Chapter Eleven: Creating Measurable and Verifiable Indicators of Performance

Overview

Whether a company chooses to remain with a high-level code of conduct, or to adopt a more rigorous social or environmental standard such as SA 8000 or ISO 14001, it is necessary to assign, whenever possible, specific performance criteria to the supply chain and supplier assessment process.

As we have seen, even detailed standards or codes often contain elastic phrases such as a living wage or safe and hygienics, which will need to be strengthened by developing specific performance criteria. Accurate, timely , and meaningful numbers are important not only for managing the supply chain, but also for company reporting. And because many standards will often duplicate or expand on requirements made by the socially responsible investment indices or local government agencies, it is important that the measures chosen to reflect success in the company are comparable with those various requirements.

In fact, there is a logical evolution from high-level codes of conduct and aspirational codes through the medium-level criteria provided in performance standards, and ultimately to more specific and detailed indicators and verifiers of performance. The Natural Resources Institute at the University of Greenwich, in the United Kingdom, for example, has described the hierarchy of the different elements that make this progression from high-level principles to specific detail (see Figure 11-1).

Figure 11-1: Definition of Criteria, Indicators and Verifiers (CIVs)

Most standards or codes of conduct will provide guidance in terms of the objectives and principles, and the standards that we have discussed provide the process and performance criteria. The specific indicators of performance and the means of verifying that performance, however, are usually left to the individual company and its supplier community to work out.

As with all performance indicators, numbers will need to be aggregated at supplier factory department levels (i.e., waste disposal, energy usage, number of injuries per month, absenteeism), upward through the operating locations and group and regional functions, so that management and the board (and eventually investors) can get an accurate picture of performance and risk in the supply chain. In any case, the more specific and quantifiable the verifiers and indicators, the better.

What Makes for Good Indicators and Verifiers?

What makes for a good indicator?

A good indicator is one which is:

Relevant and acceptable to all stakeholders (e.g., if it is about worker welfare, workers should agree that the indicator is a good measure and encapsulate the essence of the criterion, and managers should also accept it and be willing for it to be measured).

Clearly defined (unambiguous and easy to understand). A reliable measure of the criterion ”it is clearly linked to the criterion, and will always be a good measure of whether or not the criterion is being met.

Easy to measure and record ” the information is easily available and practical to measure (cost-wise and time-wise).

And if possible . . . integrative, that is, it measures progress against more than one criterion, therefore saving time and resources (e.g., compliance with the indicator implementation of a 3-year crop rotation program demonstrates partial compliance with both sustainable soil management and also integrated pest management criteria.

What makes for a good verifier?

A good verifier is one which is:

Embedded ” that is, it uses available records which are already being kept. If records aren t being kept, be creative and make use of visual and verbal verifiers if possible, rather than creating an unnecessary paper trail.

Relevant and acceptable to all stakeholders (e.g., if it is about worker welfare, workers should agree that the verifier provides the critical information necessary to measure the indicator, and managers should also accept it and be willing for it to be used).

Reliable ” it is a reliable source of information. When it comes to choosing verifiers for social indicators, it can be particularly difficult to identify an objective source of information. In such a case, you need to make sure you have at least 2 verifiers for each indicator, that is, you need to triangulate. If the two verifiers give you conflicting information, you need to look for a third or even fourth verifier.

Practical ” it is not too time-consuming or expensive to use (e.g., on a farm employing 2,000 workers, it will be too time-consuming to ask every single worker what they earn as a means of checking up on weekly earnings. Instead, you may consider checking the payroll records, plus interviewing a sample of workers to cross-check the records).

And if possible . . . integrative.

Source: What Are Criteria, Indicators and Verifiers?, NRET Theme Papers, paper 3 at www.nri.org/NRET/TP3.pdf.

 

SustainAbility suggests that indicators of performance should be SMART: specific, measurable, attainable, relevant, and time-framed. ^[1] NRET has their own helpful list of characteristics.

Generally speaking, a company should have at least one strong indicator of performance for any key principle, again keeping in mind that pledges such as we will pay a living wage or we will use an environmentally sound recycling program will vary enormously in terms of indicators of performance, depending on countries and industries. And, of course, to be meaningful to stakeholders reading these figures in a report, they will need to be standardized and normalized to reflect commonly accepted comparisons (i.e., overtime hours worked per week, energy output per month, injuries per employee per year).

Moreover, each stakeholder group ” investors, NGOs, customers, trade unions, government agencies ” may require its own specific indicators of performance. In short, there will be several layers of increasing detail, even among these performance indicators themselves .

ThirdWave, a sustainability consultancy for the building trade, provides some good examples of high (level 1) performance indicators.

Performance Indicators from ThirdWave

Performance Indicators for Sustainable Organizations

1. Making sustainability a corporate priority

   • Does the organization have in place a written corporate sustainability policy statement?

   • Does the organization have a clear statement of corporate sustainability objectives?

   • Has the organization set specific sustainability targets and implemented a sustainability action plan?

   • Has the organization appointed a main board member with specific responsibility for sustainability?

   • Has the organization created an internal employee training and education program for sustainability?

   • Does the organization have an ethical investment policy?

2. Contributing to stable community building

   • Is the organization a member of the Investors in People scheme?

   • Does the organization source its supplies and services locally wherever possible?

   • Is the organization a participant in the New Deal Initiative?

   • Has the organization set and published social responsibility standards for its operations?

   • Is the organization actively involved in local community regeneration projects?

   • Does the organization actively support the Ethical Trading Initiative?

3. Accepting the responsibilities of leadership

   • Does the organization regularly benchmark its performance against sector best practice?

   • What amount of the organization s research and development budget is directed to improving sustainability performance?

   • What number of sustainable technologies has the organization introduced to improve its performance?

   • Does the organization undertake systematic sustainability assessments of any new product or services?

   • Does the organization practice life cycle stewardship of its products, processes and services?

   • Has the organization introduced a voluntary eco-labelling scheme for its products?

4. Developing and delivering products and services

   • Does the organization have in place an environmental management system such as ISO14001?

   • Has the organization set specific targets for waste reduction, energy saving, packaging recovery, etc.?

   • What proportion of the organization s energy supply is drawn from renewable sources?

   • What investment has the organization made in energy use monitoring equipment?

   • Does the organization set sustainability criteria for the awarding of contracts to suppliers?

   • Is the organization a member of a green purchasing program or co- operative buying group?

5. Developing and operating sites, buildings and facilities

   • What investment has the organization made in on-site air quality monitoring equipment?

   • Is the organization a member of a waste minimization club or waste exchange scheme?

   • Has the organization implemented a green transport plan to reduce staff commuting by car?

   • Does the organization specify the use of natural local materials for building and landscaping?

   • Does the organization prohibit the using of timber from unsustainable sources?

   • Does the organization have a biodiversity policy to protect habitat and enhance site ecology?

6. Monitoring and reporting on progress towards sustainability

   • Has the organization identified its own key sustainability performance indicators?

   • Is there an internal sustainability audit process in place in the organization?

   • How does the organization rate on the business-led Index of Corporate Environmental Engagement?

   • Does the organization communicate with all stakeholders in accordance with ACBE guidelines?

   • Does the organization publish an independently verified annual sustainability report?

   • Does the organization have systems in place for sharing good practice between sites or departments?

     Source: www.thirdwave.org.uk/resource/indic.html.

 

Each one of these level one indicators will need to be broken down, often several more times, into ever greater levels of detail and granularity. Origin Energy, an Australian energy company, provides a good example of this multilevel approach to performance indicators for each of its three key categories of sustainability: social, environmental, and economic (see Figure 11-2).

Categories	Objectives	Strategies	2002/2003 Actions
Environment	To measure and accurately report the company s greenhouse gas emissions.	Improve the company s greenhouse gas measurement methodology, audit and report regularly.	Develop an audited greenhouse gas inventory.
	To reduce the greenhouse gas intensity of our energy production and distribution.	Seek economic avenues for reducing greenhouse gas emissions in our energy production activities. Identify and invest in renewable energy technologies that are develop economically viable . Seek economic avenues to reduce fugitive emissions.	Identify opportunities to reduce the greenhouse gas emissions intensity of the company s gas production and power generation portfolio. Assess potential wind farm sites. Continue research and ment efforts towards the manufacture of solar PV systems. Identify opportunities to reduce losses in the natural gas distribution systems under management.
	To reduce the carbon intensity of customers energy consumption.	Provide a range of competitively priced clean energy products and services, which allow customers to choose their level of greenhouse gas intensity. Provide information for our customers so they can measure and reduce the carbon intensity of their energy use.	Increase the GreenEarth customer base to 25,000, increasing annual savings to 89,000 tons of CO2e for 2002/03. Install 125 kW of solar PV systems, saving 5,610 tonnes of CO2e over the life of these installations. Sell 20,000 kg of hydrocarbon refrigerants, saving 80,000 tons of CO2e for 2002/03. Expand the provision of education programs on energy efficiency. Reduce customer greenhouse gas emissions by an additional 35,000 tons per annum through energy efficiency consulting services. Include greenhouse gas indicators on mass-market electricity bills by January 2003 and on gas bills by 2004.
	To take all reasonable steps to eliminate or minimize any adverse impact that our activities have on the local environment.	Ensure all environmental impacts are appropriately assessed and all environmental approvals are obtained. Comply with all environmental conditions of approval and promptly report any noncompliance to relevant authorities. On completion of use, ensure land is managed and/or rehabilitated to approved environmental standards.	Obtain environmental approval for the BassGas Project and development of the Thylacine and Geographe gas fields. No material breach of obligations under environmental regulations or licences. No hydrocarbon spills that contaminate land or water.
			Complete entry of Australian licences, authorizations and permits into RCMS and continually review legislation that may impact on the company s regulatory obligations. Measure and report the volume of water produced from gas fields and water used in generation plants. Compile dossier on endangered regional ecosystems within potential upstream development areas. Reduce noise complaints through improved designs and more effective consultation processes. Before relinquishment, rehabilitate all gas or petroleum exploration sites to State Government standards as a minimum. Ensure the plans for managing contaminated land at owned or leased sites are approved by local EPAs, and where the site is for sale, ensure there is full disclosure of the status of the site to the purchaser, EPA and other relevant parties.
Social	To provide and maintain a satisfying and rewarding working environment for all our employees .	Provide employment conditions consistent with community expectations. Work toward having Origin s workforce reflecting the diversity expected by the communities in which we operate . Provide access to the necessary job training and assist employees obtaining additional skills to develop their careers. Encourage and support employee participation in community-based activities that form part of the company s corporate community involvement.	Identify areas in our operations in which more flexible working conditions can be introduced without adversely affecting productivity or customer service and develop procedures for implementing appropriate changes. Complete implementation of consistent long service, maternity and paternity leave entitlements across the company. Benchmark levels of employee turnover by gender, length of service and occupation . Further analyze workforce composition to better understand how the diversity of Origin s workforce compares to the wider community. Clarify criteria for recruitment and promotion to ensure there are no impediments to selecting candidates on the basis of merit. Improve process for resolving issues related to equal employment opportunity and harassment prevention. Continue review of remuneration processes and working conditions to ensure there are no systemic discriminatory practices. Ensure information systems are capable of adequately capturing total investment in employee training and ensure the level of investment is appropriate. Continue development and implementation of HSE skills and competency measures. Develop an employee Community Involvement Program, including matched giving.
	To maintain community support and goodwill for the company s activities.	Maintain an open and constructive approach to gaining access to land and resources. Identify and participate in public debates where we can make a relevant and meaningful contribution. Maximize value of company sponsorship to recipients by focusing on activities that most leverage Origin s skills and resources. Facilitate improved access to services and support for the disadvantaged in our community so they can also enjoy the comforts of energy use.	Improve the timeliness and impact of our community consultations, directly and with government, to ensure agreements with landholders and indigenous communities are reached in a timely fashion. Contribute to energy policy development that encourages investment by the private sector. Revise Origin s sponsorship program based on the external impacts of the company s activities. Incorporate a community support mechanism in our Corporate Community Involvement Program. Fully implement a hardship policy in the retail business by June 2003, incorporating LPG by December 2003. Work with government to improve or provide safety net arrangements for customers with an inability to pay for energy.
	To eliminate or manage hazards and practices in our business that could cause accident , injury or illness to people, damage to property, or unacceptable impacts on the environment.	Continuously improve the Health, Safety and Environment Management System.	Complete review of HSE management plans for all sites and activities. Shift the focus of incident reporting to the Total Reportable Case Frequency Rate so that it becomes the company s prime safety indicator. Achieve an LTIFR target of 2.5.
Economic	To provide sustainable returns to Origin s key economic stakeholders.	Provide shareholder returns in the top third of comparable companies. Ensure the reward and remuneration levels for employees are consistent with the market, and will attract the quality of employees required for the business to meet its objectives. Ensure that all payment obligations to government are identified and reported . Identify appropriate levels of investment in community community activities.	Achieve an Operating Cash Flow After Tax Ratio in excess of 9.7%. Continue operation of company-wide remuneration benchmark process. Continue to monitor employee turnover and analyze the degree to which it may be affected by remuneration practices. Identify and report on payments (royalties, taxes, fees and charges) to all levels of government. Identify and report on our investment in based activities.

Figure 11.2: Origin Energy s Multilevel Approach to Performance Indicators

Source: www.originenergy.com.au/sustainability/kpi.html.

^[1] Performance Indicators, Sustainable Development Tools, SustainAbility at www. sustainability.com/services/tools-performance-indicators.asp.