The Wild West of Measuring Corporate Sustainability

"I think most companies right now are doing a sustainability report, but [they’re] generally not reporting the bad news, and [instead share] some anecdotes about some of the wonderful things they're doing that they have cherry-picked.  So, extractives companies don't say a whole lot about carbon footprints and fossil fuel, and banks don't say a whole lot about the high charges for people with bad credit or the overdraft fees. Having this sustainability report gives them a vehicle to report on the things that they want to report on and that make them look good and skip over the tougher issues."—Mark Kramer, director at FSG Consulting

Over a year ago I decided to try to find out what it takes to lead a successful company that has a strong social or environmental purpose baked into its business activities.

I thought that a good place to begin would be to select some of those companies, and interview their leaders. This innocent idea, however, quickly led into a thicket of problems. Nearly all of the world’s largest companies and 75 percent of the S & P 500 publish sustainability reports. (A sustainability report provides information about the way a company manages and impacts social and environmental resources.) But for a variety of reasons, it’s not so easy to know what kind of impact companies are really having. Consider:

• Most companies invest heavily in creating a positive public image, which may or may not be accurate;
• Companies have impact in many areas, from employee and supply chain welfare, to direct and indirect environmental impact, to the social impact of financial models and behavior, to the impact of goods and services on customers;
• There is no universal agreement on what “positive impact” really means;
• Many companies do “good” in some areas, while causing harm in others;
• It’s difficult to compare across industries;
• Companies use different models to create impact, some through their core business activities (like a solar company); some through an array of philanthropic efforts;
• Companies self-report on sustainability, and are not always transparent.

I was bewildered at first, but as I have continued digging into the landscape of measuring corporate sustainability, I have become increasingly optimistic. There have been tremendous strides in the past two decades in developing measures, standards and ways of understanding corporate sustainability, and numerous organizations devoted to helping do so. In fact, I believe we are moving towards an era in the next one to two decades where corporate social and environmental issues will be measured and reported in a far more rigorous and transparent a fashion—much more like the way financial accounting and reporting is done today. I also believe that companies that are on the forefront of this change will be more successful in the long-term.

To that end, I encourage all CEOs to consider the following four resources to better inform their sustainability strategies and understand how their companies measure up in a world where sustainability is increasingly important:  

Global Reporting Initiative (GRI) The Global Reporting Initiative (GRI) is an international nonprofit that provides a framework for corporate sustainability reporting. Most large companies already use GRI’s guidelines; they cover the key areas of governance, environment, financial, and social impact. Companies that follow these guidelines are eligible to publish a report with the GRI logo and be featured on GRI’s website. But even companies that do not use the GRI framework for reporting can use it to inform or assess their sustainability strategy. Through its website, GRI offers a variety of products and services to help companies use its framework.

B Lab. B Lab is a nonprofit that has created a comprehensive online assessment tool that provides a framework for thinking deeply about impact from many angles and for considering various pathways to improve. B Lab offers certification to companies that earn 80 out of a possible 200 points on the assessment, which also offers an objective way of comparing corporate sustainability across different industries. But even companies that opt not to become certified can benefit greatly from using the assessment. As B Lab Co-founder Bart Houlahan told me:

"What makes us unique is that we are comprehensive. We believe if you're trying to measure the impact of a business, of an entity, you have to look at the whole. … A business has a huge array of impacts, and you cannot exclusively focus on one attribute. The B Impact Assessment evaluates the whole. … There are now 152 different versions of the assessment customized by size, location and industry.”

Sustainability Accounting Standards Board (SASB) The SASB is a US-based nonprofit that is creating accounting standards for sustainability. One way to understand its mission is to look at the universally agreed-upon standards that exist for financial accounting and reporting in the US today. SASB is working to create similar standards to account for sustainability. In fact, for a crash-course in sustainability, read SASB’s Conceptual Framework.

SASB’s premise is that there is a need for an efficient and consistent way for companies to report on sustainability matters that may impact their ability to create value. Like GRI and B Lab, SASB has used a sophisticated, multi-stakeholder process to arrive at its standards. What makes SASB different is that it is striving to provide not only a framework for reporting, but also a reporting process that is intended to be integrated with reporting that is currently done through the Securities and Exchange Commission. SASB leaders envision a day when investors can find uniformly reported data on corporate sustainability much in the same way they can find financial information today.

Dow Jones Sustainability Indices (DJSI). DJSI are indices that evaluate sustainability of the largest 2,500 companies in the world. To create them, Dow Jones partnered with RobecoSAM, a Swiss sustainable assets manager, which did (and does) the research that forms the indices’ foundation. The indices are specifically focused on sustainability factors that will materially impact the company’s financial performance—what RobecoSAM calls “financially relevant sustainability criteria.” Thus the DJSI focus on sustainability factors that are expected to impact long-term financial viability of a company.

RobecoSAM’s Corporate Sustainability Assessment (CSA), a tool that the DJSI first began using in 1999, provides the basis for their data collection. A sample questionnaire is available on their website—over 100 pages, it provides substantial food for thought about what constitutes sustainability. The questionnaire contains thoughtful descriptions of their rationale for the questions, including some best practices. Currently there are 59 different versions of the assessment, tailored to different industries. For more about their overall methodology, read their Measuring Intangibles article.

The Coming End of the Wild West

Now is an exciting time of unprecedented progress in the area of measuring corporate sustainability. It’s evident that we are moving rapidly towards a future with more standardization. In the same way that financial accounting and reporting have become standardized, the same will increasingly happen with sustainability.

Companies that are on the cutting edge of measuring and transparently reporting their true social and environmental impact—and are not just using their sustainability report as a marketing opportunity—will have a strategic advantage going forward because that’s the direction we’re headed. Investors and other stakeholders are increasingly demanding it.

Corporate boards and executives need to increase the velocity and depth at which they engage these issues. They need to get more fully educated, adopt standards, and build more of a sustainability mindset into their management practices and company cultures. Employees, customers, and other stakeholders expect alignment between a strategic focus on sustainability, and all the other behaviors of a corporation that make up its culture. Leaders should also set aggressive targets—even if they don’t yet know how they will achieve them. After all, that’s how we put a man on the moon.

Read more stories by Eric Nitzberg.