Post on 24-Dec-2015
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Session 8: Measuring and Communicating on
Sustainable Supply Chain Performance
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Approach to Sustainable Supply Chain Management (SSCM): Overarching Framework
Framing the IssuesPreparing for
Implementation Assessing Impact
Session 1: From Sustainable Development
to Sustainable Supply Chains
Session 2: Governance of Supply Chains I: From
Compliance to Voluntary Standards
Session 4: Sustainable Supply Chains as a Lever of Competitive Advantage
Session 5: Integrating Sustainability into the
Supply Chain
Session 6: Managing Stakeholder Relations
Session 7: Building Supply Chain Partnerships
Session 8: Measuring and Communicating
on Sustainable Supply Chain Performance
Session 8: Measuring and Communicating
on Sustainable Supply Chain Performance
Session 3: Governance of Supply Chains II:
Introducing International Labour Standards
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Session objectives
Understand the importance of measuring and monitoring to
improve sustainability performance in supply chains
Learn about widely adopted methodologies and tools to
measuring and monitoring supply chain and sustainability
performance
Understand the challenges involved in identifying relevant
metrics and consistently measuring results
Explore tools and systems to track and communicate results
to stakeholders
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Agenda
8.1 A review of Corporate Performance Measurement and Reporting
8.2 Drivers for sustainability measurement and reporting
8.3 Measuring supply chain and sustainability performance
8.4 Reporting on sustainable supply chain goals and progress
8.5 Class discussion: Reporting on sustainable supply chain performance
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Talking about performance measurement
1. What is performance measurement?
2. Why measuring?
3. Measuring…against what?
4. How to measure?
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The roadmap to sustainability’s biggest priority by far is
performance.
Companies must produce tangible results that put them on a truly sustainable path.
Performance will be the ultimate measure for
evaluating a company’s progress towards achieving sustainability.
Richard LockeDeputy Dean and Professor of Entrepreneurship,
MIT Sloan School of Management
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Four views on business performance measurement systems
“An integrated set of planning and review procedures which cascade down through the organization to provide a link between each individual and the overall strategy of the organization” (Rogers, 1990)
“…one output of strategic planning: senior management’s choice of the nature and scope of the contracts that it negotiates, both explicitly and implicitly, with its stakeholders. The PMS is the tool…to monitor those contractual relationships.” (Atkinson et al, 1997)
“A PMS enables informed decisions to be made and actions to be taken because it quantifies the efficiency and effectiveness of past actions through….analysis, interpretation and dissemination of appropriate data.” (Neely, 1998)
“A strategic PMS translates business strategies into deliverable results. Combine financial, strategic and operating measures to gauge how well a company meets its targets” (Gates, 1999)
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Performance measurement is certainly NOT about profit alone
By early 1980s, Johnson and Kaplan highlighted the shortfalls of financial performance measures to reflect changes in the competitive environment and strategies of organisations
The 1990s saw a “performance measurement revolution” (Eccles, 1991; Neely, 1999) and a proliferation of frameworks that integrate wider criteria:
• Balanced Scorecard (Kaplan and Norton, 1992)
• Performance Measurement Matrix (Keegan et al, 1989)
• SMART Pyramid (Lynch and Cross, 1991)
• Baldrige Criteria for Performance Excellence
• Performance Prism (Kennerley and Neely, 2000)
• European Foundation for Quality Management (EFQM) Excellence Model
• Six Sigma
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Bottom line, the overall concept of corporate performance has evolved to integrate measures
beyond financial indicators
After the accounting and reporting scandals of the early 2000s (e.g. Enron), corporate governance became a priority for stakeholders, from regulators to consumers
Additional stakeholder demand for transparency in areas such as board level remuneration, internal controls, procurement practices and management oversight have set new standards for corporate reporting
Closer scrutiny of practices, results and overall performance has resulted into more complexity, new metrics, new measurement systems and greater information available for stakeholders
The emergence of Globally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) have formalized the need to measure and communicate broader corporate activity through reporting.
More recently, the concept of Triple Bottom Line (TBL) emerged, referring to the expansion of accounting of financial performance to make corporations accountable for their environmental and social impacts.
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8.1 A review of Corporate Performance Measurement and Reporting
8.2 Drivers for sustainability measurement and reporting
8.3 Measuring supply chain and sustainability performance
8.4 Reporting on sustainable supply chain goals and progress
8.5 Class discussion: Reporting on sustainable supply chain performance
Agenda
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Drivers for measuring sustainability performance
Monitor, review and adjust
Transparency and legitimacy: support claims for actions
Increased demands from multiple stakeholders: shareholders, customers, community, suppliers, investment community
Increased visibility of sustainable supply chain activities within overall business operations
Align sustainable supply chain goals and performance with corporate performance
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The “business case” approach (Brown, 2006): creating value for shareholders
Social and environmental accounting seen as an expanded management toolkit for increasing shareholder value (Hedstrom et al., 1998)
Focuses on “identifying and pursuing forms of CSR and SEA that result in win-wins for both business and wider stakeholders…” (Brown, 2006)
BITC (2003) states that there are “rewards” to reap from an effective “business-led approach” that make “the business case compelling”
A way to demonstrate “positive impact on society” (BITC, 2003), and to “head off campaigns from activists….which have the potential to threaten business interests…” (Litvin, 2003)
“Business leaders are increasingly acting upon this responsibility (to report) because it makes good business sense. It helps companies mitigate risk, protect corporate brand, and gain competitive advantage…(Deloitte, 2002)
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Business benefits from sustainability reporting (WBCSD, 2003):
Creating financial value
Attracting long term capital and favourable financing conditions
Raising awareness, motivating and aligning staff, attracting talent
Improving management systems
Risk awareness
Encouraging innovation
Continuous improvement
Enhancing reputation
Transparency to stakeholders
Maintaining license to operate
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The Stakeholder-Accountability Approach (Brown, 2006): promotes a more open and transparent
society
While stakeholders share interests, there is considerable potential for conflicts of interests (Brown)
Management’s primary responsibility is to society and managerial performance “should be evaluated in terms of both profit and the accomplishment of social initiatives” (Chen, 1975)
“The Corporate Report” backs up the notion that “stakeholders have rights to information” (Accounting Standards Steering Committee, 1975)
Accountability as “being called to account for one’s actions”
Recognizes the economic, social and political power that corporations have in society
Companies “accountable for the use of financial, human and community resources entrusted to them and that affected parties need safeguards against potential abuses…”
Access to information plays an important monitoring role in the process
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Beyond theory: the view from practitioners
Key reasons for measuring supply chain sustainabilityIllustrative example from the shipping industry
Source: North American Sustainable Supply Chain Report 2010
InnovationAttract
Attract
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8.1 A review of Corporate Performance Measurement and Reporting
8.2 Drivers for sustainability measurement and reporting
8.3 Measuring supply chain and sustainability performance
8.4 Reporting on sustainable supply chain goals and progress
8.5 Class discussion: Reporting on sustainable supply chain performance
Agenda
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Evolution of supply chain measurement systems (Beamon, 1996)
Single performance measures: e.g. cost, customer satisfaction (Christopher, 1994), supplier performance (Davis, 1993), risk management (Johnson and Randolph, 1995). Key considerations:
• Inclusiveness
• Universality
• Measurability
• Consistency
Strategic goal-driven measures: type of performance measurement directly related to the manufacturing strategy (Maskell, 1991)
• Performance meeting strategic goals
• Performance measure as a driver for achieving vision and goals
• Strategic goals seldom refer to a single performance measure, but to a combination of measures
An effective supply chain performance measurement system must rely in a combination of measures that acknowledge the interrelations within the supply chain, consider risks and uncertainties and are
consistent with an organization’s strategic goals.
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Three types of performance measures for supply chains (Beamon, 1999)
• Quality• Customer response time• Number of items produced• Number of on-time deliveries• Manufacturing lead time• Shipping errors• Customer complaints
• Volume flexibility: e.g. seasonality
• Delivery flexibility: e.g. transport disruptions
• Product mix flexibility: demand variations
• New product flexibility
• Total cost of resources • Distribution/manufacturing cost• Inventory: investment,
obsolescence• Return on investment (ROI)
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Frameworks for measuring social and environmental performance of supply chains
broadly disseminated and adopted
WBCSD’s “Measuring Impact Framework”
Global Reporting Initiative’s Guidelines for measuring and reporting on sustainability performance
Prince of Wales’ Accounting for Sustainability Project: “Connected Reporting Framework”
AccountAbility’s AA1000 Accountability Principles
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The “Global Reporting Initiative” guidelines is the most widely adopted measurement and reporting
framework
The cornerstone of the framework is the Sustainability Reporting Guidelines. The third version of the Guidelines - known as the G3
Guidelines - was published in 2006, and is a free public good.
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The GRI Guidelines and supplements
The GRI Guidelines Sector supplements – providing guidance that
captures sustainability issues faced by specific industry sectors, e.g. financial services, telecommunications, auto manufacturing, mining
Technical protocols – providing detailed measurement methods and procedures for reporting on indicators contained in the core guidelines e.g. energy indicators providing definitions (e.g. direct vs. indirect energy) and measurement methodologies (e.g. conversions, units)
National annexes – providing national (local) country perspectives and particular influences, nuances and contexts to sustainability
Issue guidance documents – on topics such as ‘diversity’ and ‘productivity’
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The GRI Standard Disclosures
Profile disclosures set the overall context for understanding performance - such as strategy and governance.
Management Approach disclosures explain how specific sustainability issues are managed, including goals and targets.
Performance Indicators elicit comparable information on economic, environmental, and social performance.
Source: Global Reporting Initiative G3 Guidelines, accessible at www.globalreporting.org
Measures express strategic approach, management goals, and performance results through three kinds of disclosures:
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Measuring Economic Performance according to GRI
The economic dimension of sustainability concerns the organisation’s impacts on the economic conditions of its stakeholders and on economic systems at a local, national, and global levels (GRI3.1). They show:
• Flow of capital among different stakeholders
• Main economic impacts of the organisation throughout society
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Measuring environmental performance according to GRI:
Performance and measures relative to inputs (e.g., material, energy, water) and outputs (e.g., emissions, effluents, waste).
Performance and indicators relative to biodiversity, environmental compliance, environmental expenditure and the impacts of products and services.
Corporate goals in the area and Policy
Organisational Responsibility: Management accountable for executing process
Training and awareness: Procedures aimed at creating awareness and training
Monitoring and Follow Up
• Monitoring, corrective and preventive actions with emphasis on the supply chain
• List of certifications for environment-related performance or other approaches to auditing/verification for the reporting organization or its supply chain.
Additional Contextual Information
• Key successes and shortcomings
• Environmental risks and opportunities
• Key strategies and procedures for implementing policies or achieving goals.
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Sample Environmental Performance Indicators required by GRI
Source: Global Reporting Initiative G3 Guidelines, accessible at www.globalreporting.org
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Measuring social performance according to GRI
1. Labour Practices and Decent Work
• United Nations Universal Declaration of Human Rights
• United Nations Convention: International Covenant on Civil and Political Rights; United Nations Convention: International Covenant on Economic, Social, and Cultural Rights
• Convention on the Elimination of all Forms of Discrimination against Women (CEDAW)
• ILO Declaration on Fundamental Principles and Rights at Work and The Vienna Declaration and Programme of Action
• ILO Tripartite Declaration Concerning Multinational Enterprises and Social Policy
• Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises
2. Human Rights
• Main issues: nondiscrimination, gender equality, freedom of association, collective bargaining, child labor, forced and compulsory labor, and indigenous rights
• Body of law: treaties, conventions, declarations
3. Society
• Impacts on local communities
• Bribery, corruption, monopoly
4. Product Responsibility: Customer Health and Safety, Labeling, Marketing, Customer Privacy, Compliance
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Sample Social Performance Indicators required by GRI
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Working Group• Media
First Draft • Airports• Construction & Real Estate• Event Organisers
Final Draft• Food Processing• NGO• Oil & Gas
Pilot• Apparel & Footwear• Automotive• Logistics & Transportation• Public Agency• Telecommunications
Additional sector-specific indicators:Sector supplements
Final• Electric Utilities & Financial
Services Sector Supplement obligatory to obtain level A from 1 January 2010
• Mining Sector Supplement required to obtain GRI Application level A from 31 December 2011
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8.1 A review of Corporate Performance Measurement and Reporting
8.2 Drivers for sustainability measurement and reporting
8.3 Measuring supply chain and sustainability performance
8.4 Reporting on sustainable supply chain goals and progress
8.5 Class discussion: Reporting on sustainable supply chain performance
Agenda
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The number of companies reporting on GRI Guidelines continues to expand, with increased SME and emerging
markets participation
Source: Global Reporting Initiative 2010 Statistics
SMEs
MNEs
68% growth in Brazil 9% growth in China
Number of Reports 2010 Geographic Distribution 2010
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Global reporting statistics show an upward trend in the number of reports including meaningful sustainability
information…
Global Output Report 2010
In 10 years, the number of reports mentioning significant sustainability achievements grew by 6 times (Corporate Register)
FTSE100 Constituents Reporting
Annual growth 2009-2010 of FTSE100 Companies including meaningful sustainability information reached 10 percent
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From corporate reporting to sustainability reporting
As discussed, it is widely acknowledged that financial reporting captures only a portion of a company’s value creation potential and corporate risks
Intangible factors such as strategy, innovation capacity, talent retention, reputation management, commercial risk reduction (e.g. bribery, occupational accidents), resource efficiency and others can be measured and disclosed through sustainability reporting
Sustainability reporting complements financial reports by integrating non-financial value drivers, such as human capital formation, corporate governance, management of environmental risks and the ability to innovate
Reporting on social and environmental performance allows establishing the link between business strategy and sustainability by assessing the sustainability issues influencing the company’s competitive advantage: cost leadership, product/service differentiation and the formation of intellectual capital
It is a tool to communicate with stakeholders, disclose and discuss risks, uncertainties, challenges and trends that may materially affect financial performance
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Sustainability Reporting
“Sustainability reporting is the practice of measuring, disclosing and being accountable to internal and external stakeholders for organisational performance towards the goal of sustainable development. »
«Sustainability reporting is a broad term considered synonymous with others used to describe reporting on economic, environmental, and social impacts (e.g., triple bottom line, corporate responsibility reporting, etc.). »
GRI Sustainability Reporting Guidelines
Version 3.1, 2010-2011
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Market forces influencing sustainability reporting
Financial/Market Forces
Regulatory Forces
Stakeholder Forces
• Voluntary sustainability initiatives and accountability
• Stakeholder pressure for mandatory disclosure
• Stakeholder pressure for mandatory pension fund disclosure
• UN Environmental Programme Finance Initiative (UNEP FI), UN Global Compact, Global Reporting Initiative (GRI), Carbon Disclosure Project (CDP), Coalition for Environmentally Responsible Economies (CERES)
• National environmental and financial metrics and disclosure demands• Intergovernmental legislation and action plans: EU communication on
CSR from November 2011• Mandatory Reporting on Greenhouse Gases Rule (US), OECD
Guidelines for Pension Fund Governance, Sarbanes-Oxley Act
• Institutional investors: risk management, compliance and performance• Sustainability investment performance track record• Sustainability driven corporate competitiveness and profitability
measurement• Competitive benchmarking• Guidelines and indicators of performance: UN Principles for
Responsible Investment (UNPRI), FTSE4GOOD and Dow Jones Sustainability Indexes, Ethibel Sustainability Index (Standard & Poors)
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To Report or not to Report?
Factors influencing decision to report relate to size, stakeholder relations, regulatory requirements, etc.
Reporting has evolved to integrate several formats and channels:
• Stand-alone Sustainability Reports
• Integrated Corporate and Sustainability Reports
• Interactive online Reports
• Online, dedicated websites with regularly updated information
• Different channels and content for different stakeholders
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Future outlook: sustainability and integrated corporate reporting mainstreaming…
Governments and the financial community strongly driving the trend
In France, a new law has expanded requirements for sustainability reporting to non-listed firms, becoming mandatory for around 2,600 companies.
In South Africa, companies listed on the JSE Securities Exchange must comply with the King Report on Corporate Governance for South Africa (King III), which recommends that companies should produce an integrated report rather than a separate annual financial report and sustainability report.
Mainstream investors increasingly looking for reliable information that can be independently verified and benchmarked within and across sectors
One out of every seven written questions from shareholders of companies on the CAC401, during general assemblies in 2010 related to sustainability issues
Specialist companies, such as Vigeo, Eiris and SAM, have emerged to provide sustainability ratings, providing independent assessments of ESG performance
1. France’s main stock index. It The index represents a capitalization-weighted measure of the 40 most significant values among the 100 highest market capitalized stocks on Euronext Paris bourse.
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8.1 A review of Corporate Performance Measurement and Reporting
8.2 Drivers for sustainability measurement and reporting
8.3 Measuring supply chain and sustainability performance
8.4 Reporting on sustainable supply chain goals and progress
8.5 Class discussion: Reporting on sustainable supply chain performance
Agenda
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Class Example and Discussion: Danone’s Human Rights Indicators
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Class Discussion: Danone’s Human Rights Performance Indicators
As preparation for the module, you have read the Danone Sustainability Report’s Section on Human Rights Performance Indicators and related pages
In your groups, take 45’ to discuss this section. Please use the following questions in guiding your discussion:
• In your view, what are the main (2-3) initiatives Danone is taking forward in this area and what have been the results so far?
• What are specific tools through which Danone measures the sustainability of their suppliers’ practices?
• How are the corporate headquarters and the Country Business Business Units (CBUs) working together in implementing and monitoring procedures and practices?
• What are in your view, areas on which Danone’s disclosure on human rights performance could improve? Please provide specific examples.
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Conclusion
Several approaches to measuring and tracking supply chain performance, but no one-size fits all solution
Measuring and communicating allows for increased credibility and trust amongst all stakeholders (including workers)
Measuring and monitoring as a systematic process contributes to increased operational efficiency and hence, overall performance improvement
Different stakeholders are interested in different metrics. Tailor efforts and communication accordingly
The journey has just began. Transparency will become ever more important for consumers, investors, suppliers as instant connectivity grows and consumers engage at a deeper level with business
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Back up Slides
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Application Levels
G3 Profile Disclosure
G3 Management Approach Disclosures
G3 Performance Indicators & Sector SupplementsPerformance Indicators
Report on1.12.1 – 2.103.1 – 3.8; 3.10 – 3.124.1 – 4.4; 4.14 – 4.15
Not Required
Report on all criteria listed for Level C plus:1.23.9; 3.134.4 – 4.13, 4-16 – 4.17
Report on a minimum of 20 Performance Indicators, including at least one from each Economic, Environmental, Human Rights, Labour, Society, Product ResponsibilityCore + Additional Indicators
Management Approach Disclosures for each indicator Category
Report on a minimum of 10 Performance Indicators, including at lease one each of Economic, Social and EnvironmentalCore Indicators
Report on each core G3 and Sector Supplement Indicator with due regard to the Materiality Principle by either: a) Reporting on the Indicator orb) Explaining the reason for its omission
Not applicable is not valid – Must explain i.e. not material, no data, no commitment, proprietary information
Management Approach Disclosures for each indicator Category
Same as requirement for Level B
Report Application Level
C C+ B+B A A+
Report E
xternally Assured
Report E
xternally Assured
Indicator Guidelines:1. Depend on what level of report (A, B, C) you are aiming for2. Always core, then additional, then sector supplements, then others (industries, new, other)
Report E
xternally Assured
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Reporting Principles
Defining Content
Materiality Topics and indicators that reflect social, environmental, economic impacts that would influence stakeholder assessments and decisions
Stakeholder Inclusiveness
Identify stakeholders and explain how responded to their expectations
Sustainability Content
Performance in the wider context of sustainability
Completeness Material topics, indicators and definition of reporting boundary to reflect impacts
Defining Quality Balance Reflect both positive and negative aspects of performance
Comparability Issues and information should be selected, compiled and reported consistently
Accuracy Information sufficiently accurate and detailed for stakeholders to access performance
Timeliness Reporting occurs on a regular schedule and information is available in time to make informed decisions
Clarity Information presented in a manner that is understandable and accessible
Reliability Information and processes used to prepare report should be gathered, recorded, compiled, analysed and disclosed in a way that could be subject to examination
Boundary Setting
The Sustainability Report should include the entities over which the reporting company exercises control or significant influence both in and through its relationships with various entities upstream (e.g. supply chain) and downstream (e.g. distribution & customers)
Source: GRI G3 Guidelines
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Societal Values / NormsStandards/Principles/Instruments
Societal Values / NormsStandards/Principles/Instruments
Specific stakeholder Values / Views
Specific stakeholder Values / Views
Measuring against what?
FirmCore Values
FirmCore Values
Company’s own values and stated mission. This may explicitly set out social, economic and environmental goals
Values and interests that reflect views and aspirations of key stakeholders
Values institutionalized in law, conventions or rooted social norms
Source: Simon Zadek, “The Civil Corporation”, 2006
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Linking Sustainability metrics and Business Strategy metrics
What is the Vision, Goals, Objectives for the company?
What is the vision for sustainability?
What are the specific sustainability goals?
How do they fit with business strategy?
What are the Key Thrusts?
• Strategic priorities• Market, financial, business objectives• Targets
What are the relevant metrics and KPIs?
• Economic growth• Customer satisfaction• Employee engagement• Stakeholder engagement
How are the sustainability goals woven in our supply chain activities?
What would be specific metrics related to sustainability goals?
Source: Latitude
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Reduce environmental impact
Linking Sustainability Strategy and metrics Example: Marks and Spencer Plan A
Sustainability related Objectives (By 2012)
Specific activities related to sustainability objectives integrated with other activities
Specific metrics related to sustainability objectives
• Fuel efficiency in warehouses
• Energy efficiency in warehouses
• Number of “Green factories”
• Number of “Green Stores”
• Store Energy consumption
Climate Change
• Reducing energy use
• Using green energy
• Tackling food miles
• Helping consumers cut carbon
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Key considerations in setting metrics to measure progress
1. There is an underlying objective for the measurement.
2. Measurement terminology is defined and used consistently throughout the organization.
3. Information needed for the measurements is obtainable.
4. The measurement will create behaviour that is in concert with organizational goals and objectives.
5. While there will likely be a combination of lagging and leading indicators, leading indicators are more appropriate to help predict how the organization will perform in the future.
6. The measurements should be used to track performance trends.
7. Appropriate benchmarks and targets are identified.
Source: Butler et al, 2008