A Better Scorecard for Your Company’s Sustainability Efforts15 January, 2016 / Articles
What does Ben & Jerry’s have to do with the Paris climate conference? No, the company isn’t providing free ice cream to attendees (at least not that we know of). The connection is actually much deeper and more meaningful. Ben & Jerry’s represents a crucial thread of progress that has global implications for business in a world responding to the increasing effects of climate change. To understand this, however, we need to go back a few years.
When Ben Cohen and Jerry Greenfield sold their business to Unilever in 2000, they wanted to ensure that the company’s social and environmental activism would continue to be supported. To that end, they proposed to the new owners that they agree to continue funding their Social Mission program.
Unilever agreed, but required of Ben & Jerry’s management that they work out a way of measuring their social mission performance by creating “Social Metrics.” Such metrics would have to answer the all-important question: How much social and environmental impact constitutes sustainable performance and how should they measure it? In other words: How much is enough?
Few have dared to seriously ask this question as it calls for explicit recognition of the need to measure sustainability performance in literal terms and in company-specific contexts. Despite the obvious and increasing urgency of climate change, only a handful of companies do this. Corporate reporting standards still treat such disclosures as discretionary and most companies, therefore, do not provide them.
But Ben & Jerry’s is now moving toward implementation of a performance accounting system (known as multicapitalism) that measures economic, social, and environmental impacts in an integrated way – a solution its Social Mission team considers the best process for this purpose they have ever seen.
Accounting for Multiple Capitals
The question of how much is enough is increasingly being framed in terms of impacts on “vital capitals”: natural capital for the environment; and human, social, and other capitals for social and economic impacts. This is not a rejection of capitalism as we have known it, but rather points to an expansion of it – interpreting performance in terms of impacts on all vital capitals and not just one of them (economic).
One could argue that multiple capital accounting is on the verge of becoming mainstream. Last month, for example, the United Nations Environment Program (UNEP) issued a report entitled, “Raising the Bar – Advancing Environmental Disclosure in Sustainability Reporting,” in which it recommended the following:
- “All companies should apply a context-based approach to sustainability reporting”
- “Reporting standards/guidance bodies such as GRI, IIRC, SASB, CDP, etc. should integrate Sustainability Contextmore explicitly into their frameworks, for example by applying the concept of carrying capacities to multiple capitals-based frameworks.”
Translation: The terms “context-based” and “Sustainability Context” are accepted terminology for measurement and reporting that compare corporate impacts to social, economic, and environmental thresholds. Greenhouse gas emissions, for example, that exceed science-based thresholds for mitigating climate change can be seen as unsustainable. Corporate sustainability reports rarely express performance in these terms, and yet that is exactly what is needed if reporting is to be meaningful. Context-based measurement and target-setting for climate change mitigation is an approach now also endorsed by the World Wildlife Fund, the World Resources Institute, CDP, and the UN Global Compact in their joint Science Based Targets program.
Thus, the Ben & Jerry’s-Paris connection. Any attempt to reach consensus on how best to reverse climate change at the COP21 conference in Paris must take such corporate measures into account. As the dominant human institution of Earth, the impacts of business on the environment must be front and center.
We Need a MultiCapital Scorecard
But merely recognizing that we need to measure impact across multiple capitals is not sufficient. Even UNEP and the various measurement and reporting standards that have embraced the idea are principles-based only, and do not specify how it should be done, much less what metrics to use.
What’s needed is a structured, context- and capital-based methodology that organizations can use to measure, manage, and report their performance: a scorecard that would be a truly Triple-Bottom-Line measurement and reporting system as well as an open-source innovation, a public good that could be placed into the commons and adapted.
Such a scorecard would need to assess performance relative to organization-specific circumstances and not just in general terms. Performance in context-based, multiple capital accounting is always about comparing the impacts of organizations to contextually relevant capital-based thresholds. So impacts on economic capital, for example, need to be compared to reasonable returns; impacts on natural capital (the environment) compared to ecological limits, etc.
We recognized the urgent need across industries and sectors for such a MultiCapital Scorecard (MCS) and our work and research has been directed toward developing this tool for companies, including Ben & Jerry’s. We saw the following features as crucial:
- Integrated Measurement and Reporting. The MCS makes truly integrated (financial, social and environmental) reporting possible by applying a consistent set of criteria to impacts on all capitals. Together with full stakeholder engagement, this delivers a fully operationalized Triple Bottom Line method.
- Organization-Specific. No two organizations are alike and so relevant areas of impact must be defined and specified on a bottom-up, organization-specific basis. This search brings context into the very heart of the process. Context may be local or global, but it is always crucial to meaningful standard-setting.
- Sustainability Logic. The MCS applies the logic of sustainability to all aspects of performance, including economic impacts. This means that thresholds and targets for impacts on vital capitals are specified (with stakeholder engagement), and performance is then measured against them.
- Progression Scoring. Where sustainability norms have not been met, the MCS reports performance towards or away from them.
- Weighting and Prioritization. The MCS process allows organizations to attach different weights and priorities to different areas of impact.
- Consolidation. The MCS supports consolidated reporting for organizations with multiple divisions in very different contexts.
Here’s a sample report:
In this hypothetical example, we see that the only area of impact for which Company ABC performed sustainably in 2016 was water supplies (or water use), which shows a maximum possible score of 100% in column “C/D”. All other impacts are unsustainable and the scores in column “A” either indicate their progression towards (positive number) or away from (negative number) achievement of sustainability in each case. The climate system score of 33% signifies improving performance but still below the trajectory target (a reduction level) for the year. If performance were to meet the trajectory target, it would score 66%. ABC could only be awarded 100% if its greenhouse gas (GHG) emissions were zero. This illustrates how the MultiCapital Scorecard shows progression towards becoming sustainable and not just sustainability performance in absolute terms.
Such a report enables organizational leaders to understand performance across all dimensions of the Triple Bottom Line and to take corrective action. It makes no pretense at presenting perfect information, but it does organize the best data possible in a coherent framework.
Implementing the MultiCapital Scorecard follows a three-step process:
- Scoping and Materiality.Organizations first need to define boundaries and determine what the entity-specific material financial and non-financial Areas of Impact (AOIs) should be.
- AOI Development.The next step is researching and developing sustainability norms, interim goals, measurement models and data collection protocols for each of the material AOIs.
- Scorecard Implementation.Finally, you need to actually populate the MCS to measure, manage, and report performance vis a vis the AOIs.
This MultiCapital Scorecard has shown success with three U.S. pilots: Ben & Jerry’s; New Chapter, Inc., a subsidiary of Procter & Gamble; and Agri-Mark, Inc. (aka,Cabot Creamery Cooperative), a large dairy food producer in New England. While all have been methodologically successful, these experiences have raised two important issues: First, the data required to fully populate robust Scorecards is not always readily available. New data sources are often needed to answer new questions, but we have found that the MCS is a useful tool in clarifying the questions and sharpening the data search. Second, most organizations are not organized in the ways needed to launch Triple Bottom Line initiatives. Functional silos and other organizational barriers often block or slow progress toward integrated reporting. The MultiCapital Scorecard increases communications that allow teams to work across silos.
In all cases, the decision by company leadership to seriously ask the question “How much is needed to be sustainable?” starts a profound learning process that lays the foundation for a new way of thinking about and measuring performance – one with sustainability at its core.
Multiple capital accounting, including the use of a MultiCapital Scorecard, represents a crucial evolution in performance measurement and reporting that must be broadly adopted around the globe if the aspirations of COP21 are to become reality.