Getting Real About Measurement: How to Size Up the Triple Bottom Line
<p>As businesses become increasingly strategic about sustainability, using metrics to measure and manage social, environmental and economic impacts has become standard practice. But how companies use that data to guide their activities varies significantly.</p>
As businesses become increasingly strategic about sustainability programming, using metrics to measure and manage social, environmental and economic impacts has become standard practice.
Yet, there's still significant variation in how companies interpret and use the resulting data to guide their activities.
Few offer much explanation about how they've chosen improvement goals or how their performance relates to real-world factors, such as whether their personal contribution to atmospheric carbon represents a viable ecological footprint.
This represents a critical gap, since objectives that fail to align with real boundaries and needs in the external context stand to leave risks unaddressed or exacerbate them, negatively impacting both commerce and society over the long term.
Mark W. McElroy, Ph.D., the director of research for the Center for Sustainability Performance at Deloitte Consulting has developed a methodology to address this, called context-based sustainability management. McElroy took time out for an interview to inform readers at GreenBiz.com about the approach.
Briefly described, the system helps businesses delimit their social and ecological operating context and establish performance targets accordingly, ensuring they stay within responsible boundaries, meet basic social needs and move toward systems that are more truly sustainable.
Essentially, it helps put numbers on the triple bottom line (as McElroy wrote in an article for GreenBiz.com) and size up one's social and environmental footprint, addressing some of the industry's most elusive questions.
The mechanics involve quantifying an entity's allowable impact or share of responsibility for environmental and social issues and using this context-based metric as yardstick to evaluate outcomes.
Context-based metrics rest on empirical limits, such as local water supplies, optimal levels of atmospheric carbon or social/economic factors like local cost of living.
The company's allowable impact (e.g., share of available water, contribution to global emissions) and responsibility (e.g., total compensation) within this context are determined using factors such as staff size, facility size or production. To evaluate their progress, users divide actual performance data by allowable impact or share of responsibility. A result of one or less for environmental factors, or one or more for social factors, indicates they they're operating within contextual boundaries. (See diagram above courtesy of McElroy and Deloitte Consulting.)
McElroy notes that several factors make this approach timely: the rise of the Global Reporting Initiative (GRI) as a sustainability reporting standard, growing stakeholder demands for transparency and increased regulatory requirements.
The GRI calls for sustainability reporting "in context" but doesn't specify how to achieve this, making supplementary guidance essential. Stakeholders are getting savvier in assessing green marketing claims, making it important to have hard facts as back up. Environmental regulations often combine reporting requirements with limits or caps, which, at bare minimum, represent contextual boundaries for ongoing operations.
An additional reason rests in the simple reality that human activity continues to depend on many non-renewable resources and overshoot planetary carrying capacity while poverty and social inequity rise.
We're operating beyond our means in terms of natural and social capital, and already facing the ramifications, including climate change-related weather events and water supply limitations that threaten business and citizens alike. Yet, we have the capacity and the time to turn this situation around successfully, and understanding our situation is an essential first step to orient our efforts.
The method is more resource intensive up front, requiring research to characterize contextual conditions for the issue at hand, such as local water availability or cost of living for employees, establish goals to align performance and improvement accordingly.
However, McElroy notes that as more companies adopt the system, generalized tools to gauge context, allowances and accountabilities can be developed from these diverse examples and start up load will decrease. Deloitte has created one such tool already, the Enterprise Water Method, and continues to build its client services in this area. (See diagram above courtesy of McElroy and Deloitte Consulting.)
McElroy cites a broad business case.
"Context-based sustainability measurement and reporting can improve the quality of information required by managers to understand and control sustainability performance," he says. "It provides a means of conforming to the Global Reporting Initiative's requirement that 'sustainability context' be included in reports. Since the purpose of context-based measurement and reporting is to understand performance relative to the quality or sufficiency of vital resources in the world, stakeholders of all kinds also benefit from an organization's use of the method."
Examples of the approach in action illustrate its efficacy.
Ben & Jerry's piloted it to manage greenhouse gas emissions at their Vermont plants. The firm used guidance calling for atmospheric carbon levels of 350 parts per million or less to establish a contextual limit and calculated its share of total allowable emissions based on staff size. Annual net annual emissions are assessed against this allowance, guiding ongoing investments in efficiency, green energy and offsets to keep the ice cream maker from warming the planet.
Cabot Creamery Cooperative Inc. has adopted context-based sustainability management on a wide-ranging basis, creating specific metrics sets targeting each site's impacts and operating environment.
Cabot Creamery assessed its fair share of locally available water at its creamery then implemented activities stay within this limit, such as expanding the reuse of manufacturing process water for farm irrigation. (See diagram courtesy of Cabot Creamery Cooperative Inc.)
The company has also applied it to measure and manage climate impact, using facility-level results to prioritize emissions reduction activities such as conservation and renewable energy. Cabot Creamery uses multiple factors to establish allowable impact, such as staff, economic value and production.
Jed Davis, director of sustainability at Cabot Creamery, says the approach delivers benefits and integrity.
"To us, it's really a matter of common sense and honesty," he says. "Without context, you can show a nice track record of continuous improvement, but you can't claim any measure of sustainability … Sustainability claims must not be without context, if avoiding greenwashing is a goal. There is [also] a richness of data that empowers better decisions and strategy because of the ability to prioritize. That should be pleasing to everyone, from CEO to the operations team to the accountants to the sustainability personnel."
Given the convergence of strategic sustainability, stakeholder demands and increasing real-world challenges and opportunities, context-based sustainability management appears to be a promising, on-target approach worthy of wider application.
McElroy welcomes direct inquiries from interested parties. Information is also available from Center for Sustainable Innovation (CSI), where McElroy developed the concept as a graduate student.
Melissa Schweisguth is director of membership development and education for the Food Trade Sustainability Leadership Association and an independent consultant on CSR/sustainability and marketing/communications.
Top image CC licensed by Flickr user blmurch.