EcoShift’s Dustin Mulvaney will be speaking at SRI in the Rockies, Oct. 2-5, 2011 in New Orleans
James Dixon, the vice president for Legal & Compliance Services at Con Edison Energy and chairman of the National Association of Energy Service Companies has published a great op-ed on the value of green jobs, specifically in energy, to the US economy and job creation. Read here
Climate Policy Update – Fall 2011
Industry-Specific Metrics: The Future of Corporate Sustainability
Corporate sustainability is developing at a lightning pace. We are in the process of moving from an era in which corporate sustainability is a piecemeal process focusing on marketing and communications to one in which sustainability metrics are integrated into the operational model of a business. Until recently, normal practice was to identify and implement a few ‘green’ actions, initiate a branding campaign based on these actions, and maybe slap an eco-label on products. There are a couple of problems with this approach, and a focus on transparent, operational sustainability metrics can help fix these issues. The first problem is that a firm’s overall environmental impact and the benefits of sustainability actions are not transparent to the public. Consumers are increasingly weary of claims made in marketing information or labeling schemes because there is no obvious connection between the label and actions implemented, much less to a measured reduction in impact. This means that the added brand value of sustainability is not fully utilized. Second, and more importantly, the actions taken may or may not be the most cost-effective ones to reduce a firm’s environmental footprint. While some actions clearly save money, such as energy efficiency improvements or building commissioning, they are not necessarily the most attractive from a marketing point of view. However, they will support the firm’s bottom line, and, if couched in the right terms (i.e., a percent reduction in total energy/carbon footprint), they can indeed have marketing value. On the other hand, switching to biodegradable packaging has marketing value but its impact isn’t clear. If information isn’t available, the consumer may question the actual reduction in environmental impact from the new packaging. While biodegradable packaging sounds eco-friendly, the consumer may question whether this action had environmental benefit, and they may wonder how much this actually reduces the overall footprint of the product. Focusing on transparent, operational metrics can address these problems. First, a metrics approach can be transparent. Performance metrics can be readily communicated to the public, like an eco-label, and they also carry real information to the customer. Second, sustainability metrics can provide benchmarks from which all potential actions can be compared, both environmentally and financially. With concise metrics, decision makers can clearly identify the right actions to pursue. Of course, certain actions will have better marketing value than others, and estimates of this value can also be incorporated into the financial impacts of an action. For sustainability metrics to have maximum impact, they need to be integrated into core decision-making practices within a firm, in a similar fashion to the financial metrics used in business decisions. For example, in addition to net cash flow and gross margin, a firm may also track gallons of water per pound of product, or energy consumed per unit of product. When sustainability metrics are concise, this is possible and becomes a benefit to the bottom line, marketing, and environmental goals. What does it mean to integrate sustainability metrics into business practice? It means that sustainability metrics are used in decisions to inform design choices, source materials, build new facilities, and select transportation modes. The next questions, clearly, are what metrics to use and how to collect the required information. This is where the sustainability field is still evolving, and where the latest developments are occurring. There are two main issues here: First, the right metrics vary by industry, and industry-specific metrics are still in the development phases. Second, many aspects of the environment are difficult to quantify. For example, it isn’t too difficult to quantify GHG emissions or water usage in a clear concise metric. On the other hand, impacts on biodiversity or toxicity are much harder to quantify, involve some assumptions, and inevitably, no matter our level of rigor, rely on subjective interpretations of environmental values. Ignoring these areas of impact is a disservice to the goals of sustainability, because comprehensive approaches to sustainability involve more than GHG emissions and water usage. Many industry groups are taking bold and important steps to create sustainability rating tools. This includes the Green Guide for Health Care, AASHE’s STARS rating system for higher education institutions, the Outdoor Industry Association EcoIndex, the Sustainable Apparel Coalition’s Apparel Index, and several others. All of these are in pilot or initial phases and, as is clearly acknowledged by their creators, will require an iterative process to complete. However, most of these systems are points-based systems, similar in approach to U.S. Green Building Council’s LEED program. Points are accrued for various actions, and a final score or rating is given. These systems are an excellent first step, as well as an important means to define best practices within an industry. These tools, once perfected, can serve as a roadmap towards sustainability. In our opinion, these rating systems suffer from the same issues described above – it is difficult for the consumer to understand what 8 points out of 10 for supply chain management or a ‘Silver’ rating means for the environment or the firm’s overall footprint. In addition, it is very difficult for firms to prioritize action based on points systems. One can prioritize future activities based on potential points accrued, but not based on financial or environmental impact, and the relationship between points and financial or environmental impact is never articulated. Several of these nascent rating systems acknowledge the need to move to a metrics-based approach, or are in the process of developing industry-specific metrics. To do so will require leadership, good science, time, and stakeholder involvement. And the benefit is immense: if early sustainability efforts can be benchmarked against by meaningful metrics, both the public and firm decision-makers will have a better sense of what sustainability means and how to get there. Industry-specific sustainability metrics will be important measuring sticks, and will likely be used both for public reporting and to tailor the appropriate metrics for each company, organization, or community. As industry-specific metrics drive operations, firm-level operations will also help refine metrics. So even in this early stage of evolution, individual organizations can participate in this process to achieve more sustainable operations and more transparent relationships with stakeholders. This will be a benefit for both the bottom line and our planet.
The New York Times has an excellent editorial on the climate change stance of the Republican slate of presidential hopefuls here.
Carbon and water footprinting is becoming more and more common. This Economist article discusses where this type of action is happening most and why.
What is the best way to address the environmental impact of your supply chain? This Harvard Business Review blog posting is right on track.
The Climate Action Reserve just published a background paper for the Croplands Management Protocol written by EcoShift Consulting. You can read it here.