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New measures for business value

New measures for business value

How would you recognize a truly sustainable business? Many people would say by the information provided by a company’s sustainability report. But is the image portrayed accurate?

I’m not saying that elements measured by companies today are wrong.  We are a lot clearer about what should be reported than we were, say 10 years ago.  After all, there are already around 4,000 companies reporting worldwide and that has built a community of practice that is driving greater clarity and improved reporting all the time. We have the Global Reporting Initiative and Integrated Reporting (IIRC) and SASB, and many others, contributing to the journey.

But if you look at the conversation on the internet, for example #newmetrics on the sustainable brands site, you will see a number of themes dominating the debate about a new approach to reporting.

Impact on planetary boundaries
How much improvement is needed if companies are to make a real contribution? That is a tough question.

In 2009, a group of scientists published their work on ‘Planetary boundaries’ through the Stockholm Resilience Centre.  They identified nine earth systems that govern the safe operating space for life as we know it.  They also proposed boundaries related to most of these systems, that it would be unsafe to cross.  Unfortunately, we have exceeded three of them already – biodiversity loss, climate change and perturbed nutrient flows – and remember there are six others.

It would make sense that any company that is committed to a sustainable world should report upon their impacts and their improvement goals in language which aligns with these planetary boundaries.  But few do.  It’s true that many companies report upon reductions of greenhouse gas emissions.  But few report upon the impacts of their supply chains on biodiversity loss – and even less on how their business affects Nitrogen or Phosphorous flows – just as examples.

Accounting for growth
Then there is the question of how do we account for growth?  Take the example of climate change impact.  It may be that a company is making great progress in reducing the energy intensity of its operations.  But if the overall business is growing faster than the rate of improvement, then the absolute impact will still be greater.

Scientific consensus says that we have already exceeded the planetary boundary for atmospheric carbon and that population and economic growth is driving more and more man made GHG emissions – and so we face a dilemma. The New Metrics community would argue that a business that is truly committed to sustainability should face up to these challenges and set goals that address the whole picture.

You might think that this is just too much for a company to take on board, but there are some notable examples that have tried to do just that.  For example, Unilever that has set itself the goal of halving its environmental impact while doubling its revenues.

These are challenging topics and I think we all know that most sustainability performance questions are underpinned by complexity and uncertainty. This means that any debate about better measurement should also address ‘how’ we make the debate more transparent and meaningful to the widest range of stakeholders.  It’s not just a question of what we measure, but how we communicate it. To do this we need to consider how we understand value, not just at the company and product level, but also in terms of how the value created by businesses is shared by those in the communities which they affect.

Insights from Rio
I chaired a session on these topics at the Sustainable Brands conference in Rio last week  where new metrics and business valuation was one of the key topics.  About 150 people joined my panel with representatives from Itaú, Sitawi and Natura. During my opening remarks, I asked for a show of hands to understand their attitude.  About half of the audience were involved in reporting – either within their companies or as advisors.  But virtually none of them felt that sustainability reports provide users with the information they need to judge a company’s contribution to sustainability. I had expected some concern to be expressed, but was surprised how few of the audience feel that reporting is working at present.

During the subsequent conversation we heard from the panel about examples of integrated reporting, investor sustainability ratings and efforts to put a value on nature.  It is clear that this topic is of great, current interest to sustainable business leaders in Brazil.   This conversation is set to become a significant issue for companies that want to demonstrate their progress towards a more sustainable future.

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