CHAPTER 6

Corporate Sustainability Frameworks, Metrics, and Indices

Earlier chapters were designed to provide a working understanding of sustainability and what it means for business, why it is so important, how to think systemically about business processes, the risks for ignoring sustainability trends, and the rewards for addressing them. This chapter provides an overview of some commonly used metrics and tools, while pointing out the need for customization of any plan to incorporate each individual company’s industry, size, mission, vision, and business model.

Nobel Prize winning author George Bernard Shaw wrote in, Man and Superman in 1903 that “the only man I know who behaves sensibly is my tailor; he takes my measurements anew each time he sees me. The rest go on with their old measurements and expect me to fit them.”¹ In practice, sustainability resembles the role of a tailor, as it requires regular measurement, modification, and adaptation. Organizations grow in size at some times, contract at others, change shape, and improve in health. The sustainability function, like the tailor function requires a keen attention to detail.

As a custom suit that must be tailored for the client, sustainability initiatives must be designed to fit the needs of each company. What works for Ford may not work for GM, Pepsi may be different from Coke, the approach of Ernst and Young should and could be different than that of Deloitte. Varying needs require different approaches and tools to be successful. Where the tailor’s tools include measuring tape, scissors, pins, and chalk, a sustainability practitioner has a number of tools as well, including operational and reporting frameworks, GHG inventories, LCAs, carbon disclosures, and other tools. These resources and approaches address planning, information gathering, precision, and transparency. Some of them establish the baseline for comparing the degree of progress or failure over time. When compiled and used properly the data prompts firms to weigh the consequences of differing options, from both quantitative and qualitative approaches, to find the most feasible solutions.

Decision making employing analytics and materiality ensures that environmental and social impacts are measured and monitored over time, showing clear and proven trends and accomplishments. Without such considerations, programs portrayed as sustainable are likely to miss the mark by being simply ad hoc or feel-good efforts. A delineated and comparative set of criteria based on a systemic review of inputs, outputs, and processes, makes the difference between a flawed and ineffectual decision and one that has much greater sustainable value.

Evaluating the degree of sustainability for an organization, product, or service is a fairly complex task. One example is how the embodied energy of 1 kWh can differ by state: there is a difference between the carbon footprint of 1 kWh generated in Colorado and 1 kWh generated in Tennessee. Another example is how a “sustainable” product may not perform exactly to specification depending on use. Length of use determines the sustainability profile of carpet tile versus broadloom. A live-cut Christmas tree may appear “greener” than an artificial tree, but an LCA may prove otherwise. Sustainability metrics change by zip code, function, and use. These and similar questions make it necessary to employ tools to collect data and generate analytics, in turn establishing a foundation for sustainable decision making.

The tools and frameworks discussed in this chapter are some of the most frequently used by firms pursuing more sustainable practices. All are science-based. Each is introduced very briefly here and discussed in more detail in the sections that follow:

• The Natural Step Framework is a comprehensive model for sustainability planning in complex organizational systems, based on four central principles, called system conditions, and the backcasting method of planning.
• The Circular Economy is a framework for redesigning business practices toward an efficient and restorative model.
• Greenhouse gases are measured though a greenhouse gas inventory, also called carbon accounting.
• Lifecycle assessment is a scientific method of measuring the impact of a product or service across all stages of the product lifecycle from raw materials through end of life (known as cradle to grave).
• Carbon disclosure frameworks offer firms another means to assess environmental risks. Responding to these tools is an exercise that requires a hard look at climate, water, supply chain, and forest vulnerability and opportunity for any organization.
• The Dow Jones Sustainability Indices evaluate the financial, environmental, and social performance of the largest 2500 firms listed by the Dow Jones Global Total Stock Market Index, and are tools for investors and the financial industry.
• The GRI provides another option for a voluntary wide-scope framework for organizations to follow when creating a sustainability report encompassing economic, governance, social, and environmental indicators. More than 4,000 organizations from 60 countries use the GRI guidelines to produce their sustainability reports.
• Consumer-oriented indices and certifications such as Walmart’s Sustainability Index, the Higg Index created by the Sustainable Apparel Coalition, Green Seal certification, and the EcoLogo program are other options.

The Natural Step

The Natural Step is a non-profit organization that helps organizations with their sustainability training and planning, using their Framework for Strategic Sustainable Development. Its popularity is partly due to its simplicity, as it distills sustainable practices down to four fairly short principles which are positioned as nonconfrontational, nonprescriptive, and nonjudgmental. These principles act as criteria for developing a sustainable society and, by extension, a sustainable set of business practices. They are worded as four systems conditions:

“In a sustainable society, nature is not subject to systematically increasing:

1. concentrations of substances extracted from the earth’s crust,
2. concentrations of substances produced by society,
3. degradation by physical means,
4. and, in that society, people are not subject to conditions that systemically undermine their capacity to meet their needs.”²

This doesn’t mean an immediate and permanent cessation of mining, producing GHGs and toxic waste, otherwise damaging natural systems, and addressing every incidence of social injustice. It serves as a template to immediately begin to find ways to reduce and eventually eliminate these threats. In practice, this framework focuses organizations on finding alternatives to the use of heavy metals, fossil fuels, toxic chemicals, and pollutants, over-harvesting resources, the reduction of biodiversity, and a variety of social impacts such as unfair and unsafe working conditions, dangerous products, corruption, and anti-competitive behavior.

There are two rationales underlying the system conditions. The first of which is that most harmful materials extracted or produced do not disappear, they simply disperse into the environment, often accumulating to rates that cause widespread long-term harm. The second rationale is that, as part of a larger system, business practices must operate in alignment with the cyclical characteristic of natural systems so as to avoid destabilization of these systems and cycles. Attention is paid to avoiding the generation of new problems in the process of solving existing ones.

To achieve these systems conditions, the framework employs a planning approach, called backcasting, which begins with the end in mind, a vision of the desired condition at a future point. Using that vision and time frame, milestones, with strategies, action steps, and monitoring procedures, are projected backward from the end point to the present. This creates a template to move step by step toward the desired vision in which each step is associated with its own payoff.

Once a vision is determined and targets are set, current practices are evaluated to establish a baseline to serve as a starting point for a gap analysis of services, products, human and financial capital, and energy flows. The framework encourages creative solutions that will lead to more radical, versus incremental, change, through its emphasis on the guiding longer-term vision.

The Natural Step is one way of conceptualizing a systemic understanding of how business practices fold into a larger global world. Greenhouse gas accounting, covered below, through its implicit tie to climate change, is also systemic in nature, although perhaps less obviously and comprehensively so.

The Circular Economy Framework

Based on a systems-oriented cradle-to-cradle perspective, the Circular Economy is a framework developed by the Ellen MacArthur Foundation using a number of schools of thought which share the same basic principles. With the purpose of creating a restorative model of industrial process design, biological materials are returned safely to the biosphere and technical materials are prevented from entering it, as espoused by waste experts McDonough and Braungart. Biological materials are consumed, versus technical materials, which are used, then recycled and reused or repurposed, with all materials managed in a cyclic flow.

The Circular Economy framework principles are founded on a living systems model and include the use of only renewable energy resources, building resilience through increasing or prioritizing diversity, the elimination of any waste that is not part of any natural biological cycle, and the cascading of materials from one application into a next use.³ These last two principles, while eliminating any toxics, envision biological outputs, which are deemed as waste by traditional business models, into nutrients for living systems or incorporated into production processes. For example, agricultural waste might be directly composted, or used for another purpose or product, such as livestock feed. The manure generated by the livestock can then be used as a soil amendment for regenerating degraded habitats or for the next cycle of agricultural products.

Greenhouse Gas Inventory

Greenhouse gas (GHG) emissions are atmospheric gases, mostly generated through the burning of fossil fuels such as coal, oil, and natural gas, which absorb and emit heat. The primary sources of these GHGs are through electricity generation, transportation, industrial processes, commercial and residential energy use, and agricultural production. GHGs trap heat, fueling the greenhouse effect, the process responsible for the overall global warming trend. The last 150 years of increasing industrial activity correspondingly elevated the concentration of these atmospheric GHGs.

At the dawn of the Industrial Revolution in the mid-1700s, the world’s human population grew by about 57% to 700 million, and reached 1 billion in 1800. The birth of the Industrial Revolution altered agricultural technology, and ushered in medical improvements and a rise in living standards, resulting in the population explosion that steamrolled into the next centuries. Within 100 years of the onset of the Industrial Revolution, the world population grew 100%, to 2 billion people in 1927. During the 20th century, the world population would continue to expand exponentially, growing to 6 billion people just before the start of the 21st century, representing an incredible 400% population increase in a single century. In the 250 years spanning the Industrial Revolution, the world human population has increased by 6 billion people.⁴

The explosive growth of humanity is pulling the planet much closer to the boundaries of its human-supportive dynamic equilibrium. In the scientific literature, there is a strong consensus that global surface temperatures have increased in recent decades and that the trend is caused primarily by the emissions of GHGs emitted by people. Prior to the 21st century, GHGs were mostly generated by the developed nations, but now developing countries are catching up and even surpassing them. Disputes over the key scientific facts of global warming are now more prevalent in the popular media than in the scientific literature, where such issues are treated as resolved.⁵

Despite that, some still question whether population-induced climate change is, in fact, happening there is still benefit in the use of GHG inventorying as a tool for evaluating corporate performance and (one facet of) environmental impact. As an indicator, the measurement of GHGs provides a method to analyze behaviors, benchmark the footprint of multiple facilities against one another, or determine which environmental issues are most material. Conducting a GHG inventory helps quantify an organization’s overall contribution to climate change, and build models in which rates of climate change, and activities to mitigate those impacts, can be evaluated. It also identifies opportunities to reduce inefficiencies, and thereby reduce costs, and points out environmental impacts.

Sustainability consultants can provide assistance with GHG inventorying. For firms who desire to pursue it in-house or seek more information, guidance for inventorying GHG emissions on the organizational level can be found through the World Resources Institute and World Business Council for Sustainable Development GHG Protocol. For national GHG inventories, guidance is provided by the Intergovernmental Panel on Climate Change methodology reports.⁶ For local governments, The Local Government Operations Protocol is a tool for accounting and reporting GHG emissions across a local government’s operations.

Greenhouse gas analytics offer an indicator that, if measured and reported properly, can be as useful as financial accounting data. Processes can be evaluated based on energy consumption, water usage, waste generation, and even purchasing data. The purpose and rationale behind the employment of GHG accounting tools determines their usefulness. The following example shows the difference between two organizations that were completing GHG inventories. Both companies are in the textile industry and produce complementary products.

Company A looked at inventorying their emissions as a chore, a check-the-box endeavor that was a requirement for a product certification that the company was seeking to obtain. It collected data at the campus level for each of its five campuses, and included water, electricity, natural gas, fleet, and waste data for each facility. Lack of foresight and care produced errors in the collection and input of the data, including transposed information, extra keystrokes, missing information, and inconsistent units of measurement. The company successfully completed an inventory that met the requirements of the World Resources Institute GHG Protocol but couldn’t answer the simple question, “Which of the five facilities had the biggest footprint?”

Company B’s senior leadership, in contrast, wanted the inventory done right the first time. There were no existing systems through which utility data was captured, most data was decentralized and had to be collected from individual managers. The data capture encompassed four facilities, all within the same city limits. Each facility had one set of meters but, thinking with the end in mind, company B collected data at the process level as well.

The inventory of both companies met the requirements of the protocol recommended by the World Resources Institute and was considered permissible in a voluntary reporting world. Only one was useful, though, when trying to determine emission-reducing activities and monitor emissions over time, or in prioritizing limited resources. The only difference between Company A and Company B was how data was segmented and then re-aggregated. The design of a GHG inventory process is the most critical step in creating useful sustainability analytics for decision makers, and will be discussed in more detail in Chapter 7.

At the industry trade level, the Automobile Industry Action Group, a non-profit organization, works to be “a catalyst for the global automotive industries efforts to establish a seamless efficient and responsible supply chain.”⁷ Within the trade group’s Corporate Responsibility Committee is a subcommittee working on GHG inventorying and reporting issues. Led by co-chairs from GM and Ford, this group has designed a mechanism to develop a common GHG emission calculating and reporting process. With the decline of vertically integrated automakers, traditional automobiles are made using a network of suppliers making specific original equipment manufacturer (OEM) parts for each vehicle make and model. Often more than one supplier makes a part for each make and model. The trade group reporting mechanism provides emission data, which allows a comparative evaluation to determine which suppliers are making products that generate fewer emissions.

While a GHG inventory offers a comprehensive tool for evaluating some environmental aspects of sustainability, it is not a panacea nor is it quick or easy. The process can be expensive and time consuming. To manage vast amounts of data, organizations may opt to purchase carbon accounting software, although this may add to expense and delay in implementation. Some providers offer carbon accounting software to provide more affordable options with less functionality. For smaller organizations, this effort may simply not be worth the time. Single facility companies, smaller service companies, and firms that lease their facilities and pay only electricity bills may be better served by focusing on other aspects of sustainability. For larger organizations with multiple sites, facilities and processes, a GHG inventory practice can be used much more effectively as a tool for assessing impact.

Lifecycle Assessments and Other Environmental Metrics

The operations of all organizations have both vertical and horizontal activities. A GHG inventory considers environmental impacts of an organization’s vertical activities, its operations, and all activities required to run the organization. For almost every organization, especially those in manufacturing, that is only a partial assessment of their environmental impact. To capture the full measure, the horizontal impacts must also be evaluated.

The LCA evaluates the impacts at all stages of a product’s lifecycle from cradle to grave, from the sourcing and extraction of the raw materials to the product’s end of life, destruction, reuse, or decomposition. The idea behind this assessment is to capture and identify the most material sources of impacts across that horizontal lifecycle. Lifecycle assessments are a tool for credibly defining and evaluating environmental claims based on sound, peer reviewed scientific data.

Recall a consideration from earlier in this chapter: which has the smaller environmental footprint, a 6.5 foot tall live-cut Douglas fir Christmas tree grown in North Carolina or a 6.5 foot tall artificial Christmas tree sourced from China and made from PVC? At first glance, there may be little doubt that the live-cut tree is the “greener” option as it is (or was) a living organism. Prior to its harvest, the live-cut tree was also capable of cleaning air, stabilizing soils, and sequestering carbon. Upon disposal the tree can be turned into mulch, the foundation of a sand dune, a habitat for fish in lakes, or even as fuel for a fire. The live tree is also likely harvested within a few hundred miles of its purchase and use, in comparison to the transportation impacts of the artificial tree from China to the United States.

It would appear that the live tree is the obvious winner, and on a one-to-one basis the live-cut tree is sustainably superior. It is the more environmentally friendly option when comparing one of each tree. The use of the LCA enables firms to measure the degree of “greenness” of each tree more precisely. The assessment quantitatively analyzes indicators such as primary energy demand, embodied energy, acidification, eutrophication, global warming potential, and contribution to smog.

Within the LCA other variables can be added, such as the distance the seed has to travel from the production area to a nursery, from the seedbed to transplant bed, the nursery to plantation, plantation to farm, and farm to retailer can be considered. Another component of the cradle-to-grave journey is the consumer’s round trip to purchase and bring home the live-cut tree. Once disposed of, end of life scenarios must also be accounted for whether the tree was composted, incinerated, or sent to landfill.

The same level of analysis for the artificial tree begins with incorporating the impact of the sourcing, refinement, and assembly of wires, PVC resins, injection molding processes, steel poles and fasteners, tape, and cardboard boxes. The transport of these parts tracks them to the factory, from the factory to the harbor, from their country of manufacture to their country of use, from a harbor to storage or a distribution center, from there to a retailer, and from a retailer to a home.

The level of detail in an LCA is valuable for anyone in marketing, product design and development, manufacturing, advertising, corporate communications, and sales. The International Organization for Standardization has created the ISO 14020 standard, which establishes nine guiding principles that a firm can use to enhance their labeling schemes and all environmental claims.

Similarly, the Federal Trade Commission offers guidance on the communication of green claims, such as the purchase of carbon offsets, use of solar power, recycling or zero waste statements, and any other green marketing claims, found in their “Green Guides.” These guiding documents outline the steps required to make credible green claims, which often require LCA to be considered credible.

The Christmas tree example is from an actual study conducted in November 2010 for the American Christmas Tree Association of West Hollywood, California.⁸ The study was the first ISO compliant LCA conducted with primary data, describing the manufacturing processes of artificial trees and the impacts of live-cut trees. The research was peer reviewed by academics and industry experts from Carnegie Mellon, the American Chemistry Council, and North Carolina State University.

While an LCA on a one-to-one basis shows the live-cut tree to be more sustainable, the above comparative review fails to consider one factor: an artificial tree is typically used for more than one Christmas. The results of the assessment showed that one artificial tree used for 6 years requires less energy to produce than six live-cut trees. On its sixth Christmas, an artificial tree has achieved an environmental break-even point equal to six live-cut trees. If it is used for more than 6 years, the artificial tree may well be the greener option. Folded into consideration is that some artificial tree firms offer an extended manufacturer warranty, and that the majority of artificial trees are donated, not disposed of, when first owners discard them.

Lifecycle assessments were, for a time, a less functional universal tool than one that was unique, proprietary, misunderstood, and sometimes misused. In 1991, concerns over companies using LCA results to make marketing claims prompted 11 State Attorneys General to denounce the use of LCA results to promote products. They required that such claims could not be made until a set of uniform methods for conducting such assessments was developed and consensus reached for how this type of environmental comparison can be advertised non-deceptively. Lifecycle assessment standards weren’t developed until 1997, with the completion of ISO 14040 Lifecycle Assessment Standards in 2002.⁹

Even with such standards, there continues to be criticism of how LCAs are conducted and how results are used. They require a significant investment of time and resources. Data must be collected across the value chain and from suppliers who are sometimes unwilling to provide data. When this happens, data sets on specific materials or processes can be purchased from organizations such as Ecoinvent or GaBi. Free LCA data also exist and can be downloaded from websites like OpenLCA.org. Be aware that there are concerns over the accuracy of this type of acquired data set, such as how relevant the data set might be when compared to what would have been collected directly from a firm’s supplier.

Another concern is the way in which organizations compare LCAs. For instance, one company might compare the results of its assessment against another company. The first might determine that the second left out a key process invalidating the latter’s assessment, a result of error, or the use of different data sets like GaBi or Ecoinvent, or differing processes between companies.

Throughout the development of LCAs, the availability of data and the standardization of methods have been thorny, but standards have continued to evolve through the creation of Product Category Rules. These Product Category Rules are used to ensure that industry-specific categories have defined rules and methods for how LCAs must be conducted by companies making products for each industry. Carpet, cement, bakery products, sauces, and sparkling wine are some of the industries for which Product Category Rules have been developed. Their purpose is to limit the misunderstanding of LCAs and to increase accuracy and transparency in interpretation and in marketing claims.

Environmental Product Declarations were created to help communicate summarized LCA data in a standardized format for quantifying and describing the environmental impact of a product or raw material, used for the purposes of disclosure.¹⁰ Declarations include information on the environmental impact of raw material acquisition, energy use and efficiency, content of materials and chemical substances, emissions to air, soil, and water, and waste generation. Product and company information is also included.¹¹

These rules and declaration guidelines are gaining traction in the process of the standardization of the LCA as a tool for companies making purchasing or design decisions. Lifecycle assessment is best used by companies providing raw materials.

Service companies might also use LCA as a way to measure the environmental impacts of different service stages. Companies providing products for the built environment, such as carpet, fixtures, or ceiling tiles should consider using LCA and some of the other tools described above, given the advancements in building standards, specifically LEED (Version 4). If your organization doesn’t produce a product or offer a service but purchases items in bulk, consider learning how to interpret the results of LCAs to drive more sustainable purchases.

Socially focused organizations may want to consider the use of social LCAs to evaluate social and socioeconomic impacts, or potential impacts. Guidelines, written and published by the United Nations Environment Program (UNEP), consider the impacts of production and consumption on workers, local communities, consumers, societies, and all value chain actors.¹²

Carbon Disclosure

Lifecycle assessments and GHG inventories are tools used to evaluate environmental impacts across a firm’s vertical and horizontal activities to provide a solid understanding of a product’s most significant material environmental impacts. This allows the firm to identify the product’s “hot spots,” places in their production stream that have the greatest impacts, and on which the firm is able to influence change. This also affords the opportunity to develop strategies to effectively reduce or eliminate these hot spots.

Embedded within the results of a GHG inventory and LCA are the data needed to evaluate the environmental risks of a product. CDP, formerly known as the Carbon Disclosure Project, has become an influential player in measuring, managing, disclosing, and sharing an organization’s risks related to the environment, particularly climate, water, and forest-related issues. In 2010, the organization was called “the most powerful green NGO you’ve never heard of” on the Harvard Business Review Blog Network.¹³

The non-profit organization works with 3,000 of the largest corporations in the world to help them ensure that an effective carbon emission reduction strategy is made integral to their business. This effort is taken seriously because of the size of the shareholdings backing CDP—655 institutional investors with $78 trillion under management. They also work with cities and other government bodies.

CDP has a history of advancing sustainability programs at companies large and small, and has worked with corporations including Walmart, Tesco, Cadbury Schweppes, Procter and Gamble, and Ford to measure emissions through the supply chain. On an annual basis, CDP sends requests to the suppliers of these and other companies to complete one of their annual questionnaires, the results of which are then scored. Final scores are then reported to the requesting entity.

CDP also acts as a repository of carbon, climate, water, and forestry risk data for the world’s largest economic influencers. Within this repository is information institutional investors can review to assess the climate-related risks and opportunities of organizations. This includes an evaluation of corporate risk from future legislation, environmentally focused lawsuits, or shifts in consumer’s perceptions related to an organization’s environmental performance. Much of this information is not collected or made available to shareholders in any other form, although in 2010, the U.S. Securities and Exchange Commission and the Canadian Securities Administration issued a Guidance Document related to climate change disclosures in annual and quarterly reports.

The Carbon Disclosure Report comprises five levels of reporting. The Investor CDP, the organization’s original program, includes “the largest collaboration of investors in the world and serves to place relevant climate change information at the heart of its institutional investors to help drive financial decision makers to migrate to low carbon economies.”¹⁴ The Investor program handles the collection and exchange of information from a company to the institutional investor and allows investors to tie economic forces and environmental performance together to evaluate long-term performance. The Investor program is also a source for transparency and accountability, allowing investors to hold a mirror up to an organization’s stated environmental commitments and goals.

Another CDP offering is its Public Procurement Program, which enables local and national governments to evaluate climate change impacts in the supply chain. The program was developed with a focus similar to the Investor program by providing essential climate data to purchasing decision makers of cities and governments.¹⁵ In the United States, CDP is working to support Executive Order 13514. Titled Federal Leadership in Environmental, Energy, and Economic Performance, and signed by President Barack Obama in 2009, the order asks the General Services Administration “to investigate the impacts of requiring vendors and contractors to register with a voluntary registry or organization for reporting greenhouse gas emissions.”¹⁶ The aim of the project is to assess the cost and benefit of federal suppliers measuring and disclosing climate change data and to help local governments work toward building a low carbon government supply chain.

Building on the interest in capturing carbon data from the supply chain, CDP developed a Supply Chain Program. As of early 2013, CDP was working with 57 global corporations to encourage suppliers to disclose climate change information.¹⁷ Companies like Walmart, Dell, L’Oreal, and Coca-Cola are involved in rolling out the program to their suppliers. Walmart, for instance, includes a question in its Sustainability Supplier Assessment Questionnaire, asking suppliers “Have you opted to report your greenhouse gas emissions and climate change strategy to the Carbon Disclosure Project?”¹⁸ In Walmart’s case, 80% of the company’s emissions originate in the supply chain of its roughly 70,000 suppliers providing products to Walmart’s shelves. To influence their suppliers’ practices, in 2010 Walmart created a goal to eliminate 20 million metric tons of GHG emissions from its global supply chain by 2015.

CDP for Cities is a program for local governments to report and disclose climate data. Launched in late 2011, this initiative provides a standardized reporting framework for emission data and the analysis of climate risks, opportunities, and adaptation plans for cities around the world. Initially rolled out to the C40 cities, the program invited 292 cities around the world to participate in 2013. The value of the Cities program lies in its crowd-sourcing potential. City sustainability managers will be able to identify colleagues who are addressing similar risks and issues with new and innovative strategies for reducing carbon emissions and for mitigating and adapting to risk from climate change.¹⁹

CDP’s Water Program is produced for 470 investors representing $50 trillion in assets, and is based on information submitted to CDP by 185 Global 500 companies.²⁰ The results from the CDP for Water 2012 report, prepared by Deloitte, reveal that 53% of respondents have experienced negative impacts from water-related challenges, including water scarcity, rising compliance costs, regulatory uncertainty, and poor water quality over the past 5 years.²¹ Institutional investors have the ability to use both the Investor CDP and CDP for Water programs as tools to evaluate a business’s climate and water risks as a factor in their investment decisions.

The aim throughout CDP’s programs is to use market mechanisms to influence the spread of environmental and social transparency into organizational processes, first through large corporations and cities, driving the practices into all business metrics. The process for creating a CDP response is as simple as sending the CDP an email requesting participation.

Dow Jones Sustainability Index and Newsweek’s Green 500

There are other indices and frameworks that firms pursuing more sustainable practices should be aware of. The Dow Jones Sustainability Index (DJSI), an invitation-only index using a Corporate Sustainability Assessment questionnaire that runs over 70 pages, is targeted at the largest 2,500 companies listed on the Dow Jones Global Total Stock Market Index. The DJSI is also industry specific in that it evaluates companies based on 58 different industry classifications.²²

Evaluations are weighted by using three evenly scored categories, called dimensions, which include economic, environmental, and social criteria. To make the list, companies must demonstrate improvements in their long-term sustainability plans as well as the corporate sustainability assessment questionnaire, company documentation, media and stakeholder reports, and personal contact with the companies.²³ Scoring is compiled on a variety of factors under each dimension based on the information provided by each company.

Other rankings are based on a performance evaluation in which scores are aggregated from multiple sources. Each year the magazine Newsweek, in partnership with Trucost and Sustainalytics, issues their Newsweek Green 500.²⁴ A “Green Score” for each firm is derived from three components:

• Environmental Impact Score (45% of the total) compiled by Trucost, involves over 700 metrics—a comprehensive, quantitative, and standardized measurement of the overall environmental impact of a company’s global operations.
• Environmental Management Score (45%) compiled by Sustainalytics, is an assessment of how a company manages its environmental impacts, including the environmental footprint, policies, programs, targets, and initiatives of both its own operations and its suppliers and contractors. These are measured through a GHG Inventory. Also included are the impact of its products and services which are measured by LCAs.
• Environmental Disclosure Score (10%) evaluates the quality of company sustainability reporting and involvement in key transparency initiatives such as the Carbon Disclosure Project and the next framework to be examined, the GRI.

The CDP programs, GHG accounting, and LCAs are all commonly used tools to evaluate environmental risks and consequences. Remember though, that sustainability goes beyond addressing economic and environmental concerns to include the social component. The GRI is one framework that more intensively integrates the social aspect and can be useful for any organization.

Global Reporting Initiative

Pressure is mounting on firms to produce an annual sustainability report. Media, institutional investors, and activist shareholders aside, when a company’s competition and their customers are issuing reports, they are seen as well behind the curve.

The DJSI and the Newsweek Green 500 are among the more well-known avenues through which companies are scored on their sustainability report, although there are now many lists and awards for sustainability across the commercial spectrum. Evaluation reflects whether a sustainability report follows a methodology, the most popular of which is arguably the GRI. GRI was created in 1997 by Ceres, a network of companies, investors, and public interest groups, and the Tellus Institute, a non-profit research and policy organization, along with the support of the UNEP. GRI’s mission is to “make sustainability reporting standard practice by providing guidance and support to organizations.”²⁵

A non-profit organization, GRI provides organizations with widely accepted and utilized standards for sustainability reporting. More than 4,000 organizations from 60 countries use the framework to produce their sustainability reports.²⁶ Firms currently use the third version of the framework, known as G3.1, although a fourth version is being released as this book goes to publication. The GRI G3.1 framework will be grandfathered in until 2015. Its performance indicators aim at economic, environmental, social, and governance performance, and are divided into five categories: environmental, human rights, society, products, and economics. Table 6.1 shows the structure of the GRI framework. Each category has subcategories.

Table 6.1.  Overview of GRI Reporting Issues for Corporate Responsibility

Area	Category	Aspect
Economic	Economic Impacts	Economic performance Market presence Indirect economic impacts
Environmental	Environmental	Materials Energy Water Biodiversity Emissions, effluents, waste Suppliers Products and services Compliance Transport Overall
Social	Labor Practices, Decent Work	Employment Labor/management relations Occupational health and safety Training and education Diversity and equal opportunity
Social	Human Rights	Investment and procurement practices Non-discrimination Freedom of association Collective bargaining Child labor Forced and compulsory labor Disciplinary practices Security practices Indigenous rights
Social	Society	Local community Corruption Public policy Anti-competitive behavior Compliance
Social	Product responsibility	Customer health and safety Products and service labeling Marketing communications Customer privacy Compliance

Each subcategory has one or more core indicator reporting requirements. For example, one indicator under emissions is the total direct and indirect GHG emissions by weight. Third-party verification of reports is not required, and one criticism of the standard is that some organizations manipulate it to appear more transparent while not improving their performance. Yet, as a tool for organizations sincerely seeking to capture the rewards of integrating sustainability, the GRI G3 uses a comprehensive set of metrics that also show how commerce has systemic ramifications.

The indicators can be useful for almost any size enterprise in identifying areas to address and metrics to apply to those areas. Selecting even just one or two pertinent indicators from each category can be a straightforward way of stepping into sustainability issues. Some GRI indicator data are relatively easy to collect, such as

• direct energy consumption by primary energy source;
• total water withdrawal by source;
• total number of incidents of discrimination and corrective actions taken;
• total workforce by employee type, employment contract, and region, broken down by gender; and
• percentage of employees covered by collective bargaining contracts.

While selecting a few indicators to start with is straightforward and fairly easy, the full GRI reporting format is most often utilized by large corporations due to the resources required to gather and calculate a number of the indicators. The work of obtaining and compiling the data needed to have an extensive reputable, credible, and effective sustainability report that complies with GRI’s requirements may be equivalent to one or more job positions. A number of firms hire sustainability consultants to guide them with these efforts. Several of the metrics discussed earlier in this chapter fold into a GRI report. Within the environmental category, a GHG inventory allows an organization to report on several critical indicators. An LCA is critical in responding to indicators under the product responsibility category. The incorporation of social data, tied with the GRI’s request for financial data makes it the premier source for evaluating environmental social governance, TBL, and corporate social responsibility performance.

However, many private and non-profit organizations are also reporting to the GRI. In 2010, a team of students and faculty from the University of Massachusetts at Dartmouth assembled the first ever GRI sustainability report for a university. The Fullbright Academy for Science & Technology, a small non-profit organization, and San Francisco Public Utilities have compiled their GRI sustainability reports. Smaller organizations have the advantage of finding GRI-requested information more quickly while having a lower barrier of internal politics to overcome when it comes to making sustainability disclosures.

Shareholders of public corporations are using this information to drive investment decisions, as it provides them with a perspective on the impacts, risks, and long-term sustainability profile of an organization. As shareholders and insurers become more aware of these risks, their concerns force business leaders to attend to them. As such, the GRI is among the mechanisms that help organizations make sustainability reporting as routine as, and comparable to, financial reporting (see Figure 6.1).

Figure 6.1.  GRI G3 categories, with an example of aspects and associated indicators.

Third-party verification of reports is not required; however it does play a role. Reports with third-party verification are given a plus sign next to their indicator level to signify this added step. Often, the GRI indicators serve as a starting point for organizations that just want to report, but don’t fully understand what it takes to actually complete a report.

The GRI’s incorporation of economic and social data is what makes this framework powerful enough that the idea of integrated financial and sustainability reporting has grown into a pilot phase. In early 2013, GRI and the International Integrated Reporting Council signed a new memorandum of understanding committing to the idea of integrated reporting.²⁷ Along with the International Integrated Reporting Council, the Sustainability Accounting Standards Board is focused on giving investors the information they need on a company’s ESG performance by developing a sector-specific approach.²⁸ Both organizations are making progress in 2013 with pilots and the development of sector-specific working groups.

Through the integration of financial and sustainability reporting, the links between them will become more apparent and transparent to shareholders. Shareholders in many corporations have begun to put forward resolutions for the disclosure of sustainability performance through the conduit of sustainability reporting as a way to drive investment decisions. Shareholder requests for environmental and social resolutions accounted for more than 40% of all shareholder resolutions submitted in 2012, up from 30% in 2011.²⁹

The example below is the result of efforts by Comcast shareholders who requested that the organization require a sustainability report in 2007.³⁰

PROPOSAL 5: TO REQUIRE A SUSTAINABILITY REPORT

The following proposal and supporting statement were submitted by the General Board of Pension and Health Benefits of the United Methodist Church, 1201 Davis Street, Evanston, IL 60201-4118, which has advised us that it holds 658,209 shares of our common stock.

WHEREAS:

Investors increasingly seek disclosure of companies’ environmental and social practices in the belief that they impact shareholder value. Many investors believe companies that are good employers, environmental stewards, and corporate citizens are more likely to generate better financial returns, be more stable during turbulent economic and political conditions, and enjoy long-term business success.

Sustainability refers to endeavors that meet present needs without impairing the ability of future generations to meet their own needs. According to Dow Jones, “Corporate Sustainability is a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental, and social developments. Corporate sustainability leaders achieve long-term shareholder value by gearing their strategies and management to harness the market’s potential for sustainability products and services while at the same time successfully reducing and avoiding sustainability costs and risks.” (http://www.sustainability-index.com/htmle/sustainability/corpsustainability.html)

We believe that improved reporting on environmental, social, and governance issues will strengthen our company and the people it serves. Furthermore, we believe this information is necessary for making well-informed investment decisions as it speaks to the vision and stewardship of management and can have significant impacts on our company’s reputation and on shareholder value.

Globally, over 2,000 companies produce reports on sustainability issues (www.corporateregister.com ). Several telecommunications companies have already produced sustainability or corporate responsibility reports, including AT&T and Verizon.

The GE 2006 Citizenship Report provides a compelling rationale for sustainability reporting: “Investors are increasingly interested in evaluating companies based on a broader set of criteria than just financial performance. ... The strength of reputation, trust in brand and governance, and the ability to perform as a good corporate citizen, all impact GEs valuation and shape the perception of the Company’s worth. In fact, according to a recent study, 70% of institutional asset managers believe the Company’s citizenship factors will be part of mainstream analysis in the next 3 to 10 years. ...GE’s focus is on providing transparent communications relating to the Company’s citizenship performance.”

RESOLVED: Shareholders request that the Board of Directors issue a sustainability report to shareholders, at reasonable cost, and omitting proprietary information, by December 31, 2007.

Sustainability reporting is, by definition, a way in which organizations assess their own accomplishments and shortcomings. In the example above, Comcast shareholders voted to reject the shareholder request for a a sustainability report in 2007. In the response, Comcast offers “our current policies and practices concerning social, environmental and economic issues already address the concerns behind this proposal, and our current disclosure already provides shareholders with meaningful information regarding several of our activities in these areas.”³¹

Market-Oriented Indices and Certifications

Some indices and certifications are more market-based, with the customer or consumer as the driver of the motivation for firm participation. The Walmart Sustainability Index, which the firm developed in association with The Sustainability Consortium, was created to provide a way to measure and report product sustainability throughout the supply chain. Walmart’s supplier assessment, discussed in the previous chapter, drives sustainable practices deeper into the industrial processes of thousands of products in over 200 categories using a lifecycle format. The assessment includes questions relating to energy and climate material efficiency, natural resources, and people and community. The firm reports that they have increased their sustainability index score by an average of 20% in general merchandise, 12% in grocery, and 6% in consumables and health and wellness, and plans to increase that category coverage to 300 by the end of 2013, with over 5,000 suppliers participating.

Industry-specific certifications are growing, as well. Just as the building industry has LEED as one well-accepted framework for green building, the Higg Index, developed by the Sustainable Apparel Coalition, was designed as an indicator to measure the social and environmental performance of apparel and footwear products. This index is intended to reduce confusion and redundancy by being the leading apparel industry evaluation and communications venue for sustainable practices and products, and is based on Nike’s Apparel Environmental Design Tool and the Eco Index.³²

Third-party consumer products and services certification organizations are another avenue for businesses who wish to jump on the certification bandwagon to strengthen customer trust, increase brand recognition, while also integrating sustainability into their core operations and improve their efficiency and quality. Green Seal, started in 1989, and EcoLogo, established in 1988, both develop lifecycle-based standards and work with independent verifiers of those standards.

Sustainability in Business: Moving Forward

Despite the failure of the shareholder proposal discussed above, it reinforces that global organizations struggle with what information, both positive and negative, to disclose publically. Boards and C-suites at some of the world’s largest companies continue to debate whether or not sustainability should be a top strategic priority, and if so, what and how much to report. Disclosure creates transparency and generates expectations; not all companies are eager to raise the flag of sustainability just because it appears to be the next big driver in business. Organizations need the case for sustainability to be spelled out with hard data specifying the return on investment. While sustainability appears to be similar to any other organizational function, a competing interest that requires resources, time, and data, this and previous chapters have made the business case for its necessity.

The State of Green Business 2013, released by Greenbiz and Trucost, reports that “most companies now disclose at least some environmental impacts, and a growing number are having third-party assurance completed on their quantified performance data to make their reporting more credible.”³³ The study emphasizes the need to decouple economic growth from environmental damage in the “new normal” state of resource constraint and economic volatility.

The report also notes that U.S. firms are behind the curve, weakening their global competitiveness. The consistent key performance indicators used by firms for the environmental component of sustainability, included 41% reporting GHG Emissions, 27% focused on Water (disclosed with GRI and CDP for Water and measured as a Scope 3 Emission), 7% on Acid Rain (captured in an LCA), 5% for Dust and Particles, and 20% Others. The first four categories represent 80% of the overall measured environmental footprint.³⁴ Collectively, these key performance indicators and the tools presented in this chapter represent some of the knowledge organizations need in order to embrace sustainability systemically.

The sustainability landscape is still shifting and developing, and reporting formats are continually being refined, improved, and deepened, such as with sector-specific reporting frameworks. They provide a standardized, level playing field for benchmarking, measuring, monitoring, and reporting progress. Growth in the use of these frameworks and reporting tools has been strong, despite the global economic downturn.

This chapter has briefly introduced an assortment of the more popular tools currently empowering organizations with meaningful metrics, tailored to their business’s most material environmental, social, and economic impacts. Having such reporting formats and indices can be the difference between an effective and credible sustainability plan and a greenwashed band-aid.

Chapter Summary: Key Takeaways

The pursuit of sustainability is not a one-size-fits-all proposition; it must be tailored to each organization according to its size, industry, values, and capacities. Some of the more common resources for measuring and implementing environmental impact and change strategies include inventorying GHGs, conducting lifecycle analyses, or utilizing a standard reporting framework such as that offered through the International Organization for Standardization and CDP’s programs. The GRI offers a framework that integrates not only environmental issues, but also social, economic, and governance components.

While full use of these tools, standards, and frameworks are the province of larger organizations, they offer smaller and mid-sized firms plenty of guidance to get started with metrics. The use of any of them also refocuses measurement to align with a more systemic understanding of the interface of industry with the larger systems of society and environment in which it operates.