How to measure progress on a business’s sustainability journey
One of the things you need to set in motion as an early part of your journey is set up the indicators you will use to measure progress and ensure that lessons are continuously captured as new iterations of your product or service emerge.
Following that, you must establish a baseline. If you don’t get these foundations in place, you have no way of knowing if all your effort is really moving you forwards or if you are just keeping yourself busy. You also need to have your numbers in place if someone from the outside asks you to back some of your statements with data. Just as you continuously measure your financials and make annual accounts, you will make annual (or at least bi-annual) measurements and a brief account on the status of your impact (e.g., a carbon footprint report). The EU has just launched the Corporate Sustainability Reporting Directive (CSRD),31 meaning that larger companies will start to report on sustainability on standards equal to those of financial reporting. So, for those of you in the B2B segment with larger clients, you can expect detailed questions coming your way in the future.
This is likely familiar territory, but I still want to provide a few guidelines as it is quite common to make mistakes here if you don’t pay close attention.
First and foremost, it is essential that an indicator measure real progress and not activity. Let’s say your mission is to become a carbon positive company and transform your industry by inspiring them to follow in your footsteps. A poor overall indicator, or what is often referred to as ‘vanity metrics’, could be the number of years you have made the annual carbon footprint and published it. Or how many ongoing projects you have. Or how many times you have spoken about your results to your industry peers. These are all activity based and you have no way of knowing if they actually move you closer to your target. Better overall indicators would be development in absolute carbon emissions, a percentage of overall carbon-emitting processes optimised, or a percentage of peers in your industry that committed to climate targets (at least at a level that will comply with the Paris Agreement on climate change, which means doing their share of what it takes to limit the global temperature increase to 1.5 degrees Celsius). These are what are known as Science Based Targets (SBTs).
Make sure that both your overall and your detailed KPIs give you insight into whether you are making progress or not. It is the only way you will know if your time, money and other resources are being used well and the only way to be able to back your communication. We don’t have time to waste working on stuff that does not move us in the right direction. Here is a checklist for a good indicator:
- It measures results, not activity.
- It does not need interpretation and the results can be reproduced purposefully.
- It is specific and builds on a reliable source of data.
- It creates the foundation for a decision about how to go forwards.
- It uses percentages instead of numbers, as these often say more.
Besides the ‘results, not activity’ consideration, it is smart to have your indicators cover both long-term and shorter-term, as many individual actions might not be measurable on the scale of total movement. Here are a few questions you can ask yourself in developing indicators:
- What does success look like?
- How would you know if you are about to succeed?
- What are the long-term results that you can quantify?
- What are some short-term signals that you are moving towards those long-term results?
- What hypothesis are you building on when you can’t see the results directly? Are they validated? How can you easily and quickly validate them?
Rather have a few good ones that many less good. Many indicators also lead to much follow-up administration work. There are lots of tools available if you feel you need more support. However you choose to make them, and whatever you measure them on, the essential part is that you have them, that you follow up on them, that you act and that you are transparent.
Once you know where you are heading (the mission and the roadmap) and you know how you can measure progress (indicators), then the final thing you need is the baseline. This is where you are today on whatever bigger issue you are tackling. I will not dive in to how you make an account of your emissions or impact like in a carbon footprint, but stick to the strategic use and importance of such accounts. I will use carbon footprint as the example, as many businesses will have that as part of their effort and it is the most sought-after sustainability indicator today. If climate is not your focus area, then you’ll have other indica- tors to measure your progress on, which is fine.
From a strategic perspective, the purpose of the ongoing measurement and reporting is for you to know, and be able to make, the necessary decisions on what needs to be done, if resource allocation should be changed, etc. It will also be a part of the foundation for your communication and marketing around your progress towards your mission. You must be able to back your claims! It is that simple. In many countries it is downright illegal to claim something and not be able to back it. Even if you are in markets where there are not yet demands in place for documentation, it will strengthen your credibility.
Regardless, you will want to make this to assist with your ability to lead the journey. Just as you need financial reports to steer the company and efforts, you need insights on your circular initiatives to steer the company here. Two tips on accounting:
- There are many tools out there that can help, especially on CO2 emissions. Many of them are even free, so for most of you reading this, there will be a tool in your country that you can use or request consultants to use.
- Some people are really good with systems and love to make them. You might be such a person. There is a high proportion of such system- loving people among consultants offering such accounts. This is on the one hand good, as they are the best to make them. But a word of caution here. They have a tendency to suggest the ideal and full version of a system. As a smaller or medium-sized company, less will do in many/ most cases, so be clear on what you need. When a new system is proposed, ask them to assess what procedures and systems you already have that can be used. Build on what you have to the extent possible rather than creating new additional systems.