Why measurement is the acid test for sustainability progress
March 3, 2022
March 3, 2022
We measure what we treasure every day. We consider the pros and cons of deciding what time to clock out. We judge how much slack to cut a forgetful friend. We calculate our rent or mortgage budget.
We weigh the impact of different decisions on ourselves and the people our choices impact: friends, family, colleagues. Some of this happens subconsciously—what Daniel Kahneman calls “System 1” thinking—but we always lean heavily on the robust repository of information locked inside our heads.
This is a microcosm of the challenge facing companies today. Most business leaders claim to “treasure” sustainability; they say it’s vital to the long-term health of both society and their organization.
But becoming truly sustainable means becoming truly stakeholder-centric; it means understanding the costs and benefits of your activities to consumers, employees and other stakeholders—and then factoring those perspectives into your decision-making. It means being aware of your (potential) externalities—and then measuring them.
This is complex stuff though. Businesses must consider a range of potential questions and (apparent) trade-offs – for example: If we move to compostable packaging, will we have to raise prices? If I introduce procurement diversity targets, will longstanding suppliers fail? If I mine for lithium, will local biodiversity suffer? As Polman and Winston note in Net Positive: “Creating positive returns for stakeholders does not mean satisfying all of them at the same time…You can’t prioritize everyone at once.”
But to optimize impact for multiple stakeholders, not forgetting shareholders, companies need good data. With good data, they can make well-informed, balanced judgment calls.
Unfortunately, most companies don’t have the data. Just 26% of finance leaders we surveyed for our recent study on sustainability measurement said they had precise, reliable data to underpin their ESG (environment, social, and governance) key performance indicators (KPIs). Indeed, less than half (47%) have defined the KPIs they need and identified the right data sources to populate them.
Sustainability data can undoubtedly be hard to quantify. Carbon is often cited, but that’s the easy bit—at least when it comes to emissions from operations. Everyone should be able to work out how much diesel they’re using (where “none” will soon be the correct answer) or what’s coming out of their chimneys (if they still have any). But can companies monitor what their suppliers get up to? Or track customer expectations, employee engagement, or the gripes of local citizens? Measurement is identified by 41% of executives as a significant challenge for setting robust sustainability goals.
These challenges explain (at least partially) why a veritable “alphabet soup” of ESG frameworks has sprouted over recent years. But frameworks are no panacea; proper measurement needs proper investment. Turning to tech would help: almost 7-in-10 companies say they still use manual or semi-automated processes for sustainability measurement, while 60% of traditional finance tasks are fully automated. But closing the gap is not so simple: 43% of executives we surveyed cite an inability to access the right technology at the right cost.
There is much critical work still to be done.
Patchy measurement does not just mean poor reporting—it can lead to strategic blind spots. Already we see large consensus gaps opening up between executives and stakeholders on sustainability performance. They exist because organizations lack robust relationships with stakeholders and often fail to factor relevant insights into decision-making. These consensus gaps weaken the link between sustainability and profitability: our research found that stronger leadership-employee alignment on sustainability performance is associated with better financial performance.
The point is: if you care about someone, then their feelings will influence your decisions. Not knowing is not an excuse—you will know if you take the time to listen and learn. In the same way, if businesses genuinely care about their stakeholders, they will gauge, interpret and factor in their perspectives. Without robust ESG measurement capabilities, this is impossible. They have become the acid test for whether companies see sustainability as treasure—or fool’s gold.
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