A large Harris Poll survey 1 of global corporate CEOs for Google finds that fully two-thirds of them question how genuine or effective their sustainability efforts are. Most admit they do not even have realistic sustainability metrics or tools in place. The value of ESG scores has always been limited. Many can be ambiguously interpreted or sufficiently vague to serve as more than general guideposts. It is telling that 93% of the same group of CEOs surveyed said that they would be willing to tie ESG to their compensation. For companies (and other organizations for that matter) that are serious about climate, human rights, and the critical themes of our day, “sustainability performance” opens doors for collaboratively and authentically moving forward.
Corporate financial performance offers a good parallel for understanding this. We do not wait until the shareholder report or the end of the year to measure and manage it. Financial performance is built into all business functions and the metrics and objectives are clear to most of those that can influence them. They are also designed to be consistently accurate and similar across business functions and locations. That helps companies benchmark and learn how to accelerate improvement. We can manage sustainability in similarly rigorous ways.
The guidelines for ESG scores from standards such as the SASB, GRI, or the Carbon Disclosure Project offer common guideposts but do not provide managers with the day to day tools to anticipate, see, and evaluate sustainability performance. Given the complexity of coffee, cocoa, and many other supply chains and the conditions of farmers and suppliers in developing countries, better management tools can make a big difference. The difference is in the ability to anticipate risk and foster strong and resilient supply chains, both of which will also help the bottom line. That is where sustainability performance aligns with financial performance.
There are compelling reasons to include sustainability performance monitoring as part of everyday business metrics. Yet only a few global companies are doing this at all.
However, some businesses that we know are well ahead in understanding their sustainability performance. Some, such as Farmer Brothers and Nespresso, for example, can reliably measure the impact of their sustainability investments. Others like Martin Bauer in Europe or Mother Parkers in North America are building world-class systems to internalize sustainability in a transparent (credible) manner across their sourcing operations. Westrock-S&D affirms that sustainability is at the heart of its global expansion, and it transparently engages “ongoing performance monitoring ensuring that we are always aware of potential risks and [can drive] improvements over time.” Major brands and retailers such as Walmart, Coca-Cola, PepsiCo, Starbucks, and Costa are pushing the envelope by integrating transparent metrics into their operations and thus changing the signals to their substantial global supplier bases.
Some companies rely, at least partly, on transparent public standards such as Rainforest Alliance, Organic, or Fair Trade to deliver desired outcomes. Problematic situations occur when companies essentially outsource their performance to private consultancies, NGOs, or black-box technology providers with proprietary formulas. They entrust them to deliver a neat report or video with all-too-often saccharin reporting and positive results. Some even run programs that many communities neither want nor need. Equally embarrassing are the organizations that confuse compliance with sustainability performance – they are not the same. Too many companies are still stuck in these unsustainable business paradigms oriented to charity and paternalistic perspectives rather than real productive partnerships.
65% of CEOS said that while they wanted to make progress on sustainability efforts, they didn’t actually know how to do that
The solutions are not complicated, and yet “65% of CEOS said that while they wanted to make progress on sustainability efforts, they didn’t actually know how to do that”, according to the same Harris Poll survey. A trusted guide is certainly useful to help anyone map and execute a productive sustainability plan. Some of our newest innovations around Agile Data and e-Verification can dramatically reduce risks while better understanding performance and the effectiveness – even the ROI – of sustainability investments.
Our insights and long experience with nearly all of those mentioned above, and many others, strongly suggest that there simply is no substitute for having transparent and science-based performance metrics. When these are integrated into business lines and practices, they can transform a business from the inside out.
Three reasons to measure performance
The first reason to include a sustainability performance monitoring program as part of your business intelligence is to get data that is directly relevant and useful to managing the sustainability of your business and supply chains. The various ESG standards include some key areas that are relevant to an industry, but the real value of this information is increasingly coming under scrutiny. What they definitely don’t provide is guidance, insight, or a blueprint for optimizing the conditions and sustainability of your company’s supply base. Good sustainability performance data certainly can. Getting this data can be a relatively affordable addition to normal operations. A business can even advance in specific interest areas like farmer resilience or progress toward living income and nature-based solutions.
Westrock-S&D Coffee, a long-time COSA partner, says, “Without a doubt, comparing [sustainability] data and trends over time has given us more insights into our supply chain, it helps us to create benchmarks, and we can now have a closer pulse on risks over time.”
The second reason is that a regular sustainability data program helps to empower and build relationships with supply chain partners. We believe that data can readily be oriented to also provide value to farmers and their communities. When it is analyzed and shared back with farmers, cooperatives, or other organizations it allows for self-directed, contextually appropriate farm improvements. Farmers can truly become proactive participants in projects and supply chains when they can understand valuable and useful data. In fact, they are often best placed to drive the most locally appropriate solutions to sustainability problems.
The third reason for measuring sustainability performance is to set the stage and the direction for actual impact. ESG reporting is not only insufficient, it is being called out for its lack of depth in assessing a business’s response to sustainability needs. The authors of a recent Harvard Business Review piece “Designing Your Company’s Sustainability Report” readily admit: “The exercise of disclosing information often does not translate into meaningful action or impact.”2 We find these often-inadequate measurement approaches can effectively support greenwashing or be particularly harmful in their failure to reveal and understand important risks ranging from climate resilience to human rights abuses related to deep poverty.
ESG is yesterday’s story. Today’s story is impact.
The changing nature of risk in supply chains will unsettle managers and require honest metrics to reach any level of transformational change.3 As one former executive at the International Institute for Sustainable Development put it, “ESG is yesterday’s story. Today’s story is impact.”
The bar has been raised, and reporting on program outputs (e.g. farmers trained) is no longer adequate. Actual impact is emerging to be a competitive factor and more appealing to investors. Depending on where you do business, more verifiable sustainability reporting may also soon be a legal requirement. Monitoring sustainability performance in your upstream supply chain can provide an entry point to much more meaningful data.
We often see surprising results from Sustainability Performance Monitoring. For example, local traders who were initially sceptical about asking farmers certain questions such as how they perceive their own livelihoods have reported how valuable this has been for them. They were able to build much better relationships via a better understanding of farmer realities that “opened up the ability to collaborate better.”
With regular sustainability performance monitoring, businesses can take steps to position themselves for a new level of results and reduced risks. In the end, the best data wins.
To learn more:
- Performance Indicators https://thecosa.org/performance-monitoring-indicators/
- https://thecosa.org/the-business-tools-that-sustainability-leaders-are-using-to-improve-results/
1. https://www.fastcompany.com/90740501/68-of-u-s-execs-admit-their-companies-are-guilty-of-greenwashing
2. HBR jan 2022 https://hbr.org/2022/01/designing-your-companys-sustainability-report
3. The European Union’s new Non-Financial Reporting Directive is in part a reaction to greenwashing, and instead encourages companies to assess their impact on people and the environment. The Directive recognizes “the growing awareness of investors that sustainability issues can put the financial performance of companies at risk.”
ESG Reports Aren’t a Replacement for Real Sustainability. ESG disclosure uses process-oriented output measures, such as whether a company has a policy on chemical management.
For More Information on ESG Reporting You Can Visit Deloitte ESG Services