by Paul Hunter

Sustainability has become a major watchword in the world of ethics and compliance. But as ESG broadly comes under fire for vague definitions and goals, measuring sustainability impact will become the key to making sure that claims of corporate progress stick.

 

Financial achievement has long stood at the heart of corporate success. The last decade or so, however, have seen a gradual shift in priorities and drastically changing public perceptions, with people on the street becoming increasingly knowledgeable about the social and environmental impacts of industry. Businesses today are facing the heat that comes from being under an ethical and sustainable spotlight, and this trend is only going to become more pronounced in the coming years. Those who don’t get to grips with the new paradigm are going to be facing an uphill challenge.

Corporations want to know what will attract investors and talent; previously, a booming balance sheet and expansion were enough. Today, organizations must rethink long-held beliefs over the definition of success. Greater awareness of the climate crisis, coupled with growing social consciousness, means that responsibility has become a key watchword, covering everything from the environment and philanthropy to diversity-in-hiring and fair business practices.

Being ethically responsible means ensuring a business engages in fair business practices across the board. This means taking a deeper dive into the socio-environmental costs of doing business; which in turn means new measurement tools. The old, surface-level metrics of the past just aren’t going to cut it for businesses in the future. There are a wealth of sustainability metrics to focus on–and businesses will have to adopt as many as they can.

FROM CSR TO DE&I
While measuring external impacts is important, a company’s Corporate Social Responsibility (CSR) must begin at home. Increasingly, observers want to see organizations expanding their Internal CSR initiatives, and that means you need to be showing how effective they are as well.

To measure the impact of employee-focused CSR, track internal support structures, such as volunteer days and charity partnerships. Measure your organization’s economic responsibility, which entails making financial decisions that prioritize doing good, not just making more money. It also means measuring jobs added, local hiring practices, and promotion structures.

This is particularly relevant when cross-referenced against Diversity, Equity, and Inclusion metrics. It might seem that measurement is straightforward when it comes to DE&I – how many women or people of color are you hiring and promoting? But responsible businesses are digging deeper – tracking those figures by seniority and by department, and analyzing pay gaps and pay ratios for women and minority employees. They’re also ensuring supplier diversity and expanding measurement to members of their supply chain. Employee satisfaction is another key metric when broken down on diversity lines, to ensure equity in the employee experience.

For example, measuring the percentage of employees who feel that they can be their full selves at work can illuminate gaps in the experience that may be fueled by systemic or cultural biases present. To illustrate, if your data indicates that white males are more comfortable being themselves at work compared to black females, then one could draw the conclusion that resources should be dedicated to creating a more accepting environment for women of color. And this is against the contextual backdrop that employees are increasingly finding it more important to be able to bring their full selves to work (especially younger members of the workforce).

Measuring equity can be nebulous, so analyze where capital is applied to create equal outcomes. For example, accelerator programs hire people out of college and provide robust, paid training in order to lower the educational/training barriers to entry for professional sectors that have historically been disproportionately difficult for minorities to enter (e.g., technology). Again, pay equity is essential to measure, as is the provision of benefits to under-represented groups – for example, a transitioning policy for transgender employees. Investing in diversity, equity, and inclusion of teams is another metric companies will have to measure to monitor success. It is also vital that companies periodically re-evaluate their equity practices. Policies that seem on target today may not be tomorrow. Situations change.

GOING GREEN? GO FURTHER.
When it comes to Environmental responsibility, it’s important to remember that it’s not just about being green.

Environmental responsibility means reporting on energy consumption and reduction, units of output vs. input, and the extent to which renewable sources comprise part of the company’s energy mix. It’s relatively easy to measure Scope 1 and 2 emissions as they’re about tracking corporate assets, but Scope 3 reporting means tracking everything the company touches indirectly as well. In addition to tracking Greenhouse Gas Emissions, there’s your energy consumption mix, water consumption/pollution and intensity, land use, and waste disposal (just to name a few).

Importantly, this is not just about putting your own house in order. Just as they must with DE&I, companies will have to measure the extent to which their partners up and down the value chain are meeting these criteria as well. Consider auditing your existing partners, see where they are falling down or doing well, and make decisions accordingly. If you want to go even further, devote resources to greening up your value chain through contractual pressure, periodic audits, or incentive structures that encourage members of your supply chain to reduce their impact.

Often used as a barometer for “good CSR,” Philanthropic Responsibility must be not just about measuring dollars donated, but rather how they’re split by cause and geography to see if there is community-focused activity in the local area. What level of transparency is there over the company’s political contributions? To what extent are shareholders engaged and do they have a say in ESG practices? All these metrics need to be tracked. Organizations will also need to measure employee donations and how they’re being matched, as well as the time involved as well as the money.

Sustainability is often seen as a form of risk mitigation, both physical and reputational. Investors appreciate businesses that are aware of this and act—and invest—accordingly. The goal is to, whenever possible, use investment dollars to make and promote positive societal impact, corporate responsibility, and long-term financial return.

Sustainable investing also doesn’t necessarily mean that businesses forfeit financial returns. While it’s impossible to guarantee returns, ESG funds and investments can perform just as well, or better, as non-ESG funds. Barron’s reports that seven of the 10 largest ETFs with a focus on ESG factors beat the S&P 500 index in 2021. Tracking and measuring both an organization’s own ESG investments, as well as other ESG funds and investments, can help keep your finger on the sustainability pulse.

EVOLVING PREFERENCES
U.S. consumers are becoming increasingly conscious of the sustainability cost of industry. Research by Nielsen found that 48 percent would change their consumption habits to lessen their impact on the environment. This translates to billions of dollars in sales of sustainable, fast-moving consumer goods. In addition to tracking evolving U.S. consumer preferences, it’s essential that companies also measure how corporate practices are shifting to match.

Certifications like B Corp are already driving the right corporate behaviors. Kin + Carta, as a certified B Corp consulting firm, has adopted a number of measurable methodologies to reduce risk. These include KPIs for the level of revenue from ‘positive impact work’ that benefits the world around us, and a strict risk review process that can even mean disqualifying some clients if their business is perceived as a reputational risk to the firm or a risk to the world at large. The highest measurable standards of social and environmental performance have to be matched with transparency and accountability.

At the same time, rigid structures are failing. Climate change and forms of social injustice make the call for agility and adaptation even more pressing than before. Our lives, planet and communities depend on it. Measurement has become a key tool in ensuring businesses are able not just to be responsible, but to demonstrate that responsibility to the outside world, whether talent or investors. Those metrics have become as much a measurement of success as the bottom line—and it’s likely that they will become even more important as global and governmental priorities continue to shift.

 

ABOUT THE AUTHOR

Paul Hunter is Global Sustainability Manager at global digital innovation firm Kin + Carta.

 

This article is from the Fall 2022 issue of Ethisphere Magazine. To read the full issue, click here.