Chapter 4

Manage and Measure

4.1. Managing and measuring sustainability

In order to be effective and progressive, sustainability needs to be measured. They say “what

gets measured gets managed.” Firms need to identify the indicators of sustainability, measure

those and assemble the data for a report. This all is only the starting point for an understanding

how to manage the business sustainability. More challenging is to condense the data, rolling

indicator scores up into subcategory and category scores (environmental, social, and economic)

and into a summative score on the sustainability of a business. In the end this collection of key

performance indicators should guide company‟s business decisions. It is important to note that

the concept of corporate sustainability is not easily defined or measured (Herriott, 2016)

4.1.1. Global Sustainability indexes

In following subchapters I will give a brief introduction from some of the most known Indexes

which measure companies‟ sustainability performance on national level.

The Dow Jones Sustainability Index

The Dow Jones Sustainability Index was established in 1998 as a result of the meeting kept

by John Prestbo, Reto Ringger and Alois Flatz. Only in six months, The Dow Jones

Sustainability Index, aroused a great interest among the businesses; companies wanted to

know where they are in or not, but also how they were ranked according to Dow Jones Index.

Companies are not selected according to their environmental or social performance but DJSI

is rather an instrument tracking the long-term financial performance of the leading

sustainability-driven companies worldwide. After the launch of the DJSI some companies

began immediately to undertake a reassessment of their sustainability programs based on

selecting the components of the index. All companies selected into the index receive

information that shows how those companies are scored in each part of the assessment and

how they succeed compare to others in the same industry. The index itself is rather like a

stimulus to the sustainability movement. (Sadler, p. 69, 2002)

FTSE4Good Global 100 Index

FTSE4Good Index was launched in 2001 and it has been designed in order to measure the

performance of corporations that meet globally recognized corporate responsibility standards,

and to facilitate investment of those corporations. Corporations are included in the Series on

the basis of their sustainability record. Thus, the Series can be used in four main ways:

1) as a basis for responsible investment, financial instruments, and fund products;

2) as a research tool to identify environmentally and socially responsible companies;

3) as a reference tool to provide companies with a transparent and evolving global CR

standard to aspire and surpass; and

4) as a benchmark index to track the performance of responsible investment portfolios

(Madu & Kuel, p. 57, 2012)

• Global 100

The Global 100 is a list of “The Global Most Sustainable Corporations in the World.”

The list is announced annually at the World Economic Forum in Davos. The list is

created by Corporate Knights Inc. in partnership with Innovest Strategic Value Advisors

Inc. Global 100 index favor corporates with exceptional capacity to address their sector-

specific environmental, social and governance (ESG) risks and opportunities. Creators of

the index believe that firms able to identify and effectively manage ESG risks will lead to

superior performance in the long run. (Kolb & Schwartz, p. 219, 2010)

4.1.2. Sustainability reporting

The simplest way to measure sustainability is the Global Reporting Initiative‟s (GRI) framework.

The GRI was first established by a group of socially responsible investors and environmentalists

as a reaction to the 1989 Exxon Valdez oil spill. Nowadays it is a set of guidelines created by

businesses, governments, advocacy groups, universities and research organizations. The mission

is to develop and disseminate globally applicable Sustainability Reporting Guidelines to give

business managers the measures to manage sustainability. The GRI consists of those same three

areas than TBL; Environmental, Economic and Social but in addition also subcategories as

Human Rights, Labor Practices and Decent Work and Product Responsibility. (Musikanski,

2012)

GRI report typically defines at first the Aspects and Boundaries for a business. The Aspects are

those issues crucial to a business‟s economic, environmental, and societal impacts and affects the

decisions of stakeholders. Impacts related to the Aspects, and the company‟s controls over those

impacts determine the boundary over the business. GRI report contains two areas: the General

Standard Disclosure and the Specific Standard Disclosure. The General Standard Disclosure

includes reporting in the following areas: Strategy and Analysis, Organizational Profile,

Identified Aspects and Boundaries, Stakeholder Engagement, Report Profile, Governance, and

Ethics and Integrity. The Specific Standard Disclosure instead concentrates on those

sustainability main areas: Economic, Environmental, and Societal as well as societal

subcategories which include Labor Practices and Decent Work, Human Rights, Society and

Product Responsibility. (Subhas, Sengupta & Rajib, p. 117; 119, 2017)

Figure 4.1: GRI Categories and Guidelines

Note: From “Becoming a Sustainable Organization”, p. 210,211, by K. Kohl, 2016, Florida, FL,

United States: Taylor & Francis Group, LLC

Figure 4.2: GRI Social Subcategories

Note: From “Becoming a Sustainable Organization”, p. 210,211, by K. Kohl, 2016, Florida, FL,

United States: Taylor & Francis Group, LLC

In next page is an example how different familiar corporations are reporting their sustainability

performance. Some corporations are following those GRI guidelines explicitly but even if the

GRI is a beneficial tool for businesses it might be that it does not cover all the areas where the

business is active.

Table 4.1: Reporting on sustainability by major corporations

Note: From “Measuring Progress Towards Sustainability”, p.119, by By Subhas K. Sikdar,

Debalina Sengupta, Rajib Mukherjee, 2017, Switzerland: Springer International Publishing

4.1.3. ISO Standards 14 000 and 26 000

The group International Organization for Standardization, or ISO, has been around since 1947. It

is an international organization focusing on sustainability by promoting international standards

associated with industrial and commercial operations. Most countries, as well as companies,

voluntarily have integrated ISO standards into their operations.

ISO standardization range from basic standards like material codes for ordering forms to quality

management standards. ISO operates also in the areas like standards for materials, parts,

shipping, and manufacturing. The important point is that a corporation must purchase access to

the standards. Some companies have criticized the costs of having the access to the standards.

ISO have developed two key standards, ISO 14 000 and ISO 26 000, that are specifically

concentrated on sustainability.

ISO 14 000

ISO 14000 focuses on environmental management. It includes all business operations

associated with the environment and it aims to limit corporations‟ impact on the

environment. On the same time it is complying with local, national, and international laws.

ISO standard assessment may be anything from energy and waste to greenhouse gas

emissions and environmental communications. By using ISO 14000 standard companies are

ensuring legal compliance of the law but also those are continuously updating and evaluating

policies and procedures for all aspect of operations. Through ISO 14000 process corporations

are setting goals for improvement as well as new policies and procedures. Progress toward

the goal will be evaluated to show if appropriate policies and procedures are in use.

(Brinkmann; p.277; 278, 2016)

ISO 26 000

ISO 26000 focuses on social responsibility and it is voluntary whereas most other standards

can be certified. This standard is relatively new as it was launched in 2010. Corporations are

encouraged to follow ISO 26000 standard but those are not certified according to the

performance. The standards focus mainly on workers, the environment, and communities

within seven main areas:

1) Organizational governance: main concern is how a corporation is governed by its

owners, board, shareholders, workers, and other stakeholders.

2) Human rights: ISO provides guidelines for human rights and those focus on areas like

civil rights, access to the political process, economic freedom, education, and other

human rights issues.

3) Labor practices: concerns on how the company manages its workers.

4) The environment: concern on the company´s impact (resource use, especially energy) on

the environment

5) Fair operating practices (FOP). These FOB standards are related to organizational ethics

within and outside of the organization.

6) Consumer Issues focus on how the corporation interacts with consumers and it consist of

issues such as contracts, marketing, and product information.

7) Community involvement and development concerns on how the corporation interacts with

other organizations on the area where they operate or do business. It includes interactions

with governments, other businesses, and any other organization. The main theme focuses

on what is the company´s positive contribution to broader society within their

community. (Brinkmann; p.277; 278, 2016)

To sum up, the GRI focuses on environmental performance standards, whereas ISO 26 000 does

not. Similarly, the FTSE4Good assessment framework focuses more heavily on environmental

performance than does either the DJSI or the Global 100. Thus, corporations must choose the

most suitable guidance and assessment protocols that best address the aspects of sustainability

where they require improved performance. (Weber & Feltmate, 2016)

The giant sportswear manufacturer, Adidas, is shimmering again what it comes to following

sustainable indexes and standards. Regarding to their annual report the company has gained a

great success among the most valued assessment frameworks:

“We are proud that our sustainability programme has continuously earned high external

recognition over the past decades. Ethical investment agencies and socially responsible

investment (SRI) analysts such as the Dow Jones Sustainability Index, the Financial Times Index

FTSE4Good and ETHIBEL have rated us positively in terms of social and environmental

responsibility. Furthermore, we have been named one of the „Global 100 Most Sustainable

Corporations in the World‟ every year since 2005 and made it to the top ten of the „Global 100

Index‟ for the third consecutive time in January 2016. The positive assessments underscore our

industry-leading role in sustainability and acknowledge our social, environmental and ethical

engagement.” (http://www.adidas-group.com/media/filer_public/9c/f3/9cf3db44-b703-4cd0-

98c5-28413f272aac/2015_sustainability_progress_report.pdf)

4.2. Measuring sustainability performance

Establishing of measures and units is the first step in any sustainability initiative. Reporting and

presenting this hopefully progressive process is important as well.

When in last chapters I introduced different kind of sustainability reporting practices,

sustainability indexes and standards, now I would like to give a bit more practical example how

to measure the sustainability. Tables are common and direct ways to present quantitative

information and tables are also easily converted to a variety of figures.

One illustrative sustainability measurement example is to present how much raw materials,

electricity, water etc. the company has used for its manufacturing process before and after.

Utility companies provide monthly billing information for several years back upon request.

Invoices from material providers reveal the company´s material footprint. Water and sewage data

are available also upon request. Table 4.2 shows 13 inputs that are used in manufacturing process

and includes areas where environmental impacts measurements may be recorded. This kind of

table is easy to be pasted into a report, newsletter or presentation, and it shows the progress of

the company´s sustainability attempts for external parties like the media or associations.

(Jacobsen, 2011)

Table 4.2: An example of an environmental impact measurement table

Note: From “Sustainable Business and Industry”, p. 20, by J. Jacobsen, 2011, Milwaukee,

Wisconsin, United States: William A. Tony

In terms of social responsibility these values can be converted as a wage rates for your suppliers´

workers in third world nations. Other example could be training and education funds for the

workers in the same plant. (Jacobsen, p. 20, 2011)

Table 4.3: An example of a scorecard for reporting progress

Note: From “Sustainable Business and Industry”, p. 21, by J. Jacobsen, 2011, Milwaukee,

Wisconsin, United States: William A. Tony

Table…is an example how to report the environmental sustainability progress. Before and after-

measures are captured in order to convey the difference between years that is assumed to be

attributed to the action. The action could be something like a new equipment or a training for

operators. These observations may be hourly, daily, weekly, monthly, quarterly, biannually, or

annually. A sustainability scorecard is great and very readable way to show the progress between

time periods such as years, months, weeks or even days. (Jacobsen, p. 21, 2011)

Sustainability initiatives and measurements are mostly focused on the environmental dimensions

of sustainability. Social performance is typically evaluated by using more qualitative metrics. It

has been a challenge so far to create and develop metrics that would be a true integration of

social, environmental and economic performance. The current measurement approaches have

traditionally maintained a single-sustainability-element focus. New, more integrated

sustainability measurement tools are still needed. (Bennett, James & Klinkers, 1999)

4.3. Common obstacles to slow down corporate sustainability

Corporate sustainability has become common standard practice in today´s business environment.

Corporations are increasingly taking into account their environmental, social and economic

impacts. Still there are lots of global corporations which have not integrated sustainability into

their long-term decision-making. Let me introduce some of the most common obstacles that slow

down the implementation of corporate sustainability.

1.) There are too many metrics and those are too confusing

Businesses are confused which metrics to choose among many such as the Global Reporting

Initiative, ecological footprint, life-cycle assessment, and so on. It is also challenging to choose

the one that is the most appropriate for company´s needs as different metrics serve different

purposes. Some are designed to serve particular sectors such as manufacturing whereas others

focus on specific issues, such as carbon. (http://iveybusinessjournal.com/publication/the-top-ten-

reasons-why-businesses-arent-more-sustainable/)

2.) Government policies need to incent outcomes and be more clearly connected to

sustainability

Governments have various practices such as taxes, regulations and markets, to encourage

businesses to be more sustainable. Often these practices are not measured, or used very

effectively. As businesses and management are usually eager to “do the right thing”, appropriate

government policy could support this mindset. Global, environmental and social responsible,

leading corporations want policies that push all organizations to improved sustainability

outcomes. By this way, firms can put into place long-term measures and innovate new products

and practices that move them closer to those goals.

Corporations also want to be involved in the processes to make sure that the resulting policy is

effective, efficient, and consistent with both the needs of business and society. Firms do not want

to be only some “adjuncts” but those want to work with government collaboratively and

meaningfully. Firms want to get information from the best practices for collaborative

consultation and policy development including government, business, and other stakeholders.

(http://iveybusinessjournal.com/publication/the-top-ten-reasons-why-businesses-arent-more-

sustainable/)

3.) Lack of information about how to motivate employees to undertake sustainability

initiatives?

It is proven by research that employees rather work for sustainable firms nowadays. Some of

them are even ready to lower salary if the firm otherwise is following sustainability in its actions.

Businesses should really use this knowledge to attract and keep the best employees.

Sustainability managers should reach the information about which employee incentive plans are

the most valued and in this way to be more effective. A real enduring commitment to

sustainability separate those companies that are truly committed to leading change from those

that are only following sustainability principles superficially. One manager has pointed out this

fact very well: “It’s easy to generate ideas and start initiatives at the grassroots level. But how

do we sustain that momentum for fruitful innovation across the entire organization—and over

the long term?” An enduring commitment requires the buy-in and sustained interest of

employees. This leads to the situation where good employees attract other good employees and

this enable the firms to move towards enduring cycle of sustainability.

(http://iveybusinessjournal.com/publication/the-top-ten-reasons-why-businesses-arent-more-

sustainable/)

4.) Sustainability does not fit into the business case

There are still doubts among the businesses if it pays to be good, or green. Sustainability

managers need to explain and defend sustainability activities. The problem is also that current

financial decision-making does not support the value of sustainability. Many investments made

are based on short-term impact on the bottom line, whereas so-called sustainability investments

are based on long-term and intangible rewards. The payback period for sustainability

investments is often perceived to be too long. Managers want to know exactly how returns on

sustainability investments can be measured and seen. How to assess and justify these investments

on short-term/ long-term? There are lots of questions in managers‟ mind and it will take time

before sustainability becomes accepted as a legitimate and value-creating part of business.

Before that it may lose out to projects that are more easily understood and evaluated. This is

probably the biggest barrier that slows down the corporate sustainability.

(http://iveybusinessjournal.com/publication/the-top-ten-reasons-why-businesses-arent-more-

sustainable/)

5.) Common set of rules for sourcing does not exist

Responsible businesses also want to purchase environmentally and socially responsible products

and services. Unfortunately the process of identifying sustainable suppliers is not that easily

implemented. It requires product comparisons, industry-specific knowledge and practices but

data may not be that easily available. Sustainable sourcing is also related to managing and

mitigating risks. Many businesses yet are confused about how to manage their supply chains

sustainably. (http://iveybusinessjournal.com/publication/the-top-ten-reasons-why-businesses-

arent-more-sustainable/)

4.5. Why corporations must choose sustainability?

Sustainability is necessity. Without integrating sustainability as a part of corporate strategy the

company cannot be competitive nowadays. Actually companies even cannot choose if they

adopt sustainability or not because only the pressure from stakeholders thrive corporations

towards corporate sustainability. There is increased demand for all corporations to be more

transparent in 1) how they treat the environment, 2) how they govern themselves, 3) how they

treat their employees, and 4) how they treat their communities. (Wells, 2013; White, 2009)

Company´s relationship with its investors and lenders is essential to obtain affordable funds for

operations and expansion. To build long-term, stable relationships with investors and lenders,

companies need to prove that they are effective and ethical managers. Also company´s

governance system needs to be in place and working. Investors and leaders are waiting for

profitable return for their investments but this must happen in transparent way; this means

company´s efforts to achieve good management, ethical behavior and profitability. (Wells, 2013;

White, 2009)

Suppliers and companies have so-called symbiotic relationship as they need each other to

generate revenues and to stay in business. In this case each must meet the other´s needs.

Sustainable, successful companies often choose only sustainable suppliers who are delivering

safe and good quality products on time and at the desired location so companies can satisfy their

own customers´ demand. Sustainable companies require that the whole supply chain is green,

and suppliers are even monitored to make sure that their operations are surely responsible both

socially and environmentally. (Wells, 2013; White, 2009)

From social perspective sustainability is essential. Employees are more and more aware of their

rights, and generally ethical questions are more important for individuals. Better employment

practices historically have resulted in greater productivity. Employees who are satisfied with

working conditions and the ethical conduct of their employer are more motivated, committed and

more likely to work with their full potential. As mentioned before good employees even have

started to choose their future employer due to sustainability status of the company. (Wells, 2013;

White, 2009)

As well as employees also consumers are more and more aware of sustainability and ethical

questions. Internet, different social media tools, and other forums have enabled information to

spread worldwide very quickly. Informed consumers do not want to buy products which are

produced by using child labor, or in ways that otherwise exploit workers. Consumers more likely

purchase their goods and services from companies that practice sustainable habits.

Environmental questions are important as well. During their grocery shopping consumers are

reading product data sheets and for example palm oil products are increasingly banned by

consumers because of environmental reasons. Palm oil plantations have caused massive forest

destruction and some species are even in danger of extinction. Knowledgeable consumers do not

want to support this kind of actions. Thus firms‟ sustainable efforts have straight impact to their

brand image and competitive advantage.

It depends on the company how widely those are adapting sustainability into their business

strategy. Most sustainable companies have proved that sustainability is economically profitable,

and even in the short-term, effective and responsible management of sustainable issues can add

value and reduce risk. At the beginning those sustainable efforts having greater overall impact

might be more expensive to implement, but those long-term results surely justify the investment.

Many surveys have proved that sustainable companies are outperforming and being more

profitable. This impacts straight to the shareholders who are naturally happier as well.