations folks didn’t ask the questions about sustainability or ESG, but now they’re starting to do that. Companies are starting to understand that pension funds are interested in this and if you can find investors that are good, long-term investors, it’s a very profitable endeavor.
It’s amazing to watch where this is going and the impact it’s having.
GT: How well does the current ESG analysis system work? Do you think it needs reform?
MT: I used to work for a research provider so I sort of know this from experience, but the tendency is for research providers to go a mile-wide to collect as much information as possible. That makes sense, it’s important. But there’s a need to go a mile-deep.
What we really need help with is this question of materiality and prioritizing the metrics; looking through all the disclosure and assessing what are the 10-20 key performance indicators that matter most?
GT: What changes would you like to see to the system?
MT: We have all this disclosure, but there’s overload now, so investors don’t know what to do with it. How do they rate things? How do they rank things? Investors, I think, need a standard framework. And so that’s what this initiative called the Global Initiative for Sustainability Ratings will address. It will show investors what to pay attention to and why.
It’s developed as a non-profit and the framework, the output will be free, publicly available and non-commercial. This organization will not try to monetize it. And then we’ll put it out there and invite others to tell us what’s missing and then we’ll strengthen it. It will be an annual process of reviewing and expanding the tent of partners.
It’s amazing to me if I look back over the past 20 years, is the meaningful results that come from through multi-stakeholder collaborations.
GT: What impact do you think this will have?
MT: Right now, there’s a feeling that much of disclosure goes into a black hole. And there’s little transparency, rigor or consistently in how sustainability performance is measured. There’s more than 300 ratings systems and 300 assessments systems and they all do things in different ways and we think that by putting up a standard framework, we can bring convergence to some of these groups and reward the companies that are truly committed and excelling.
The other thing it will seek to do is infuse sustainability content into other ratings, like bond ratings. There’s a feeling that this should be a standard part of due diligence, to look at these environmental and social metrics. We think that just like GRI, certain organizations will pick it up and have their own take on these ratings. We think pension funds will take on these criteria and use them as a way to select managers. And if they select managers by that, then by extension, companies will benefit from following these or reviewing the metrics and seeing how they align. We want them to be consistent and align with what GRI is achieving so that disclosure can be rewarded.
GT: But wouldn’t an ESG research firm object to a standard? After all, it’s the secret sauce…Why would they want to use a single framework if it means eroding their proprietary edge?
MT: If the pension funds, the asset owners, say ‘We want research that’s aligned with the framework,’ then the research companies are likely to embrace that. And we’re not trying to say there’s one way to do it; maybe there’s 15 ways to evaluate companies. Everyone has their own qualitative best practice as to how to do this. The reason we’re calling it a framework is because it provides direction, it provides specificity, but it doesn’t say, ‘This is the only way to do it.’ So I think it’s going to provide the compass and others will find ways to do it and create businesses around it.
GT: Who will be participating?
MT:We’ll reveal the full list of stakeholders at our launch in Washington, D.C. on June 9, but I can tell you that it’s a partnership between Ceres and the Tellus Institute, and that we’ll be joined by asset managers, pension funds and companies stakeholders as well.
Mark Tulay is founder and CEO of Sustainability Risk Advisors and a leader in the Global Initiative for Sustainability Ratings. He will be joining NAEM as part of the ‘Measuring Corporate Sustainability’ stakeholder dialogue on May 4 in Fort Lauderdale, Fla.
Quantifying the value of your sustainability investments
Celia Spence
We heard at the 2010 EHS Management Forum about how Bloomberg is now posting environmental, social and governance (ESG) performance data on the terminals its 300,000 customers use to make investment decisions every day.
Bloomberg went live with this data in July 2009 and it is reported in the April issue of Fast Company magazine that “in the second half of 2010, 5,000 unique customers in 29 countries accessed more than 50 million ESG indicators via Bloomberg’s screens.” This is a 29% increase over first half of last year.
According to the article and Bloomberg’s sustainability director, Curtis Ravenel, they expect that trend to continue. Investors are finally waking up to the idea that good performance in these areas can impact shareholder value. Bloomberg gleans this data from many different sources and provides it to their clients as just one more subject area to be used to evaluate investment decisions. Ravenel states that “ESG ought to be in SEC-required company filings, and until it is, it won’t be viewed as material by a lot of people.
“Of course, a lot of the financial data in there now aren’t material either.”
While performance data may provide important bits of information for investors, what is really needed to determine whether they are material is to analyze how the ESG initiatives impact the cash flow of the company. Full valuation audits of ESG initiatives could answer that question. Understanding how ESG initiatives can impact shareholder value provides information that is critical for strategic planning and gives environmental, health and safety (EHS), and sustainability leaders the evidence they need to push projects forward in a meaningful manner.
Does your company have any idea of how your initiatives are impacting shareholder value? Do you just do a simple payback analysis and leave it at that?
Showing the link to the price of the stock is going to be critical for fully integrating sustainability in our corporations. Because, let’s face it, a company that is not producing value for its shareholders is not sustainable.
What are the green metrics that really matter?
Carol Singer Neuvelt
The world of environmental, social and governance (ESG) performance analytics is exploding at a breakneck speed. What once was a niche field of socially responsible investing (SRI), is transforming into a vast marketplace of financial ESG-oriented indices, ratings firms, carbon reporting and mass-market editorials like Newsweek’s Green 100 ranking. Today the trend toward broader ESG and sustainability reporting is beginning to expand into auxiliary areas such as supplier questionnaires and product labeling.
With all this activity, it seems like everyone has an opinion about which metrics determine a company’s “greenness.” What remains unclear, however, is whether these types of ratings schemes can truly illustrate competitive eco-advantage in today’s complex global marketplace, or even reliably reflect strong EHS and sustainability management within a company.
When this movement took hold a decade ago, many corporate environmental leaders were excited that the external world was finally paying attention to the value their efforts contributed to the bottom line. Indeed, the establishment of the Dow Jones Sustainability Index, the growth of financial firms such as KLD and even the creation of the Carbon Disclosure Project were viewed as affirmations of their professional focus.
But recently, my conversations with corporate EHS leaders seem to reflect a frustration with the ever-growing number of requests. As environmental managers spend more and more time crunching data, they do so with little insight into who the requesting firm is, what their business interests are or how the mountains of data will eventually be used. What we do know is that some of this information is being used to make material judgments about a company’s long-term prospects. Yet does any of this data really indicate true progress?
I believe there is a need for a clear, thoughtful approach to ESG and Sustainability reporting that reflects the performance metrics that are both meaningful to a company and useful to its C-suite leadership, and relevant to external stakeholders.
To address this issue, NAEM has launched its ‘Green Metrics that Matter’ program, an audit of the field of ESG and Sustainability analytics. Our final report will identify the key players, the proprietary benefits of participating with them and the core metrics EHS leaders send to their C-suite. We believe this insight will help promote better decision-making by both corporate users and the broader ESG community.
As we continue our research, we would like to invite you to share your key metrics with us through our confidential online survey. We’d also love to hear your thoughts on this project. How are sustainability analytics changing how you manage? Are the questions you’re being asked the right ones for determining the extent of your environmental stewardship? Is this information truly helping the public better understand whether your products are sustainable? Or is it just an additional paperwork burden?
Certifiably Sustainable?
Celia Spence
Measuring sustainability is something companies have been struggling with for several years, especially in the area of supply chain management. On August 2, UL Environment and Greener World Media announced a draft standard for manufacturing companies to measure and certify their sustainability.
The standard has been released for a 45-day comment period and the public is encouraged to review and provide comments in an open, transparent process. “ULE 880 – Sustainability for Manufacturing Organizations” spans 102 indicators in five areas of sustainability, that include:
- Sustainability governance: How an organization leads and manages itself in relation to its stakeholders, including employees, investors, regulatory authorities, customers and the communities in which it operates.
- Environment: How an organization manages its environmental footprint across its policies, operations, products and services, including its resource use and emissions.
- Workforce: Issues related to employee working conditions, organization culture, benefits and retention.
- Customers and suppliers: Issues related to an organization’s policies and practices on product safety, quality, pricing and marketing as well as its supply chain policies and practices.
- Social and community engagement: An organization’s impacts on the communities in which it operates in the areas of social equity, ethical conduct and human rights.
Having a tool that will actually result in a score and allow companies to obtain certification could be extremely useful for those companies wishing to demonstrate that their supply chains or operations are sustainable. But the challenges we have faced with measuring sustainability have resulted from the enormous diversity of manufacturing processes, raw materials and cultural practices we encounter in global corporations.
It will be interesting to see how this has been addressed in this new standard. Is it actually possible to agree on the metrics that should be used to determine which of the companies among us is operating in a sustainable fashion? Are there too many subjective choices in deciding what is sustainable and what is not, or do we have enough of a consensus to move forward with a standard at this point?
It will be important to get involved in this and to provide our feedback on the draft. If such a standard is finalized and becomes widely used, it is something that will affect us all and shape the work that EHS managers do on a daily basis. What are your thoughts? Is a standard a welcome development? Will consensus be possible?
