MIM 521/ BA 548 Evaluating and Measuring the Sustainability Performance for Global Organizations

1. MIM 521/ BA 548Evaluating and Measuring the Sustainability Performance for Global Organizations Finish characteristics of measures and introduce frameworks… Day 2, June 23

2. Today’s themes… • Higher level data attributes • Some frameworks • Moving toward thinking about real sustainability • Sustainability reporting

3. Categories Of Measurement types—numbers • Direct: absolute measures (2 tons waste water) • Relative (normalized): one data item compared to another data item (.25 ton waste water per thousand good units) • Indexed: data related to a standard or baseline, e.g. trend analysis (a 50% decrease in waste—could be related to Direct or Relative) • Aggregated: combined value of same type of data from various sources (1500 tons waste water for the entire company) • Weighted: a factor of significance applied to data (500 households worth of water (each household uses 3 tons of water per year)) (these terms may be used a bit differently by different folks, the concepts remain).

4. Categories Of Measurement types—function • ISO 14001 • Operational performance—how operations impact the natural and social systems • Managerial performance—efforts to influence operational performance • Environmental condition (water supply available) • EEA (European Environment Agency) • Descriptive (what exists regarding the environment/ humans) • Efficiency (relate environmental inputs to economic outputs) • Target (inform about whether goals are being met) • From Marshall and Brown, 2003, BSE

5. Unit of analysis • Firm • Industry • Region • Country • Building • Time period • Employee • Product • Process • ….whatever….

6. Hierarchy of metrics • Grouping for implications • Aggregate to meaningful scale • Multi-level metrics • local to global • business unit to corporate • Careful of losing usefulness…single index (Graedel and Allenby, 2002, EQM)

7. Metrics and schemas (organizing frameworks) • Hierarchies • Frameworks • Thinking about how to organize • Previously, we talked about information attributes with no context • Now, we deal with frameworks, models, concepts, that have much context—somewhat randomly • Together, these provide much insight to what and how we measure—and what the measures can then tell us

8. From a Forest Service indicators project (LUCID) • Principle—some over-riding objective to achieve • Eliminate greenhouse gas production • Criterion—something that must exist to meet the objective Zero net carbon building operation • Indicator—a measurable parameter, an attribute that can (or must) be measured to determine the existence of a criterion • Fossil fuel inputs • Measure—a method of assessing the value of an indicator • Collect monthly fuel bills—quantity of fuel consumed • Element—a factor that may be needed to quantify a measure • Number of buildings on monthly bill • Reference—target, goal, baseline, standard • 10% annual reduction from 2004 levels • From Wright and Colby (2002), USDA FS IMI Report 2

9. Smart Growth—Targets • Principle—high level statement of sustainable development • Goal—desired goal(s) that would achieve the principle • Indicator—measurable standard that could be used to indicate if a goal has been achieved • Target—specific level set for the indicator • Principle—Options to the car are emphasized • Goal—Provide opportunity to walk to basic needs • Indicator—Distance from residences to shop with basic foodstuffs • Target—All homes are within 5 minute walk of shop • Adapted from Smart Growth On the Ground in Squamish—targets (Feb 2005)

10. Pressure-state-response • Metrics that attempt to • Pressures are stresses placed on natural or social systems…not necessarily bad, but they perturb the system • States are existing status or conditions of social or natural system components, or the systems broadly • Responses are policies changed or actions taken to change the pressures to ease or prevent negative impacts…may be direct to change the state; may be indirect by impacting pressures, then thru to the state • (Graedel and Allenby, 2002, EQM)

11. Pressure-State-Response (OECD graphic)

12. Organizations and resource flows • Organizations operate in an action space(s)—operational, environmental, social • They impact, and are impacted by, social and natural systems • Information is the blood guiding the actions of the organization • Flows throughout the organization • Flows to and from the social system • Flows from (to?)1 the natural system

13. Information flow diagram (Marshall, Brown, & Dillard. Working paper)

14. Moving toward sustainability • Moving beyond simple ideas of • environmental stewardship • social responsibility • business initiatives

15. Moving toward Sustainability • Loads  impacts vs. tipping points; resilience and brittle systems (see future slide) • Direction  target zones vs eco-efficiency/eco-effectiveness; weak and strong sustainability (see next slide) • Chemical/physical  biological/silos vs ecological/integration; objects and relationships • Discrete/static  systematic/linear vs dynamic/nonlinear; cause/effect vs patterns; chains vs networks • Natural to social morally neutral vs morally thick; consensus vs controversial objective function; observable to affective

16. Strong vs. Weak Sustainability • Weak sustainability: manufactured and human capital are substitutes for natural capital • Strong sustainability: manufactured and human capital are complementary to natural capital; a constant stock of natural capital must be maintained • Given a range of capitals...human, social, natural, manufactured, financial, etc.—weak sustainability assumes substitutability, strong sustainability assumes that a base amount of the given capital must be maintained. • What does this mean for metrics?

17. Resilience • Resilience—the capacity of an eco- (or social-) system to tolerate disturbance without collapsing into a qualitatively different state controlled by a different set of processes. • Loss of resilience may be undetected until a disturbance causes a collapse (e.g. shift in ecosystem) • Resilience in social systems has the added capacity of humans to anticipate and plan for the future • Maintaining capital can be achieved without consideration of resilience but useless if the resilience of these systems is being diminished • Biodiversity – the key to resilience? • A resilient system can withstand shocks and rebuild itself when necessary. • What does this mean for metrics?

18. Overall metrics development issues (some) • Metrics and indicators assure (?) transparency and provide incentives for accomplishment • Look for presumed causal relationships (or associations) • Appropriate time scale • Link to current objectives • Clear and understandable • Practical applications and a critical view of outcomes • Understanding complexity and systemic interconnectedness • Practical applications…

19. Purpose of all this… • Think about what you are measuring, why, how… • These frameworks can provide insights into the value (or purposelessness) of what you are doing • Metrics/measures have impact, from a behavioral perspective. Therefore, they should be well considered, purposeful, dynamic, and reviewed/evaluated.

20. Sustainability reporting

21. Sustainability reporting • How do organizations disclose to stakeholders • Voluntary • Addresses social and environmental issues • Irregular distribution • Inconsistent format • Unpredictable content

22. Source of Drivers for Sustainability reporting • Stakeholders— • Who are they • Which require a report • What do they want reported • How can these needs be addressed • Corporations— • Legitimacy • Competitive advantage • Enlightened

23. Long list of stakeholders • Stakeholders • Capital markets • Shareholders • Regulators • Customers • Community • NGOs • Employees • Media • Trade/Industry • Academia • Public • Environment • Civil society • …

24. Comparing drivers and their effects • Major concern is tying financial performance to sustainability performance • Capital market does not require sustainability reporting—although this is changing at the margin • Stakeholders require different information from sustainability reporting • Sustainability reports are not standardized • External verification for sustainability reporting is not well organized, is inconsistent, is voluntary