The Role of Leading vs. Lagging Indicators
in Sustainability Planning
Panel discussion document prepared exclusively for:
The New Metrics of Sustainable Business Conference
September 28, 2012
The Wharton School
DU Executive MBA Week 2 – Sustainable Value Creation│ 2© 2002 - 2012 MetaVu, Inc.
Panel Discussion Topics
About the Panel Context
Definitions Developments Adoption
Q&A Key Takeaways
Sustainable Development Return on Investment (SDROI) is the result when an enterprise stewards resources and capital efficiently to create value for all stakeholders.
SDROI®
The Case for Leading vs. Lagging Indicators in Sustainability Planning 3
Your Panel Today
Joe Wolfsberger
• s
• s
• s
• s
• s
Michael Muyot
• s
• s
• s
• s
• s
• s
• s
• s
Mark A. Serwinowski
• s
• s
• s
• s
• s
• s
The Case for Leading vs. Lagging Indicators in Sustainability Planning 4
Contributor / Collaborator
Bob Pojasek, phD
The Role of Leading vs. Lagging Indicators
in Sustainability Planning
Panel Discussion document prepared exclusively for:
The New Metrics of Sustainable Business Conference
September 28, 2012
The Wharton School
Mark A. SerwinowskiMetaVu, Inc.1400 16th Street, Suite 400Denver, Colorado USA 80202+1.303.679.8340www.metavu.com
The Case for Leading vs. Lagging Indicators in Sustainability Planning 6
About MetaVu
Services
MetaVu helps company’s develop their business case for sustainable development; collaborate to drive the innovation process and measure the ROI. From product and service impact analysis, to process innovation, supply chain integration and organizational design and governance structures designed to embed sustainability in the business.
Advisory service segments: Strategy & Impact AnalysisInnovation For Future MarketsResource & Process OptimizationEHS and Sustainability Management SystemsReporting & AssuranceLegacy Liability & RestorationBusiness Analytics and Technology
ProductsMetaVu’s Sustainable Development (SD) Tool Suite TM enables clients to directly link, assess and report operational performance in financial terms, linking metrics set by external frameworks (e.g., GRI, CDP, DJSI, IFC, ISM) with leading indicators to measure SD ROI at enterprise, business and product-level.
“Smart Innovator Award – Top Sustainability Consultant”
“Global Knowledge Sharing Award: EHS Management”
MetaVu was founded in 2002. Visit www.metavu.com for more information.
The Case for Leading vs. Lagging Indicators in Sustainability Planning 7
How Do Leading & Lagging Indicators Enable Sustainability Planning?
SDROI® Sustainability Framework TM
Sustainable Development: Strategy built from the fundamentals of a business – knowledge of the industry, competition, demand, alternatives, risk drivers and unique value proposition.
SDROI®
The Case for Leading vs. Lagging Indicators in Sustainability Planning 8
Leading vs. Lagging Indicators Definitions / Framing
Leading Indicators Future Oriented Performance Goals Predictive Process Focused (what)
Lagging Indicators Past Oriented Outcome Measures Actuarial Organizational Focused (who, how)
© 2002 – 2012 MetaVu, Inc.
The Case for Leading vs. Lagging Indicators in Sustainability Planning 9
Note: General timeline of reporting frameworks, performance systems and relevance to sustainable development (not inclusive of all UN-chartered institutional / investor initiatives.)
Leading vs. Lagging Indicators Development & Adoption Timeline
SRI / ESG Indicators
ESG
Leading Indicators
1970
Lagging Indicators
‘13‘87 ‘112000‘92 ‘06 ‘12‘03‘84 ‘89 ‘09 ‘10‘99 ‘05
© 2002 – 2012 MetaVu, Inc.
‘14
The Case for Leading vs. Lagging Indicators in Sustainability Planning 10
Adoption of Leading IndicatorsLeading Indicator Self Assessment (LISA) Tool
1 2 3 4 5
LEADING INDICATOR SELF ASSESSMENT
Inventory drivers (externa / internal)to establish point-of-view on the industry, competition and customers.
Enterprise ESG Risk profile of Value Chain, Supply Chain& Organizational Capabilities.
Enterprise- and product-level to measure environmental,social, economic impact.
Product, Services, business model innovation; Research & Development.
Capital Stewardship (natural, human,financial) to efficiently create value for all stakeholders.
FRAMEWORK CAPABILITIES MEASUREMENT INNOVATION STRATEGY
Leading Indicator Self Assessment - All Industries
10 years of operations research -- cross-sector development.
2012 Regional Leaders
© 2002 – 2012 MetaVu, Inc.
The Case for Leading vs. Lagging Indicators in Sustainability Planning 11
Leading vs. Lagging IndicatorsFor Sustainability Planning
Sustainable Development
ROI Story
Traditional Business Sustainable Business
Leading Indicators
Lagging Indicators
Leading Indicators
Lagging Indicators
Supply Chain Integration
• Procurement requirements for Safety
• Management System
• TRIR• Process Risk
Review
• License to Operate• Supplier ESG Score• SD Management
System• % CAPEX in Local
Content• Production efficiency
• TRIR• Fluency Trainings• OE / Reliability • ROCE• Cost of Capital
Process Excellence
• Product / Business Line CAPEX / OPEX forecast
• EBITDA• ROCE• Asset yield
• % CAPEX in R&D with SD Principles
• Product Innovation Reformulation
• Cost efficiencies• ROCE• Cost of Capital
Product Innovation
• Revenue• Market Share• EBITDA
• ROCE• Cost
efficiencies
• Resource efficiency (energy, materials, water)
• Reformulation • New Market Share• Revenue growth
• Resource conservation, reduction, recovery
• ROCE• Cost of capital
© 2002 – 2012 MetaVu, Inc.
The Case for Leading vs. Lagging Indicators in Sustainability Planning 12
TakeawaysLeading & Lagging Indicators in Sustainability Planning
Developments Institutional and Sector developments continue
AdoptionNot Leading vs. Lagging ---- Leading AND LaggingEnables enterprise risk point of viewCreates linkage between Opex and Capex Drives governance and compensation (for long term)Links reporting, operations and financial performanceFrames the narrative for investing and measuring ROI
The Role of Leading vs. Lagging Indicators
in Sustainability Planning
Panel Discussion document prepared exclusively for:
The New Metrics of Sustainable Business Conference
September 28, 2012
The Wharton SchoolJoe Wolfsberger / 704 877-3992
The Case for Leading vs. Lagging Indicators in Sustainability Planning 14
History of Metrics Tracking and ReportingOne Person’s Perspective
Early Reporting of Company Sustainability Data Mostly environmental data collected for compliance purposes Reporting expanded with implementation of enterprise EHS databases
Reporting of readily accessible data – no inter-company consistency
Second Phase Incorporated EHS Data Third Phase Expanded to Include Social Data Currently a Push to Include Governance Information Current Trends
Standardization of Reporting Format One Report Ranking of Performance by Independent Organizations Integration of Sustainability Metrics into Corporate Strategies and Reporting to Create
Competitive Advantages Leading Indicators and Integration into Operational Excellence
The Case for Leading vs. Lagging Indicators in Sustainability Planning 15
The Case for Leading Indicators
For 40 Years we have convinced our leadership to rely on lagging indicators – why change?
At the enterprise level probably will not change but as you go lower in the organization the metrics need to be more activity oriented and actionable
Measuring lagging indicators is like driving by looking in the rear view mirror Lagging indicators create the sense of being powerless and do not drive universal
ownership Leading indicators drive a culture of Zero Risk Tolerance
Reduced risk saves money and creates a competitive advantage
Leading indicators are antecedents of the desired outcomes Success in driving a culture of operational excellence for sustainability supports
improvements in quality and operations
The concept of Leading Indicators are often not understood Often they require a leap of faith – don’t be afraid to start
small
The Case for Leading vs. Lagging Indicators in Sustainability Planning 16
Examples of Leading Indicators for Sustainability
Enterprise Level Employee Engagement Scores Sales Associated with Green Products Percent of sites meeting minimum energy efficiency standards Percent of operating sites having ISO 14001 Certified Management Systems Percent of suppliers with EHS Management Systems Percent of employee population participating on sustainability projects Percent of employees involved in a community sustainability event Number of employees with a performance goal on sustainability Number of energy conservation projects identified and submitted
Site Level Number of near misses identified and investigated Number of Kaizen (Rapid Improvement Events) containing EHS improvements Score on objective measure of a site’s sustainability culture Percent of employees participating in carpools / high efficiency vehicle programs Number of right behaviors observed
The Role of Leading vs. Lagging Indicators
in Sustainability PlanningA Panel Discussion
Discussion Forum document prepared exclusively for:
The New Metrics of Sustainable Business Conference
September 28, 2012
The Wharton SchoolMichael MuyotCRD [email protected]
The Case for Leading vs. Lagging Indicators in Sustainability Planning 18
About CRD Analytics
CRD Analytics is a leading provider of independent sustainability investment analytics. Using its proprietary SmartView® 360 Platform, CRD Analytics empowers its clients with actionable and performance-driven information distilled from large sets of complex data including financial, environmental, social, governance, brand perception and reputational risk. CRD Analytics partners with its clients to construct proprietary index-based products – Exchange-Traded Funds (ETFs), separately-managed accounts, mutual funds and Unit Investment Trusts (UITs).
Product & Services Overview
Financial Indexes powered by SmartView 360
Sustainability Rankings (Global & Regional)
Investment Analysis via Bloomberg BMART
Advisory Services: Sustainable Investing
Algorithm Design for Licensing or Sale
Facilitated Executive Roundtables
Established Indexes & Rankings
18
The Case for Leading vs. Lagging Indicators in Sustainability Planning 19
The New Formula for Sustainable Development & Investing
= ƒ(Lagging) + (Leading)+(Industry-Specific)
Environmental Impact
Corporate Governance
a
Financial Analysis
SocialResponsibility
Net Positive Impacts
RevenueGrowth Model
OperationalExcellence
Innovation Targets
Performance Measurement
CapabilitiesSustainabilityFramework
Innovation
Strategy
The Case for Leading vs. Lagging Indicators in Sustainability Planning 20
Keys to Success: Mainstreaming for Investors
KEYS TO SUCESS
1. Standardized Scoring
2. Comparable Measurement
3. Reputable Algorithm
4. Linked to Financial Performance
5. Success Stories from Companies
Q&A
The Case for Leading vs. Lagging Indicators in Sustainability Planning 22
Michael MuyotPresident & FounderCRD Analytics
@crdanalytics
In/MichaelMuyot
MetaVuCRD Analytics
Mark A. Serwinowski
President & FounderMetaVu
Youtube.com/user/sdROItv
@metavu
In/Mark-A-Serwinowski
(347) 415-6243 (303) 475-7426
Youtube.com/user/sdROItv
Contact Us
Joe Wolfsberger