What are the green metrics that really matter?

Carol Singer Neuvelt

The world of environmental, social and governance (ESG) performance analytics is exploding at a breakneck speed.  What once was a niche field of socially responsible investing (SRI), is transforming into a vast marketplace of financial ESG-oriented indices, ratings firms, carbon reporting and mass-market editorials like Newsweek’s Green 100 ranking. Today the trend toward broader ESG and sustainability reporting is beginning to expand into auxiliary areas such as supplier questionnaires and product labeling.

With all this activity, it seems like everyone has an opinion about which metrics determine a company’s “greenness.” What remains unclear, however, is whether these types of ratings schemes can truly illustrate competitive eco-advantage in today’s complex global marketplace, or even reliably reflect strong EHS and sustainability management within a company.

When this movement took hold a decade ago, many corporate environmental leaders were excited that the external world was finally paying attention to the value their efforts contributed to the bottom line.  Indeed, the establishment of the Dow Jones Sustainability Index, the growth of financial firms such as KLD and even the creation of the Carbon Disclosure Project were viewed as affirmations of their professional focus.

But recently, my conversations with corporate EHS leaders seem to reflect a frustration with the ever-growing number of requests.  As environmental managers spend more and more time crunching data, they do so with little insight into who the requesting firm is, what their business interests are or how the mountains of data will eventually be used. What we do know is that some of this information is being used to make material judgments about a company’s long-term prospects. Yet does any of this data really indicate true progress?

I believe there is a need for a clear, thoughtful approach to ESG and Sustainability reporting that reflects the performance metrics that are both meaningful to a company and useful to its C-suite leadership,  and relevant to external stakeholders.

To address this issue, NAEM has launched its ‘Green Metrics that Matter’ program, an audit of the field of ESG and Sustainability analytics.  Our final report will identify the key players, the proprietary benefits of participating with them and the core metrics EHS leaders send to their C-suite. We believe this insight will help promote better decision-making by both corporate users and the broader ESG community.

As we continue our research, we would like to invite you to share your key metrics with us through our confidential online survey. We’d also love to hear your thoughts on this project. How are sustainability analytics changing how you manage?  Are the questions you’re being asked the right ones for determining the extent of your environmental stewardship? Is this information truly helping the public better understand whether your products are sustainable? Or is it just an additional paperwork burden?

About Carol Singer Neuvelt

Carol Singer Neuvelt is Executive Director of NAEM. Her long-term perspective and insights into corporate EHS and sustainability best practices also have been featured in a variety of publications, including The Chicago Tribune, the Bureau of National Affairs, Environmental Leader, the National Safety Council’s Safety+Health magazine and Sustainable Life Media. She is the former Deputy Director for the United States Environmental Protection Agency’s (EPA) Office of Public Liaison, where she managed the agency’s interaction with external stakeholders. Follow her on Twitter at @carol_neuvelt.

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  1. lcthinking

    September 21, 2010

    Very comprehensive survey. I can’t wait to see the results!

    As a member of the joint committee having just proposed yet another standard (NSF-GCI 355 Greener Chemicals and Processes Information Standard http://bit.ly/94mHe3), I believe we still have a long way to go before settling on a manageable and meaningful set of criteria.

    “Sustainability” is still much in the eye of the beholder. That’s why I prefer thinking about it as a process – a way of thinking and doing things – rather than a set of quantitative endpoints. Evaluating whether companies have robust management systems in place that integrate life cycle thinking into all facets of their business is the key.
    Georjean Adams http://lcthinking.wordpress.com

  2. Mike Wallace

    September 22, 2010

    I think this is a necessary and natural market progression that we’ve seen numerous times in other areas. Eventually the markets clean themselves and proliferation leads to eventual consolidation.

    For instance, when I started my environmental career in 1993 every commercial real estate transaction required a Phase I ESA. Initially, we all did our own due diligence and looked at a variety of information sources to assess the real estate. Eventually data providers emerged, converged and were acquired. Eventually we saw one dominate the space – EDR.

    Now we’re witnessing a similar evolution – from small boutique firms that focus on their socially responsible investors; to academic institutions rating companies and products, or both; to large international standards and certification bodies, to large mainstream financial institutions. In essence, we’re seeing the growth of an entirely new form of due diligence.

    One thing to keep in mind is that underlying the majority of these rankings, ratings and listings are indicators based on the GRI Guidelines. Having been created by companies, NGOs, labor, financial, academic and issue specialists, the GRI Guidelines continue to be the most widely used ESG guidelines for reporting. Over 75% of the Global 250 reference the GRI when doing their sustainability / ESG reports.

    An interesting offshoot of this wide spread uptake of the GRI is the use of the GRI indicators in the majority of the ratings, rankings and listings out there. We have been actively analyzing this area and know from our conversations that Bloomberg, CRD Analytics (who does the ESG analysis for NASDAQ’s new sustainability index and the latest addition the Global 1000) and Thomson Reuters all track corporate disclosures on GRI indicators as they review and assess thousands of companies.

    In essence, organizations still have the choice as to whether or not they will disclose on ESG issues and to which audience. At the end of the day, using the freely available GRI Guidelines can not only provide a useful road-map, but when used effectively they can result in a sustainability report that will hit the mark with a much wider set of stakeholders, including the mainstream financial research firms and their clients.

    On my profile is a collection of presentations that outlines how, why and who is doing this. It also provides some examples of a collection of companies in the IT sector stack up through the lens of the DJSI, FTSE4Good, CRO, Fortune’s Most Admired, Goldman Sachs, CRD/Nasdaq, Thomson Reuters and Bloomberg.

    Feel free to download and use these for your own internal needs.

  3. Dillon Lanius

    September 28, 2010

    Great questions and commentary Carol and Mike. Here is my two cents.

    The diversity of indices, ratings firms, carbon reporting and mass-market editorials is staggering and can overwhelm corporations who are interested in understanding, collecting, reporting and acting upon the key performance indicators (KPIs) of sustainability and CSR. This is because sustainability and CSR KPIs are different depending on if you are engaging with corporate stakeholders (employees, human communities, flora & fauna, ecosystems, etc.), shareholders, or customers.

    Additionally beyond energy, electricity, water, waste, and GHG, the core metrics that matter differ per industry. Company performance needs to be assessed within its industry sector to allow for normalization of the data and apple to apple comparisons of corporations.

    For the typical corporation all this leaves a lot of data that needs to be tracked, measured, and managed. Too much to not make suppliers survey fatigued, and employees too dedicated to data crunching. The first step which progressive companies undertake is to hire sustainability consultants, develop division working groups, surveys, and business processes around tracking measuring and manging all this data. Luckily the IT industry has finally caught up and a number of innovative software companies such as Hara exist which allow companies to automate many of these processes and focus their efforts on managing their businesses’ sustainability and CSR program efficiently and in turn saving money, increasing market value, and managing risk more effectively.

    If anyone is interested in pursuing a dialog on this further feel free to contact me.

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