Key Issues in Sustainability Metrics and Indicators

A Presentation by By Mark W. McElroy, Ph.D.

Center for Sustainable Organizations (CSO)

Sustainability Leadership Forum Chicago, IL

March 10, 2011

1.  Alternative Targets of Measurement

2.  Alternative Normalizations

3.  Which Metrics Actually Measure True Sustainability Performance?

4.  How Do Stakeholders Fit Into the Metrics Issue?

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  What is the thing being measured? Sustainability performance of what?

  Four common alternatives:

1.  Supply chains

2.  Industries

3.  Products and services

4.  Organizations (i.e., their operations or activities)

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  Sustainability performance of a network of organizations   Can involve one or more areas of impact (e.g., GHGs)   Currently the subject of at least 2 standards efforts: ◦  WBCSD/WRI Corporate Value Chain (Scope 3) standard (in public review) ◦  GRI (started in late 2010)

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This is the world of LCAs!

  This is GRI’s exclusive target of interest (so far)   Also the GHG Protocol (Scopes 1 and 2)   Carbon Disclosure Project   UL 880 (when it is completed)

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  To normalize a measure of performance is to express performance relative to some other variable of interest

  Three alternatives of interest to us today:

1.  Relative normalizations (i.e., relative metrics)

2.  Absolute normalizations (i.e., absolute metrics)

3.  Context-based normalizations (context-based metrics)

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“Relative metrics express operational performance in terms of how performance in one area (e.g., water use) correlates to performance in another area (e.g., revenue or total production) – as in water consumed per unit of revenue or water consumed per unit of production during a specific period of time.”

From Corporate Sustainability Management by McElroy and van Engelen (2011) Earthscan (forthcoming)

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“Absolute metrics express operational performance in terms of what overall levels of performance are in specific areas of interest (e.g., water use) for an organization as a whole – as in the total volume of water consumed by an organization during a specific period of time.”

From Corporate Sustainability Management by McElroy and van Engelen (2011) Earthscan (forthcoming)

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“Context-based metrics express organizational performance in terms of impacts on vital capitals, relative to norms or standards for what such impacts ought to be (for specific periods of time) in order to ensure stakeholder well-being (e.g., total water consumed per employee per year compared to a fair or equitable allocation of available renewable supplies).” [Actual state of the world gives rise to thresholds which act as standards of performance.]

From Corporate Sustainability Management by McElroy and van Engelen (2011) Earthscan (forthcoming)

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Some CBMs in Action!

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Normalization Method

True Measure of Sustainability?

Relative Metrics

Correlated to Some Other Area of Performance

No

Absolute Metrics

Expressed for Organization as

a Whole No

Context-Based Metrics

Tied to Social and Environmental

Thresholds Yes

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Relative Absolute Context-Based

Supply Chains − New GRI and GHG Protocol

−

Industries − Various ad hoc (e.g., DMI’s dairy

−

Products and Services LCA − −

Organizations − GRI EFM, SFM and CBS in General**

* Most commonly used in practice ** Ecological Footprint Method, Social Footprint

Method and Context-Based Sustainability

Copyright © 2011 by CSO

  It is duties and obligations owed to stakeholders that determines the appropriate content and boundaries of a company’s sustainability program

  Otherwise, content and boundaries are potentially arbitrary, too broad or too narrow

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“A stakeholder in an organization is anyone whose vital capitals – and whose interests and well-being, therefore – are affected by the organization’s actions, or whose vital capitals ought to be so affected by virtue of the relationship that exists between them.”

From Corporate Sustainability Management by McElroy and van Engelen (2011) Earthscan (forthcoming)

Copyright © 2011 by CSO

  Sustainability metrics focus on 4 targets of interest   3 different approaches to normalization are used   Most commonly used metrics are relative and absolute

metrics….   They can support sustainability management efforts….   But only context-based metrics (CBMs) make it possible to

measure and report true sustainability performance   GRI advocates for CBMs, but does not enforce it   Various methods in existence since the mid-’nineties (EFM,

SFM and CBS) consist of context-based metrics   Regardless of metrics used, it is stakeholder relationships

that determine the relevant areas of impact that should be measured, managed and reported in a sustainability management program

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Mark W. McElroy, Ph.D. Executive Director

Center for Sustainable Organizations www.sustainableorganizations.org

mmcelroy@vermontel.net

Copyright © 2011 by CSO