Session 8 - OIT/Cinterfor

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Session 8:
Measuring and Communicating on
Sustainable Supply Chain
Performance
1
Approach to Sustainable Supply Chain
Management (SSCM): Overarching Framework
Framing the Issues
Session 1: From
Sustainable Development
to Sustainable Supply
Chains
Preparing for
Implementation
Session 4: Sustainable
Supply Chains as a Lever
of Competitive Advantage
Session 5: Integrating
Sustainability into the
Supply Chain
Session 2: Governance of
Supply Chains I: From
Compliance to Voluntary
Standards
Session 3: Governance of
Supply Chains II:
Introducing International
Labour Standards
Assessing Impact
Session 8: Measuring
and Communicating
on Sustainable Supply
Chain Performance
Session 6: Managing
Stakeholder Relations
Session 7: Building Supply
Chain Partnerships
2
Session objectives
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Understand the importance of measuring and monitoring to
improve sustainability performance in supply chains
Learn about widely adopted methodologies and tools to
measuring and monitoring supply chain and sustainability
performance
Understand the challenges involved in identifying relevant
metrics and consistently measuring results
Explore tools and systems to track and communicate results
to stakeholders
3
Agenda
8.1 A review of Corporate Performance Measurement
and Reporting
8.2 Drivers for sustainability measurement and reporting
8.3 Measuring supply chain and sustainability performance
8.4 Reporting on sustainable supply chain goals and
progress
8.5 Class discussion: Reporting on sustainable supply chain
performance
4
Talking about performance measurement
1. What is performance measurement?
2. Why measuring?
3. Measuring…against what?
4. How to measure?
5
The roadmap to sustainability’s biggest priority by far is
performance.
Companies must produce tangible results that put them on
a truly sustainable path.
Performance will be the ultimate
measure for
evaluating a company’s progress towards achieving
sustainability.
Richard Locke
Deputy Dean and Professor of Entrepreneurship,
MIT Sloan School of Management
6
Four views on business performance
measurement systems
“An integrated set of planning and review procedures which cascade down through
the organization to provide a link between each individual and the overall
strategy of the organization” (Rogers, 1990)
“…one output of strategic planning: senior management’s choice of the nature and
scope of the contracts that it negotiates, both explicitly and implicitly, with its
stakeholders. The PMS is the tool…to monitor those contractual relationships.”
(Atkinson et al, 1997)
“A PMS enables informed decisions to be made and actions to be taken because it
quantifies the efficiency and effectiveness of past actions through….analysis,
interpretation and dissemination of appropriate data.” (Neely, 1998)
“A strategic PMS translates business strategies into deliverable results. Combine
financial, strategic and operating measures to gauge how well a company meets
its targets” (Gates, 1999)
7
Performance measurement is certainly
NOT about profit alone

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By early 1980s, Johnson and Kaplan highlighted the shortfalls of financial
performance measures to reflect changes in the competitive environment
and strategies of organisations
The 1990s saw a “performance measurement revolution” (Eccles, 1991;
Neely, 1999) and a proliferation of frameworks that integrate wider criteria:
•
•
•
•
•
•
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Balanced Scorecard (Kaplan and Norton, 1992)
Performance Measurement Matrix (Keegan et al, 1989)
SMART Pyramid (Lynch and Cross, 1991)
Baldrige Criteria for Performance Excellence
Performance Prism (Kennerley and Neely, 2000)
European Foundation for Quality Management (EFQM) Excellence
Model
Six Sigma
8
Bottom line, the overall concept of corporate
performance has evolved to integrate measures
beyond financial indicators
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After the accounting and reporting scandals of the early 2000s (e.g. Enron), corporate
governance became a priority for stakeholders, from regulators to consumers
Additional stakeholder demand for transparency in areas such as board level
remuneration, internal controls, procurement practices and management oversight
have set new standards for corporate reporting
Closer scrutiny of practices, results and overall performance has resulted into
more complexity, new metrics, new measurement systems and greater information
available for stakeholders
The emergence of Globally Accepted Accounting Principles (GAAP) and
International Financial Reporting Standards (IFRS) have formalized the need to
measure and communicate broader corporate activity through reporting.
More recently, the concept of Triple Bottom Line (TBL) emerged, referring to the
expansion of accounting of financial performance to make corporations accountable for
their environmental and social impacts.
9
Agenda
8.1 A review of Corporate Performance Measurement and
Reporting
8.2 Drivers for sustainability measurement and reporting
8.3 Measuring supply chain and sustainability performance
8.4 Reporting on sustainable supply chain goals and
progress
8.5 Class discussion: Reporting on sustainable supply chain
performance
10
Drivers for measuring sustainability performance
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Monitor, review and adjust
Transparency and legitimacy: support claims for actions
Increased demands from multiple stakeholders: shareholders, customers,
community, suppliers, investment community
Increased visibility of sustainable supply chain activities within overall
business operations
Align sustainable supply chain goals and performance with corporate
performance
11
The “business case” approach (Brown, 2006):
creating value for shareholders

Social and environmental accounting seen as an expanded management toolkit for
increasing shareholder value (Hedstrom et al., 1998)
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Focuses on “identifying and pursuing forms of CSR and SEA that result in win-wins
for both business and wider stakeholders…” (Brown, 2006)

BITC (2003) states that there are “rewards” to reap from an effective “business-led
approach” that make “the business case compelling”

A way to demonstrate “positive impact on society” (BITC, 2003), and to “head off
campaigns from activists….which have the potential to threaten business interests…”
(Litvin, 2003)

“Business leaders are increasingly acting upon this responsibility (to report) because
it makes good business sense. It helps companies mitigate risk, protect
corporate brand, and gain competitive advantage…(Deloitte, 2002)
12
Business benefits from sustainability reporting
(WBCSD, 2003):
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Creating financial value
Attracting long term capital and favourable financing conditions
Raising awareness, motivating and aligning staff, attracting talent
Improving management systems
Risk awareness
Encouraging innovation
Continuous improvement
Enhancing reputation
Transparency to stakeholders
Maintaining license to operate
13
The Stakeholder-Accountability Approach
(Brown, 2006): promotes a more open and
transparent society

While stakeholders share interests, there is considerable potential for conflicts of
interests (Brown)
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Management’s primary responsibility is to society and managerial performance
“should be evaluated in terms of both profit and the accomplishment of social
initiatives” (Chen, 1975)
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“The Corporate Report” backs up the notion that “stakeholders have rights to
information” (Accounting Standards Steering Committee, 1975)
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Accountability as “being called to account for one’s actions”
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Recognizes the economic, social and political power that corporations have in society
Companies “accountable for the use of financial, human and community resources
entrusted to them and that affected parties need safeguards against potential
abuses…”
Access to information plays an important monitoring role in the process
14
Beyond theory: the view from practitioners
Key reasons for measuring supply chain sustainability
Illustrative example from the shipping industry
Innovation
Attract
Attract
Source: North American Sustainable Supply Chain Report 2010
15
Agenda
8.1 A review of Corporate Performance Measurement and
Reporting
8.2 Drivers for sustainability measurement and reporting
8.3 Measuring supply chain and sustainability
performance
8.4 Reporting on sustainable supply chain goals and
progress
8.5 Class discussion: Reporting on sustainable supply chain
performance
16
Evolution of supply chain measurement systems
(Beamon, 1996)
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Single performance measures: e.g. cost, customer satisfaction (Christopher, 1994),
supplier performance (Davis, 1993), risk management (Johnson and Randolph,
1995). Key considerations:
• Inclusiveness
• Universality
• Measurability
• Consistency
Strategic goal-driven measures: type of performance measurement directly related
to the manufacturing strategy (Maskell, 1991)
• Performance meeting strategic goals
• Performance measure as a driver for achieving vision and goals
• Strategic goals seldom refer to a single performance measure, but to a
combination of measures
An effective supply chain performance measurement system must rely
in a combination of measures that acknowledge the interrelations
within the supply chain, consider risks and uncertainties and are
consistent with an organization’s strategic goals.
17
Three types of performance measures for
supply chains (Beamon, 1999)
Resources
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Total cost of resources
Distribution/manufacturing cost
Inventory: investment,
obsolescence
Return on investment (ROI)
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Output
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Quality
Customer response time
Number of items produced
Number of on-time deliveries
Manufacturing lead time
Shipping errors
Customer complaints
Flexibility
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Volume flexibility: e.g.
seasonality
Delivery flexibility: e.g.
transport disruptions
Product mix flexibility: demand
variations
New product flexibility
18
Frameworks for measuring social and
environmental performance of supply chains
broadly disseminated and adopted
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WBCSD’s “Measuring Impact
Framework”
Global Reporting Initiative’s
Guidelines for measuring and
reporting on sustainability
performance
Prince of Wales’ Accounting for
Sustainability Project: “Connected
Reporting Framework”
AccountAbility’s AA1000
Accountability Principles
19
The “Global Reporting Initiative” guidelines is
the most widely adopted measurement and
reporting framework
The cornerstone of the framework is the
Sustainability Reporting Guidelines. The third
version of the Guidelines - known as the G3
Guidelines - was published in 2006, and is a free
public good.
20
The GRI Guidelines and supplements
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The GRI Guidelines
Sector supplements – providing guidance that
captures sustainability issues faced by specific
industry sectors, e.g. financial services,
telecommunications, auto manufacturing, mining
Technical protocols – providing detailed
measurement methods and procedures for
reporting on indicators contained in the core
guidelines e.g. energy indicators providing
definitions (e.g. direct vs. indirect energy) and
measurement methodologies (e.g. conversions,
units)
National annexes – providing national (local)
country perspectives and particular influences,
nuances and contexts to sustainability
Issue guidance documents – on topics such
as ‘diversity’ and ‘productivity’
21
The GRI Standard Disclosures
Measures express strategic
approach, management goals,
and performance results through
three kinds of disclosures:
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Profile disclosures set the overall
context for understanding
performance - such as strategy
and governance.
Management Approach
disclosures explain how specific
sustainability issues are managed,
including goals and targets.
Performance Indicators elicit
comparable information on
economic, environmental, and
social performance.
22
Source: Global Reporting Initiative G3 Guidelines, accessible at www.globalreporting.org
Measuring Economic Performance
according to GRI

The economic dimension of sustainability concerns the organisation’s impacts on the economic
conditions of its stakeholders and on economic systems at a local, national, and global levels
(GRI3.1). They show:
• Flow of capital among different stakeholders
• Main economic impacts of the organisation throughout society
23
Measuring environmental performance
according to GRI:
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Performance and measures relative to inputs (e.g., material, energy, water) and
outputs (e.g., emissions, effluents, waste).
Performance and indicators relative to biodiversity, environmental compliance,
environmental expenditure and the impacts of products and services.
Corporate goals in the area and Policy
Organisational Responsibility: Management accountable for executing process
Training and awareness: Procedures aimed at creating awareness and training
Monitoring and Follow Up
• Monitoring, corrective and preventive actions with emphasis on the supply
chain
• List of certifications for environment-related performance or other approaches
to auditing/verification for the reporting organization or its supply chain.
Additional Contextual Information
• Key successes and shortcomings
• Environmental risks and opportunities
• Key strategies and procedures for implementing policies or achieving goals.
24
Sample Environmental Performance
Indicators required by GRI
25
Source: Global Reporting Initiative G3 Guidelines, accessible at www.globalreporting.org
Measuring social performance according to GRI
1. Labour Practices and Decent Work
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United Nations Universal Declaration of Human Rights
United Nations Convention: International Covenant on Civil and Political Rights; United Nations
Convention: International Covenant on Economic, Social, and Cultural Rights
Convention on the Elimination of all Forms of Discrimination against Women (CEDAW)
ILO Declaration on Fundamental Principles and Rights at Work and The Vienna Declaration and
Programme of Action
ILO Tripartite Declaration Concerning Multinational Enterprises and Social Policy
Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational
Enterprises
2. Human Rights
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Main issues: nondiscrimination, gender equality, freedom of association, collective bargaining,
child labor, forced and compulsory labor, and indigenous rights
Body of law: treaties, conventions, declarations
3. Society
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Impacts on local communities
Bribery, corruption, monopoly
4. Product Responsibility: Customer Health and Safety, Labeling, Marketing, Customer Privacy,
Compliance
26
Sample Social Performance
Indicators required by GRI
27
Additional sector-specific indicators:
Sector supplements
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Working Group
• Media
First Draft
• Airports
• Construction & Real Estate
• Event Organisers
Final Draft
• Food Processing
• NGO
• Oil & Gas
Pilot
• Apparel & Footwear
• Automotive
• Logistics & Transportation
• Public Agency
• Telecommunications

Final
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Electric Utilities & Financial
Services
Sector Supplement obligatory to
obtain level A from 1 January
2010
Mining
Sector Supplement required to
obtain GRI Application level A
from 31 December 2011
28
Agenda
8.1 A review of Corporate Performance Measurement and
Reporting
8.2 Drivers for sustainability measurement and reporting
8.3 Measuring supply chain and sustainability performance
8.4 Reporting on sustainable supply chain goals and
progress
8.5 Class discussion: Reporting on sustainable supply chain
performance
29
The number of companies reporting on GRI Guidelines
continues to expand, with increased SME and emerging
markets participation
Number of Reports 2010
Geographic Distribution 2010
SMEs
MNEs
68% growth in Brazil
Source: Global Reporting Initiative 2010 Statistics
9% growth in China
30
Global reporting statistics show an upward trend in the
number of reports including meaningful sustainability
information…
Global Output Report 2010
In 10 years, the number of reports
mentioning significant sustainability
achievements grew by 6 times (Corporate
Register)
FTSE100 Constituents Reporting
Annual growth 2009-2010 of FTSE100
Companies including meaningful
sustainability information reached 10
percent
31
From corporate reporting to sustainability
reporting
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As discussed, it is widely acknowledged that financial reporting captures only a
portion of a company’s value creation potential and corporate risks
Intangible factors such as strategy, innovation capacity, talent retention, reputation
management, commercial risk reduction (e.g. bribery, occupational accidents),
resource efficiency and others can be measured and disclosed through
sustainability reporting
Sustainability reporting complements financial reports by integrating non-financial
value drivers, such as human capital formation, corporate governance,
management of environmental risks and the ability to innovate
Reporting on social and environmental performance allows establishing the link
between business strategy and sustainability by assessing the sustainability
issues influencing the company’s competitive advantage: cost leadership,
product/service differentiation and the formation of intellectual capital
It is a tool to communicate with stakeholders, disclose and discuss risks,
uncertainties, challenges and trends that may materially affect financial
performance
32
Sustainability Reporting
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“Sustainability reporting is the practice of measuring, disclosing and
being accountable to internal and external stakeholders for
organisational performance towards the goal of sustainable development. »
«Sustainability reporting is a broad term considered synonymous with
others used to describe reporting on economic, environmental, and
social impacts (e.g., triple bottom line, corporate responsibility reporting,
etc.). »
GRI Sustainability Reporting Guidelines
Version 3.1, 2010-2011
33
Market forces influencing sustainability reporting
Financial/Market
Forces
Stakeholder
Forces
Regulatory
Forces
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Institutional investors: risk management, compliance and performance
Sustainability investment performance track record
Sustainability driven corporate competitiveness and profitability
measurement
Competitive benchmarking
Guidelines and indicators of performance: UN Principles for
Responsible Investment (UNPRI), FTSE4GOOD and Dow Jones
Sustainability Indexes, Ethibel Sustainability Index (Standard & Poors)
Voluntary sustainability initiatives and accountability
Stakeholder pressure for mandatory disclosure
Stakeholder pressure for mandatory pension fund disclosure
UN Environmental Programme Finance Initiative (UNEP FI), UN
Global Compact, Global Reporting Initiative (GRI), Carbon
Disclosure Project (CDP), Coalition for Environmentally
Responsible Economies (CERES)
National environmental and financial metrics and disclosure demands
Intergovernmental legislation and action plans: EU communication on
CSR from November 2011
Mandatory Reporting on Greenhouse Gases Rule (US), OECD
Guidelines for Pension Fund Governance, Sarbanes-Oxley Act
34
To Report or not to Report?
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Factors influencing decision to report relate to size, stakeholder relations,
regulatory requirements, etc.
Reporting has evolved to integrate several formats and channels:
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Stand-alone Sustainability Reports
Integrated Corporate and Sustainability Reports
Interactive online Reports
Online, dedicated websites with regularly updated information
Different channels and content for different stakeholders
35
Future outlook: sustainability and integrated
corporate reporting mainstreaming…
Governments and the financial community strongly driving the trend
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In France, a new law has expanded requirements for sustainability reporting to nonlisted firms, becoming mandatory for around 2,600 companies.
In South Africa, companies listed on the JSE Securities Exchange must comply with
the King Report on Corporate Governance for South Africa (King III), which
recommends that companies should produce an integrated report rather than a
separate annual financial report and sustainability report.
Mainstream investors increasingly looking for reliable information that can be
independently verified and benchmarked within and across sectors
One out of every seven written questions from shareholders of companies on the
CAC401, during general assemblies in 2010 related to sustainability issues
Specialist companies, such as Vigeo, Eiris and SAM, have emerged to provide
sustainability ratings, providing independent assessments of ESG performance
1. France’s main stock index. It The index represents a capitalization-weighted measure of the 40 most significant values among the 100
highest market capitalized stocks on Euronext Paris bourse.
36
Agenda
8.1 A review of Corporate Performance Measurement and
Reporting
8.2 Drivers for sustainability measurement and reporting
8.3 Measuring supply chain and sustainability performance
8.4 Reporting on sustainable supply chain goals and
progress
8.5 Class discussion: Reporting on sustainable supply
chain performance
37
Class Example and Discussion: Danone’s
Human Rights Indicators
38
Class Discussion: Danone’s Human Rights
Performance Indicators
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
As preparation for the module, you have read the Danone Sustainability Report’s
Section on Human Rights Performance Indicators and related pages
In your groups, take 45’ to discuss this section. Please use the following questions in
guiding your discussion:
• In your view, what are the main (2-3) initiatives Danone is taking forward in
this area and what have been the results so far?
• What are specific tools through which Danone measures the sustainability of
their suppliers’ practices?
• How are the corporate headquarters and the Country Business Business
Units (CBUs) working together in implementing and monitoring procedures
and practices?
• What are in your view, areas on which Danone’s disclosure on human rights
performance could improve? Please provide specific examples.
39
Conclusion
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Several approaches to measuring and tracking supply chain performance, but no
one-size fits all solution
Measuring and communicating allows for increased credibility and trust
amongst all stakeholders (including workers)
Measuring and monitoring as a systematic process contributes to increased
operational efficiency and hence, overall performance improvement
Different stakeholders are interested in different metrics. Tailor efforts and
communication accordingly
The journey has just began. Transparency will become ever more important for
consumers, investors, suppliers as instant connectivity grows and consumers
engage at a deeper level with business
40
Back up Slides
41
Application Levels
Report
Application
Level
G3 Profile
Disclosure
Report on
1.1
2.1 – 2.10
3.1 – 3.8; 3.10 – 3.12
4.1 – 4.4; 4.14 – 4.15
Not Required
Indicator Guidelines:
1. Depend on what level of report (A, B,
C) you are aiming for
2. Always core, then additional, then
sector supplements, then others
(industries, new, other)
B+
A
Report on all criteria
listed for Level C plus:
1.2
3.9; 3.13
4.4 – 4.13, 4-16 – 4.17
Same as requirement for
Level B
Management Approach
Disclosures for each
indicator Category
Management Approach
Disclosures for each
indicator Category
Report on a minimum of
20 Performance
Indicators, including at
least one from each
Economic,
Environmental, Human
Rights, Labour, Society,
Product Responsibility
Core + Additional
Indicators
Report on each core G3
and Sector Supplement
Indicator with due regard to
the Materiality Principle by
either:
a) Reporting on the Indicator
or
b) Explaining the reason for
its omission
Not applicable is not valid
– Must explain i.e. not
material, no data, no
commitment, proprietary
information
A+
Report Externally Assured
Report on a minimum
of 10 Performance
Indicators, including at
lease one each of
Economic, Social and
Environmental
Core Indicators
B
Report Externally Assured
G3
Performance
Indicators &
Sector
Supplements
Performance
Indicators
C+
Report Externally Assured
G3
Management
Approach
Disclosures
C
42
Reporting Principles
Defining
Content
Defining Quality
Materiality
Topics and indicators that reflect social, environmental, economic impacts that would
influence stakeholder assessments and decisions
Stakeholder
Inclusiveness
Identify stakeholders and explain how responded to their expectations
Sustainability
Content
Performance in the wider context of sustainability
Completeness
Material topics, indicators and definition of reporting boundary to reflect impacts
Balance
Reflect both positive and negative aspects of performance
Comparability
Issues and information should be selected, compiled and reported consistently
Accuracy
Information sufficiently accurate and detailed for stakeholders to access performance
Timeliness
Reporting occurs on a regular schedule and information is available in time to make
informed decisions
Clarity
Information presented in a manner that is understandable and accessible
Reliability
Information and processes used to prepare report should be gathered, recorded,
compiled, analysed and disclosed in a way that could be subject to examination
Boundary
Setting
Source: GRI G3 Guidelines
The Sustainability Report should include the entities over which the reporting
company exercises control or significant influence both in and through its
relationships with various entities upstream (e.g. supply chain) and downstream (e.g.
distribution & customers)
43
Measuring against what?

Societal Values / Norms
Standards/Principles/Instruments
Specific stakeholder
Values / Views
Firm
Core Values
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
Company’s own
values and stated
mission. This may
explicitly set out
social, economic and
environmental goals
Values and interests
that reflect views and
aspirations of key
stakeholders
Values
institutionalized in law,
conventions or rooted
social norms
44
Source: Simon Zadek, “The Civil Corporation”, 2006
Linking Sustainability metrics and
Business Strategy metrics
What is the Vision,
Goals, Objectives for
the company?
What is the vision for
sustainability?
What are the specific
sustainability goals?
How do they fit with
business strategy?
Source: Latitude
What are the Key
Thrusts?
What are the relevant
metrics and KPIs?
• Strategic priorities
• Market, financial,
business objectives
• Targets
• Economic growth
• Customer satisfaction
• Employee engagement
• Stakeholder engagement
How are the
sustainability goals
woven in our supply
chain activities?
What would be
specific metrics
related to
sustainability goals?
45
Linking Sustainability Strategy and metrics
Example: Marks and Spencer Plan A
Sustainability related
Objectives
(By 2012)
Reduce environmental
impact
Specific activities
related to sustainability
objectives integrated
with other activities
Specific metrics
related to sustainability
objectives
Climate Change
• Reducing energy use
• Using green energy
• Tackling food miles
• Helping consumers cut
carbon
• Fuel efficiency in warehouses
• Energy efficiency in
warehouses
• Number of “Green factories”
• Number of “Green Stores”
• Store Energy consumption
46
Key considerations in setting metrics to
measure progress
1. There is an underlying objective for the measurement.
2. Measurement terminology is defined and used consistently throughout
the organization.
3. Information needed for the measurements is obtainable.
4. The measurement will create behaviour that is in concert with
organizational goals and objectives.
5. While there will likely be a combination of lagging and leading indicators,
leading indicators are more appropriate to help predict how the
organization will perform in the future.
6. The measurements should be used to track performance trends.
7. Appropriate benchmarks and targets are identified.
Source: Butler et al, 2008
47
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