What Sustainability Metrics Should Boards Focus On?
As companies increasingly focus on going green, it can be difficult for board members to know what sustainability metrics to pay attention to, considering the breadth of the topic. From water shortages to deforestation to greenhouse gas emissions, there are a lot of important issues. Yet since boards cannot manage everything, they need to focus on the metrics that are most important to the business.
While certain issues such as biodiversity may be important, it may not necessarily have much to do with a financial services firm, for instance, and thus directors may not focus on these metrics. Instead, they should turn to metrics of sustainability that are more likely to have a noticeable impact, just as they would most likely prioritize financial metrics like net profit over smaller ones such as office supply costs.
The Global Reporting Initiative, which promotes sustainability reporting, notes that to determine materiality an organization should look at factors such as its overall mission and competitive strategy, directly expressed stakeholder concerns, broader social expectations, the organization’s influence on supply chain and customers entities, and basic expectations coming from international standards and agreements that the organization is expected to comply with.
With this in mind, boards can begin to establish sustainability indicators and prioritize the myriad of issues they are likely to come across.
What Do Sustainability Metrics Look Like?
For boards that do not have much experience using sustainability metrics, it can be difficult to know what to focus on even with the guide of materiality, so it could be useful to see what competitors report.
Almost 60% of companies provide some form of sustainability disclosure, and 42% have a formal report, according to Deloitte.
So corporate boards can see what others choose to focus on as a starting point, and they can also look at issues such as shareholder proposals to determine what matters to stakeholders, keeping in mind that not all issues are material in the sense of affecting value.
Still, many boards will find that metrics on greenhouse gas emissions, for example, are material in many ways, such as how it affects customer and shareholder support.
During the 2016 proxy season, most climate change related shareholder proposals pertained to GHG emissions, which averaged 20% support of votes cast, according to Gibson Dunn.
Since there is a sizable shareholder base that cares about this issue, and in many cases reducing GHG emissions can tie into other areas such as improving operational efficiency, boards would be wise to examine this type of issue and see if paying attention to sustainability indicators would help the company overall.
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