Measuring a company’s financial information is a quantitative process that produces a simple numerical representation of performance. Income minus expenses equals profit.
By contrast, measuring the kind of non-financial information that can be gathered under the heading “sustainable” is a combination of quantitative and qualitative. Some aspects are easily measured, such as water consumption or the amount of money spent on a corporate social responsibility project, while others are less so, such as transparency, salary fairness or staff morale.
In order for these intangible factors to be presented to the various audiences in such a way that they can be as easily understood as tangible financial data, they need to be quantified.
Another complication is that quantifying sustainability performance means looking both at what has gone on the past – creating a snapshot that can inform an ESG rating (see The Investors’ Perspective) – as well as helping decide on impact goals that form a strategy.
Each material issue can be assigned a Key Performance Indicator and metric to track progress toward achieving an associated goal. The goal can have an achievable quantity or timeframe or both.
A universal example of an environmental impact goal could be the company becoming carbon neutral, with the target being a deadline in the future, and the KPI and metric being a quantity regularly measured in kilograms of carbon dioxide equivalent.
Malaysian energy company and lubricant manufacturer Petronas, for example, in its latest sustainability report is aiming for a goal of carbon neutrality at its Malaysian operations by 2050. KPIs apply in several places where CO2 is emitted. According to the Greenhouse Gas Protocol, which writes standards and guidance for business and governments that want to measure and manage emissions, these could be:
- Scope 1: direct emissions inside the company’s control, including from burning gas to produce heat, and emissions from vehicles
- Scope 2: indirect CO2 emissions from electricity purchased from a fossil-fuel generation source
- Scope 3: indirect emissions from sources outside of an organization’s control, such as supply chains, raw materials manufacture, services, business travel, waste disposal and end of life processes
Examples of emissions factor metrics:
- Kilograms of carbon dioxide equivalent (kgCO2e) – for a building, the weight of carbon dioxide equivalent emitted per square meter per year and used to measure total monthly or yearly emissions of all greenhouse gases
- kgCO2e full-time equivalent – carbon produced by one employee during full-time hours
Calculating Scope 1 and 2 emissions is relatively straightforward, whereas Scope 3 emissions is more difficult, despite representing the majority of a company’s greenhouse gas emissions.
However, measuring Scope 3 emissions from the distance travelled by certain materials used in the production of a lubricant, for example, reveals more than how far those materials have come. The longer the distance, the higher the cost of procurement and on the environment. Sourcing the same or similar material locally may be cost more up front but in the longer term could improve the company’s sustainability performance.
Below is a table outlining a selection of universal goals and KPIs.
|Reduce greenhouse gas emissions||Total direct greenhouse gas emissions from processes||Kg of CO2 equivalent||Carbon neutral by 2040|
|Reduce water consumption||Water used over given period||Liters per day||10% per year over 5 years|
|Reduce resource consumption||Efficient resource use rate||Tons of waste recycled||75% of all waste recycled by 2040|
|Support community development||Number of projects instigated or participated in||Cash outlay||Spend a set budget amount|
|Ensuring product safety||Total spend on products safety||Cash outlay||No product complaints|
|Minimize staff turnover||Rate of turnover and employee satisfaction||Numbers of new hires and resignations in a given period and questionnaire||Increase average length of service by two years|
|No corruption in overseas operations||% revenue from countries with Transparency International score under 6.0||Revenue||Cease trading with corrupt countries by 2040|
|Diverse boardroom||Sex, age, disability, ethnicity, expertise||Observation and questionnaire||50% women on executive board|
|Compliance with regulations||Compliance reviews||Number of non-compliance incidents||Zero non-compliance incidents|