The New Metrics: Clues for making sense of sustainability ratings
The New Metrics: Clues for making sense of sustainability ratings
How would you recognize a truly sustainable business if you saw one?
That was one of the more ambitious questions at the New Metrics of Sustainable Business Conference, hosted by Sustainable Brands in Philadelphia. Luckily, each of some 30 sessions during the conference Tuesday and Wednesday offered pieces of the complex answer.
One tactic of the sustainability movement is to persuade, cajole or force businesses to recognize the value of measuring sustainability by showing how it impacts their bottom line. One of the chinks in the armor is corporate risk management.
With more than 2.6 million credit ratings in play at one time, these ratings have an enormous effect on shifts in market value. As long- and short-term environmental risk management grows in importance in credit ratings, the conversation will necessarily change.
Before that happens wholesale, there are still many new metrics arguments to be made that help CEOs, CFOs and CMOs see intrinsic and extrinsic value in more sustainable business practices.
The refreshing aspect of the conference sessions was that hard facts and data were behind every attempt to quantify sustainability gains — and quantify the value of measuring them — in business activities. The frustrating aspect was that many of the proven, reliable measures and initiatives in place today are still slow to transition to the mainstream.
The University of Pennsylvania was a fitting venue for the third year of this Sustainable Brands forum, given the school’s motto, “Laws without morals are in vain.” Jeffrey Smith, partner at Crowell & Moring law firm and Advisory Council member of SASB (Sustainability Accounting Standards Board), added another layer by quoting Penn’s founder, Benjamin Franklin: “The great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things.”
Raters, ratings and metrics
“We have metrics; we’re awash in metrics,” said Allen White, founder of the Global Initiative for Sustainability Ratings (GISR) in a session titled “Redefining Value, Moving Markets.” White noted that organizations such as SASB, the Global Reporting Initiative (GRI) and the International Integrated Reporting Council (IIRC) monitor, study and analyze literally thousands of economic and sustainability indicators.
As participants explored at the New Metrics, though, there was little overt competition among rating systems. They each can serve a role, and there’s not even necessarily a need to predict how they’ll be used. Whether identifying what to measure, evaluating the importance of a measurement, informing analysts or cautioning investors, they can all shed light on the murky “science” of risk management.
Moreover, it’s more important to keep in mind what the metrics you’re using are comparing. Are they comparing against a previous benchmark, against a competitor or against a stated internal company goal?
The hope in the room was that the layers and layers of measurement, analysis and comparison will soon converge in the most meaningful ways to move markets. And one factor pushing the acceptance and utilization of metrics is the shortening timeframes of risk management in the wake of recent climate events. Gil Friend, founder and CEO or Natural Logic, Inc., said he trusts that each new measuring tool adds new worlds of understanding of “capital,” whether monetary, environmental or social.
Big insight from big data
The more data points that are measured, and the more often, the more reliable the numbers become and the more reliably predictive they become. And there are unimaginable amounts of data out there.
Thomas Odenwald, senior vice president at SAP, explained a few examples of the power of big data. He also stressed that many insights and gains can be achieved by analyzing and using data that already exists and is readily available.
At sustainability leader Groupe Danone, for instance, SAP helps the company calculate the monthly carbon footprints for each of 35,000 products. The company regularly monitors performance against specific goals. In Africa, making certain real-time data available to women cashew farmers allows them to get the best price for their yield. They can now monitor price fluctuations and market demand to maximize their market price.
Rob Bernard, head of sustainability at Microsoft, was charged with reducing energy use across all company facilities worldwide. The volume and specificity of heating and cooling data already available was more than adequate; translating it into a system that would pinpoint inefficient operations was the tricky part.
Microsoft also implemented an internal employee program that promoted: “Be lean; Be green; Be accountable.” One aspect of the program put a price on carbon (variable based on context) and put carbon use in the budget of each department. Bernard’s advice, on top of everything, was to make it easy. “If it’s easy to remember, it’s easier to participate,” he said.
Hicham Oudghin, cofounder of data-mining service Enigma, also touted the power of data in a new era of transparency. Enigma finds, curates and catalogs all the public data it can accumulate and makes it easy to analyze and cross-reference for its clients. Oudghin showed examples of the remarkable transparency of some publicly traded companies, such as Nike, where anyone can check up on the details of pretty much every Nike supplier.
Not if, but when
In a Q&A session, Dave Metcalfe, CEO of analyst firm Verdantix, urged companies to take a realistic approach. “Where does your sustainability strategy fit in with the other strategies in your company?” he asked. “Because the timeframe is so long, you should start with your sustainability strategy.”
Jeffrey Smith used a Tower of Babel analogy to get the room’s attention, but said he is nevertheless hopeful. His deep experience with the Securities and Exchange Commission (SEC) put any new wrinkle in perspective, but he assured the audience that the SEC and the nonprofit accounting standards group SASB are in regular communication. “At some point, they are going to have to do something,” Smith said.
Bob Willard, author of The Next Sustainability Wave, shared a dream of a unified metrics standard that includes the most critical environmental, social and governance (ESG) indicators that can be measured. Willard was the one who asked: “How would we recognize a truly sustainable business if we saw one?”
His proposed “Gold Standard Benchmark for ESG Performance” will be a first attempt. This “fourth benchmark” goes beyond metrics comparisons to a baseline year, to competitors, or to an internal company goal. The Gold Standard would use material, science-based key performance indicators and goals that could identify a truly sustainable business. Willard is actively working with a broad range of stakeholders from the capital markets to non-profit sustainability experts such as the Natural Step and GISR.
This work-in-progress takes into account the “boundary issues” of a limited ESG environment, and the final indicators are still not determined. As Willard recently wrote on his blog: “The company’s performance is compared with how it would perform if it were a truly sustainable enterprise—one that creates positive environmental, social, and economic value. This benchmark puts a stake in the ground and declares the characteristics of a truly sustainable enterprise.”
Image of rulers by Africa Studio via Shutterstock