Strategy & Goal Setting

Overview

There are a lot of options for how to become more sustainable. Having a clear strategy helps optimize resources by focusing on work that creates value. It also helps formulate the best ways to communicate with the people you need to engage. With a clear vision of how sustainability relates to and fits with broader company goals, the course you steer will make more sense to everyone.

Discerning what is important to work on requires understanding an organization’s environmental, social, and economic risks and opportunities. To gain this understanding, a range of sustainability issues relevant for the company must be evaluated. Those who understand risks and opportunities associated with these issues will be able to bring the most significant issues to the surface. This will provide a solid foundation for creating strategic sustainability goals, choosing metrics for those goals, and establishing policies where needed.

Resources

Sustainability’s deepening imprint

Issue selection

Building the best possible sustainability strategy begins with developing a high-level list of the sustainability issues that reflect your organization’s (and its industry’s) sustainability related risks and opportunities. This initial list should represent all the possible areas of sustainability work. A small group of sustainability team members and managers often work together to create this broad list of relevant issues.

The next step is to hone these relevant environmental, social, governance, and economic issues to a list of issues that are most significant for a particular organization. To do this, sustainability managers must collaborate with key internal stakeholders. This is a vital step toward realizing value from a sustainability program. The appropriate members of the organization’s Knowledge Base should be asked to help with the evaluation process. Working together with the Sustainability Committee, the issues that can create or diminish organizational value will come into focus.

Issue assessment

For a high quality process, you will need to create a set of criteria against which all issues can be assessed. Key criteria include:

The risk of not addressing an issue
The opportunity to grow revenue or reduce expenses by addressing an issue
The ability to support existing business goals by working on an issue
Other business factors, such as feasibility and cost, are key criteria for all organizations

The assessment process should include a discussion of product and service areas, business operations, and planned initiatives. Ranking each issue based on uniform criteria results in a list of prioritized, significant issues for your organization to focus on. These issues will represent areas of work with the greatest likelihood of impacting business risk, expense, or revenue in the short and medium term. The process itself, and the valuable analysis obtained, will help get buy-in for the resulting sustainability strategy.

Once you have gone through the process of evaluating and identifying significant issues, you will be ready to start setting goals, selecting metrics to measure success, and identifying areas where new policies are needed to steer the organization to address the prioritized issues.

Goals to measure by

To build a solid sustainability strategy, you need specific goals that define the strategy’s success and support business objectives. Goals provide something by which you can measure progress. They show intent and motivate action. They define and test commitment and inspire performance and accountability. Goals also enable those working on sustainability to assess organizational support and make programming choices accordingly. Without them, it would be difficult to identify sustainability projects that are most likely to gain support.

Thoughtfully developed sustainability goals should:

Identify where the organization can have the greatest impact
Influence and clarify business strategy
Motivate and engage the organization to achieve higher standards of environmental, social, and governance performance
Enhance a sustainability program’s credibility and value
Establish and measure accountability

Types of sustainability goals

Once an organization’s most significant sustainability issues have been identified and prioritized, most sustainability programs drive action by setting short-, medium-, and long-term goals for those issues, as well as for the projects that will be done to achieve the issue-based goals. Setting project goals enables a team can methodically map out how various projects will add up to achieving issue-level sustainability goals. This creates a highly effective program, where planning the work squarely focused on achieving issue-based goals.

Another hallmark for setting strategic sustainability goals is to connect them to the organization’s broader strategic plan and goals. These connections make a sustainability program sensible to both internal and external stakeholders, lead to better buy-in, and create lasting business value through sustainability.

Measuring progress

Goals will vary, reflecting where an organization is in its sustainability journey. What’s most important is that goals are set intentionally and strategically, and progress toward achieving those goals is measured.

Effective metrics are critical part of being able to manage, improve, and communicate about sustainability initiatives. Goals should include quantitative or qualitative metrics, with targets and Key Performance Indicators (KPIs), to track progress on the priority sustainability issues and the projects you have selected. Tracking is also key to being able to course correct and respond to changing circumstances.

When used correctly, sustainability metrics help you:

Measure and track progress and the effectiveness of programs
Prioritize work and investment of resources
Evaluate engagement and hold people accountable
Highlight areas where innovation is possible (or necessary)
Communicate commitment to achieving goals and the value of sustainability efforts.

You can measure any project, process, or impact in some way. Sometimes the measures are more straightforward, such as kilowatt hours (kWh) or gallons of natural gas combusted. Sometimes they are less so, as in the case of community impact. In some cases, the link between a metric and financial value is clear, as with energy, and sometimes it is less so, as with employee engagement. Metrics must be contextualized to allow others to evaluate progress in a meaningful way. This allows for benchmarking progress, and supports continuous improvement.

Try to identify at least one metric for each sustainability goal and each project that helps reach those goals so that you can measure all aspects of your sustainability strategy.

SMART goals

Goals are most effective if they follow the SMART framework. SMART is an acronym of criteria to be used in decision-making. Sustrana recommends the SMART framework for setting goals and choosing metrics. The goals criteria are:

Specific: clear and focused
Measurable: quantifiable or qualitatively indicates progress; comparable
Achievable: agreed upon and aligned with organizational goals
Realistic: cost effective and within resource constraints
Time-bound: completed within a specific timeframe

Goals can be short-term (1-4 years) or long-term (5+ years), quantitative or qualitative. Goals that are vague, lacking quantitative targets, or without definite end dates are weak and make meaningful reporting difficult. As you benchmark your company’s sustainability profile against others, you may come across some impressive lists of goals. But upon closer inspection, you may see that many lack impact because they are not clearly defined or they fail to include a quantifiable or qualitative way of measuring goal achievement.

Here are some examples of SMART Sustainability Goals:

Reduce total GHG emissions from our operations by 35% (against a 2010 base year) by 2020
By 2020, 40% of senior level leadership roles will by occupied by women
Reduce total water use by 15% (against a 2015 base year) at each facility by 2020
Increase recycled content of all packaged materials by 20% (against a 2016 base year) by 2020
Improve transportation fleet efficiency by 15% (against a 2012 base year) by 2020
By 2020, 90% of employee base will be actively engaged in their work, based on an annual engagement survey.

Long-term, multi-year goals can become a shifting line in the sand. A company may set 5-, 10-, or 20-year goals without knowing how exactly they will achieve them. Many dynamics beyond the company’s realm of influence can affect whether goals are met. These include a changing business environment, new technologies, and market demands. Having good data and metrics, and keeping abreast of sustainability trends, are critical competencies that support the continuous process of goal setting, action planning, and course adjustment. These competencies enable you to make logical and well-reasoned adjustments so that stakeholders can more readily understand and accept them.

Managing data

Data is typically captured and stored using software solutions, automation tools, or spreadsheets. It is vitally important that data be collected in a systematic and consistent manner. Roles and responsibilities should be established early on in the data collection process to ensure accountability and accuracy. Some companies establish reporting teams based on knowledge centers. Where possible, leverage the company’s existing internal systems and expertise to assist with data gathering and analysis. Use in-house knowledge and support to your advantage.

As you measure, consolidate, and evaluate data, keep the following considerations in mind.

What information is needed?

Do a gap analysis on the stakeholder requests the company plans to respond to and the expectations it intends to meet.

What specific information do you have and what is missing?
Is it feasible to get what’s missing?
How important is it to the company that a stakeholder be satisfied and on what specific points?

Balance the value and need for the data with the relative cost (in resources and time required) for generating it. Is the return worth the effort? Keep the have-to-haves and nice-to-haves in perspective when making decisions about what information is needed to respond or report effectively.

Data quality

Reliability, accuracy, and completeness are key factors in data quality. Make these factors a priority. Never stretch the truth or greenwash! Be able to assure senior management that the company disclosures meet these criteria (or include assumptions and qualifiers).

In the end, you will likely end up with some imperfect, but usable information. Be careful to understand and then disclose the imperfections along with the data so that the reader can properly evaluate the information. The best way to disclose imperfections is by using assumption and qualifying statements. Assumption statements let the reader know that the data is based on an important condition or circumstance that may or may not be true. Qualifying statements let the reader know that conditions or circumstances related to data collection or analysis may affect data reliability, accuracy, or completeness.

There is a high level of recognition that reporting is a journey. Clearly disclosing where there are gaps and assumptions were made builds credibility and trust.

Data analysis and assurance

There is also a growing focus on third party verification of reported data and information. If your data will be subject to a review or audit, either internally or by outside assurers, reliability, accuracy, and completeness become a focus of that oversight. Check and recheck all facts to ascertain data quality. Financial statements, press releases, and other official company statements can be used as resources for confirming the accuracy of some data being used. Each department or division that provides information should be able to validate its information.

Data normalization

To facilitate an audience’s desire to make accurate comparisons of quantitative data over time, or relative to other, similar companies, you may need to normalize the data being provided. For example, annual energy use can be normalized for weather (e.g, adjusted for unusually high temperatures during the summer months) to allow for an accurate comparison from year to year. Similarly, business products and services and the size of operations can change over time due to acquisitions, divestment, and market shifts. If a company has taken steps to improve efficiencies in its operations, but the scope of operations has changed, without normalization, it may appear as though a company is doing worse in its environmental management. Normalization may also eliminate or minimize questions related to what appear to be anomalies.

It is best to report both absolute and normalized metrics. For example, report on total Scope 1 and Scope 2 greenhouse gas emissions, but also report on emissions relative to revenue, unit of product generated, or number of employees. This way, even if absolute emissions increase overall due to organic growth, the data can show that reduction efforts are having an impact.

Using benchmarks

Some organizations incorporate benchmarks into their data analysis – particularly benchmarks that include top performers with similar business processes and practices. This is a way of highlighting best practices, showing sustainability performance relative to others in the industry, and identifying areas of excellence or need for improvement. Benchmarks can be used in reporting to explain and support goals with respect to laws, codes, performance standards, industry averages, and voluntary initiatives.

If benchmarks will be used, try to align the metrics for data collection as much as possible with commonly reported data sets to facilitate benchmarking.

Policy support for strategy

Sustainability policies focus and define the most important ways your organization is integrating sustainability matters into business culture. They establish a clear commitment to sustainability at the highest levels of an organization. Policies provide structure to support the company’s vision, values, goals, and objectives.

Each policy articulates and fosters a mindset and helps develop cultural norms for doing the right thing for the company, society, and the planet. Sustainability policies can help transform corporate behavior in favor of more sustainable outcomes and improve the fundamentals of businesses in the long run. They are about institutionalizing a commitment to sustainability, and provide a valuable focus for a company’s sustainability strategy.

Updating and adding policies sends a clear message to stakeholders that the policy topic is one the organization cares about and will be accountable for. Be strategic about policy creation. Craft policies that align with and set expectations for the work your organization needs to do to address its most significant sustainability issues. While policies are a natural companion for the issues you decide to address, you may not need a policy for every issue.

Some companies undertake projects to improve sustainability performance before putting an official policy in place. A policy can then be helpful to reinforce and embed positive results and memorialize desired behaviors cultivated through those projects. Conversely, others may want to establish a policy before project work begins to set the tone and strengthen commitment to the work ahead.

Policy development drivers

Companies often adopt policies in response to particular drivers and pressures. Sometimes, individuals or groups within the company lead an effort to adopt a particular policy as the company’s response to economic, environmental, or social conditions.

But pressure can also come from outside the company. For example, it is increasingly common for key stakeholders, such as B2B (business-to-business) customers, to require policy adoption as a condition of doing business. Investors often examine company polices to determine whether the company has anticipated and is managing foreseeable risks. Pressure can also come from competitors, as increasing numbers of companies adopt policies that address specific objectives and risks. This is particularly true for sustainability-focused policies.

Whatever drives policy development, the policy adopted should be clear, realistic, and authentic. The commitments undertaken in a policy must be capable of being embedded into the organization’s operations and culture. This is particularly true with respect to sustainability policies, because most independent sustainability assessments today inquire not only about the existence of a policy, but also about its implementation and effectiveness. It is worthwhile to spend time and allocate resources at the outset to ensure that a policy lives and breathes as part of company culture.

Sustainability pillars

Once significant issue goals have been set, sustainability pillars can be established to highlight the organization’s most important areas of focus in a way that is easy for people to understand.

At the core, pillars serve as a central organizing principle or framework for grouping together a number of closely related issue-level goals. Similar to Sustrana’s upper-level categories of Environmental, Social, Governance, Business Model, and Sustainability Management, pillars provide an organized structure for bucketing categories of sustainability focus. For example, issue-level goals related to water management, energy management, and waste management could fall under a pillar for Environmental Excellence. Goals related to ethics, government relations, and sustainable investments could fall under a pillar for Leadership & Governance.

Campbell’s Soup’s strategic plan for sustainability rests on the following four pillars:

Environmental Stewardship;
Engaging with Customers and Consumers;
Community Impact; and
Building a High-Performance Workplace.

Underneath the Environmental Stewardship pillar are a number of sustainability issue goals to be achieved by 2020. These include:

Reducing energy use by 35 percent and sourcing 40 percent of electricity from renewable or alternative energy sources;
Recycling 95 percent of waste generated globally;
Eliminating 100 million pounds of packaging from Campbell products; and
Deriving 100 percent of global packaging materials from sustainable sources (renewable, recyclable or recycled content).

Pillars should be simple and bring a company’s main areas of sustainability work into clearer focus. They should send a message to stakeholders that the pillar topic is one the organization cares about and will be accountable for. Pillars are most useful when an organization has multiple sustainability focus areas and is looking for a way to simplify and categorize. Sustainability pillars, and the issue-level goals that fall underneath them, should ultimately help to advance the overarching strategic business goals of the organization.

Getting strategy approval

After undertaking a rigorous assessment of relevant issues with a strong focus on creating value for the company, sustainability managers often capture the work done to this point in a written strategy summary or proposal. Formalizing a sustainability strategy is the culmination of issue assessment and goal setting and helps the sustainability team and management clearly define and understand what sustainability means for the organization, which aspects of sustainability are the highest priority, and what the commitments and goals will be. The strategy document can be used to get buy-in and approval for moving forward.

It is important to present the business case for sustainability once again, but also to right size a strategy for success. Some strategies are laid out over a short-, medium-, and long-term. Most sustainability programs grow over time; so having a realistic vision for program development will help get buy-in.

The strategy document should help build on and expand the support that enabled you to work on a strategy in the first place. The strategy document is an opportune way to show management the underlying value of sustainability. With a green light on strategy, you can create a plan of action, choosing the best projects to support how the organization will tackle and work on the strategy to create value.

Issue assessment capacity

Sustainability teams have greater overall success when they assess the broad range of sustainability issues to identify and allocate resources to working on the issues that present the greatest risks and opportunities for the organization. Assessment must be focused and intentional, involving people with both operational and sustainability knowledge of each issue. Discounting an issue, before fully understanding it, creates a blindspot for potential risks and opportunities. Skipping or glossing over issues often results in wasting and misallocating resources to issues or projects that do not really matter for the organization’s long term success. The process of issue assessment and focus on what matters most results in a solid strategy for value-based sustainability work.

Metrics & data selection

Selecting the right metrics for measuring progress toward goals is challenging when data is difficult or costly to collect and manage. In these circumstances, the cost and logistics of metrics and data collection can and should influence how goals are stated and reported on. Companies should balance the costs and feasibility of data collection with the need to focus on what matters and to provide meaningful information to stakeholders. To manage costs, many companies find ways to repurpose or make small changes to data that is already being collected for other business purposes to serve the specific needs of the sustainability program. In any event, The cost of obtaining data should never exceed the value of the disclosure condition or circumstances the data proves or supports.

Goals setting

Goal setting is critical to demonstrate progress toward more sustainable business practices. When established using the SMART framework, goals provide a means of driving results and evaluating the impact of a sustainability program over time. Companies that create and actively monitor a plan of action around SMART goals are more likely to set realistic goals and succeed.

Policy development

Policies that address sustainability issues emphasize the importance management places on integrating sustainability into the organization’s culture. They provide an important framework for governance, support goal achievement, and strengthen commitment to the work ahead. Policy development can be used to benchmark where a company is in its sustainability journey. Whether demonstrating compliance with stakeholder expectations or advancing beyond toward leading edge practices, companies adopt or amend sustainability policies to reflect progress.

Accounting for externalities

In economics, externalities are benefits and/or burdens that are not accounted for in pricing the goods and services. Positive externalities occur where benefits are provided, but not valued or paid for. For example, natural resources provide numerous benefits, such as cleaning the air, sequestering carbon dioxide and other ecosystem services that have tremendous value.

Negative externalities, on the other hand, are the by-products of many business operations, including pollution caused by the production process, such as carbon and other GHG emissions, water use, air and water pollution, land use conversion, and waste. Externalities also include the costs associated with workers’ adverse health impacts.

Historically, markets have failed to account for the social and environmental externalities of their operations. Because externalities are not included in standard accounting systems, they are not part of product pricing. Instead, the true costs incurred to address the damage are passed on to society. Often, this is the local community where the operating business is located.

Society usually stops footing the bill by passing laws and regulating behavior. When this happens, your costs go up. Think about increases in CAFE standards to regulate the pollution from motor vehicles. These increases in regulation have cost impacts on car manufacturers, who pass cost increases on to consumers.

Companies are beginning to understand that the true costs of products must be accounted for. One way to do this is through a Sustainability Profit and Loss statement, which assigns a financial value to environmental and social impacts along the entire value chain of a business. The “Profit” refers to any activity that benefits the company’s Triple Bottom Line, and a “Loss” refers to activities that adversely impact its Triple Bottom Line.

Accounting for externalities by assigning them a financial value helps businesses make better-informed decisions about how to manage risks and minimize footprints.

Business Risks

Externalities are a free ride that can catch up with you. If you are not accounting for externalities, you are at risk if and when society decides to stop footing the bill.

An externalities risk assessment can help you determine where to make efforts to change inputs and outputs or realign your products and services to less detrimental options. This can put you at a market advantage when externalized costs are recognized in the marketplace if your competitors have not analyzed these circumstances and taken similar action.

An externalities risk assessment is something to consider in supply chain management as well.

Aligning with business goals

Evaluating sustainability issues and projects based on how well they align with business goals provides a clear rationale for proposed resource allocations. If there is no connection to these goals, it will be difficult to convince company leadership that sustainability is a worthwhile endeavor and makes good business sense.

Strategic sustainability focuses on what makes sense for the business for a variety of reasons. You get better buy-in when you are seen as a team player, helping others meet their goals; helping to create lasting business value for the company. Sustainability is such a broad subject that it should not be difficult to connect it to an organization’s broader vision and goals.

Provide participants in the process of evaluating and prioritizing sustainability work with a list of business goals. Many companies have a 3-5 year strategic plan where business goals are outlined. For companies that do not have a formal strategic plan, managers can provide information about goals. Ask about important business objectives such as reducing costs, improving customer experience, attracting and retaining top talent, gaining competitive advantage, and developing new products and services. The organization’s mission and vision statement can also be a source of information about desired direction.

Discipline in connecting sustainability work to business goals is critical for success. When business goals are used as criteria in the process for prioritizing issues, both project-level and issue-level sustainability goals will align with business goals. For example, a lighting retrofit project might have a goal of contributing 2% cost saving toward an overall energy management issue goal of a 15% reduction in energy costs; the project goal might also be noted as supporting a business goal to reduce expenses by 2%. Connecting sustainability and business goals enables you to show in concrete terms how sustainability work adds value. Without this alignment, sustainability efforts often become fragmented and lose steam.

Creating mutual alignment

Aligning with business goals does not mean ignoring negative social, environmental, and economic impacts the organization is not aware of or is not addressing. Instead, identify how those negative attributes will become barriers or risks to business success. Find ways to show how plans could be altered or innovations pursued to remove those barriers, mitigate or eliminate risks, and pave the way for continued and new business success.

When the value of sustainability work is understood in terms of supporting and helping to achieve business goals and continued business success, management will begin to look to sustainability experts for input in planning and decision-making processes. Over time, alignment evolves into sustainability becoming an embedded and important aspect of the strategic planning and goal-setting process for the organization.

Approaches to setting goals

Goal setting is one of the most important ways of creating a focused, strategic sustainability program. Goals that compliment long-term business objectives enable the organization to stay focused on what is most important. Business-relevant goals for your sustainability program deliver the greatest benefits and momentum.

Aligning sustainability goals with broader organizational strategies, policies, and initiatives will help get buy-in from management and build support throughout the organization. Using sustainability work to further business objectives that are already established is a win-win.

Deciding on goals

One of the biggest things companies struggle with is deciding on goals. How do you decide what your goals should be? There is no one right way to set goals. Approaches to goal setting depend on many factors and will be different for every company. The following are common approaches to setting sustainability goals.

General parameters – Regardless of what type of goal you set or how aggressive you are, you will need to define the goal parameters and boundaries (certain divisions, domestic only, global, etc.), and select the best metrics. You will also need to choose a completion date, and for quantitative goals, a base year and final target.

Long-term goals (5 years or more) should be more aggressive and focus on creating a strategic advantage. Address the need to maintain engagement and momentum over the life of the goal by setting milestones. Setting long-term goals requires focused attention over time, but can produce many benefits.

Goals may need to change with changing circumstances. You will need to stay flexible and may have to make course corrections and adjustments. But you want to avoid reactionary goal shifting as much as possible. This highlights the importance of using the SMART framework for goal setting. You want to thoroughly assess your goals and the timing of milestones. Doing so will help you avoid goal revisions that reflect poorly on your organization.

Project or feasibility based – This approach to setting goals is based on what the organization can most realistically achieve. It begins with listing all possible projects that can be done to help meet a goal. Projects are then prioritized and their impacts are totaled. An estimate of the overall impact is calculated and goals are set accordingly.

Context based – Context based goals focus on an organization’s level of impact relative to what is needed for a sustainable society. The first step is to define the social state that is desired and what has to happen to get there. Then a company defines its social responsibility for solving the problem as a percentage and sets a goal based on that percentage. The concept is that if every business that is part of the problem does its fair share to solve the problem, the solution will be achieved. The question should not be ‘how much can we do?’ but rather, ‘how much should we do?”

For example, in the case of climate change, context based targets are determined by looking at what is required to limit global temperature rise to 2°C above pre-industrial levels. Using estimates of the amount of greenhouse gases we can emit and still keep warming to that level, companies can use a % of GDP or other method to extrapolate by how much they will need to limit their own emissions to “do their part.”

Stretch – Stretch goals are an increase by a percentage beyond what seems achievable. What seems achievable can be based on other goal-setting approaches (like context- or feasibility-based approaches), or they can be set in a more arbitrary way. The intention is to push the envelope and to drive innovation or significant changes in behavior.

A caution about stretch goals

As business sustainability initiatives evolve, many companies are becoming more ambitious in their approach to sustainability goal setting. The bar is constantly being raised. For companies to stand out from the crowd, it can be tempting to stretch for a Big-Hairy-Audacious-Goal or BHAG. Before doing this, consider the following pros and cons of “stretch” goals.

Sustainability goals face more scrutiny now than ever before. Higher stakeholder expectations for transparency and quantifiable performance mean that companies must be willing to “walk the talk” on sustainability to gain public trust and credibility.

Setting goals that are truly unattainable can negatively impact buy-in and support for sustainability initiatives. This underscores the importance of choosing relevant and achievable goals within the SMART framework even when setting stretch goals. Stretch goals that are vision oriented, yet possible, can be strong motivators for performance and can push the envelope of what’s possible, leading to more progress and impact over time.

In many cases, companies with more ambitious goals achieve the largest impact reductions, even if they fall short of meeting their stretch goal. This is great. But it also highlights how difficult aspirational goals can be to achieve, particularly for more resource-constrained small and medium enterprises. Strong senior leadership commitment and broad support throughout the organization are essential for achieving aspirational goals. It is important to strike the right balance between goals that are aspirational and attainable. If you are doing a man-on-the-moon type of goal, be sure you have the highest levels of organizational commitment and resources to really go for it.

Mission & vision development

A sustainability mission statement explains the high-level intent, purpose, and objectives of the organization’s sustainability strategy. They define the philosophical direction for a sustainability program, not specific action to be taken on specific issues.

The mission statement typically speaks to what you do and how you go about doing it. A vision statement presents a future view of mission. These statements can be just for internal use or can be shared outside the company. The mission and vision statements can be combined or separate.

Getting from mission and vision to culture

To embed sustainability in your company culture, employees need to be excited about the purpose and vision of your program. The more employees understand and are engaged, the more likely they will be able to adapt to the changes involved with implementing a sustainability strategy.

Be sure to include your sustainability mission and vision statements in employee engagement activities. The more you communicate about these foundational aspects of your sustainability program, the better your workforce will understand the company’s direction and intent about sustainability matters.

When sustainability becomes the company mission

For some companies, sustainability is an integral part of company culture. They might have started out with separate statements for the business and for their sustainability program. But as sustainability thinking bakes in, these embracers integrate sustainability right into the company’s overall mission and vision.

You likely will not be writing an integrated company mission and vision statement when you are just starting or in the early stages of a sustainability program. But a sustainability mission and vision that connects sustainability work to creating value and supporting business objectives will show a direct line between the two.

The process behind the policy

Developing a policy is a dynamic process of crafting statements of desired behavior, while taking care not to overshoot what the organization is capable of supporting. Defining desired behaviors includes understanding internal and external stakeholders’ expectations. Many companies spend lots of useful time on defining expectations, but then fall short on making them a reality.

So how do you make sure you are not wasting time crafting a dead end policy? One way is to include in the policy vigorous and regularly reviewed activities and metrics that turn commitments from words into action.

Here’s how Sustrana’s management policies are structured and how this structure helps ensure that a policy will have a healthy, accountable life.

The Scope. This lets the reader know whether or not the policy applies to him or her. Some policies apply to everyone in the company; some just to a particular group. Some policies, like non-discrimination and human rights might extend to people outside the company, like suppliers or business partners. The scope is a quick way of saying either, “Yes, we mean you!” or “No need to read on.”
The Policy Steward. This is the person responsible for all activities needed to make sure the policy is alive and well within the company. This is a living, breathing human being – someone accountable to management for implementing and measuring the success of the policy as a way of corporate life.
The Policy Governor. This is also a real person (or group of people, such as a governing committee) who will act as a check on the Policy Steward and make sure that the policy is reviewed, on track, and, when necessary, revised.
The Effective/Last Revised Dates. The effective date of a policy lets everyone know when the company expects behavior to begin conforming to the policy requirements. Revision dates confirm that the policy is regularly reviewed and updated by management to reflect expectations.
The Intent. The intent statement should describe what’s going on in the world and where the company stands (or intends to go) in that context. It should be educational and inspirational. It should make the case for why the company is asking for the behaviors and conformity set forth in the policy commitments.
The Commitment. This is a series of statements that define the company’s position, actions, and expectations on a particular topic. It defines the company norm to which all within the policy scope need to conform.
The Policy Steward Role & Responsibilities. Set out all the actions that the Policy Steward is expected to take to make sure the expected norm is the norm. This takes the policy off the shelf and sets it in motion. Whom should the Policy Steward work with to formulate the operational details of the policy? How should the Policy Steward find, implement, monitor, and report on metrics that will show the policy is alive and well? What are the Policy Steward’s authority and resources for his or her undertakings?
Performance & Review. Every good system has built in checks and balances. The performance and review sections of a policy create a system for period performance reporting and policy review. At least once a year, the Policy Steward issues a report to the Policy Governor about accomplishments, non-compliance, metrics, lessons learned, and any other issues or recommendations. The Policy Governor is responsible for providing feedback, reporting to management, as needed, sponsoring changes that are warranted and so forth.

The Value Driver Model

Understanding the ways in which organizations create value is essential to embedding sustainability thinking into a business. The Value Driver Model (VDM) was created specifically for this purpose. It is a tool to help sustainability professionals articulate how sustainability helps create, manage, and protect business value.

Drivers for measuring business value creation

The VDM uses existing key business value metrics (risk, productivity, and growth). By framing sustainability work in this context, decisions about how to allocate resources can be analyzed based on how sustainability activities protect and create value. Each of the three core metrics is further articulated into more refined ways to measure the value of sustainability work. Below is a more detailed overview of the VDM ways of measuring that value, taken from the VDM guidance.

Risk: Exposure to sustainability-related risks that could imperil key business objectives or otherwise impair a company’s performance, including:

Operational and regulatory risk management: decreasing levels of environmentally critical and/or constrained resource use; limiting business interruptions and risk of losing the license to operate; reducing emissions of key pollutants or toxins; and other areas that could expose the firm to regulatory actions or penalties, as well as increasing adherence to established sustainability-related operating standards, including results of related audits and certifications.
Supply chain risk: Increasing assurance (through use of assessments, audits and certifications) that suppliers are providing reliable, responsibly produced products and services in accordance with the company’s policies, industry codes and international standards.
Reputational risks: Decreasing exposure to reputational damage arising from various actions, such as fines, boycotts, public protests and/or negative media attention by implementing proactive policies and procedures that limit the risk of social and environmental harm.
Leadership & adaptability: Resilience; systemic risk management; ability to respond to changing conditions; reducing threat of business interruption; policy management.

Productivity: Total annual cost savings (and cost avoidances) from all sustainability-driven productivity initiatives and operations. Three primary sources:

Operational efficiencies: Cost savings and/or cost avoidance from more effective use of natural resources, reduced wastes, and/or using alternative materials with lower costs and impacts.
Human capital management: Reduction in the cost of attracting and retaining top talent as a result of a commitment to sustainability, and employees’ perceived value of that commitment; increased worker productivity due to skills and safety training, and inclusive and equitable work environments.
Reputational pricing power: Margin improvement and increases in price and sales volumes from customer perception of enhanced value from sustainability–advantaged products.

Growth: Increased revenue volume and/or growth from sustainability-advantaged products and services, comprised of four key sub-components:

New markets & geographies: Expanded market share /revenue streams from demand for sustainable products and services from new markets.
Products & services innovation: Expanded market share / revenue streams from developing innovative products and services that better meet customer needs while reducing negative social or environmental impacts and/or enhancing positive social and environmental outcomes.
New customers: Expanded market share / revenue streams from sales to new customers based on brand, reputation, or sustainability product leadership, especially where those attributes are differentiators.
Long-term strategy: Implementation of a long-term strategy and plan, along with the required investments, to deliver sustainability-advantaged growth.

The VDM is a valuable resource for thinking about how to balance triple bottom line. It provides an analytical framework for remaining profitable while finding solutions for negative environmental and social impacts. The Sustrana platform provides access to the VDM in various tools. This helps those working on sustainability issues to think in more concrete business terms about how sustainability can be used to protect and create value.

Types of metrics

Not all metrics are created equal. There are different types of metrics, with different benefits and limitations.

Absolute metrics. Examples are cubic meters of water used per year, number of women in management at the end of 2015, and total amount of environmental fines imposed over five years. These metrics are discrete, but often do not provide a complete picture. This is because a variety of other factors could explain a change in the reported metric from one period to the next. For example, an increase in the number of women in management from 50 to 100 could be because of efforts to increase the percentage of women or company growth.

Absolute metrics can be of little use with out some context. You should always try to normalize absolute metrics in a way that describes what’s happening within the organization’s makeup or size. A metric on women managers tells a different story if an increase from 50 to 100 women managers occurred when the total number of managers remained at 200 versus changed to 300.

Absolute metrics are raw numbers about a single factor. Normalized absolute metrics focus on using that factor to describe the organization or certain activities.

Intensity or relative metrics. Examples are recycled content per unit of product, metric tons of greenhouse gas emissions per employee, gallons of water per employee. These metrics are like normalized absolute metrics in that they provide context and a comparable measurement. But an intensity metric describes how efficiently you use a resource. If you want to measure the efficiency of domestic water use, the metric would be gallons per employee. If you want to measure the efficiency of process water use to manufacture a product, the metric would be gallons per unit of product.

The primary focus of intensity metrics is to provide a meaningful measure of efficiency.

Both normalized absolute metrics and intensity metrics are helpful in benchmarking within your company or industry. They also help you make projections about progress toward goals and targets despite changes in various business circumstances. But both absolute and intensity metrics fail to provide a broader context within which to evaluate the sustainability of the factor you are measuring. For example, these metrics may show that an organization’s water use is going down, but they won’t tell you if it’s going down enough to be sustainable. For that you need to look at the use metric in the context of broader resource availability over time.

Context-based or contextualized metrics. An example is metric tons of GHG emissions/dollar revenue compared to the number of metric tons of GHG emissions/dollar revenue needed to achieve regional GHG emissions reduction goals. Context-based sustainability metrics measure your performance based on broader social and environmental circumstances and objectives. They answer the question of whether an organization is doing its part.

The focus of context-based metrics is to measure the value of results based on the expectations and needs of the system within which the organization operates.

Process metrics. Examples of process metrics are number of customer service complaints, responses to employee satisfaction surveys, or product ordering errors. Process metrics measure how changes to a business function improve that function. Let’s say you make improvements to your customer service process. You could track absolute metrics like average wait time and delivery of scripted politeness. Those metrics would tell you if the improvements are taking hold. Tracking customer complaints (or compliments) would measure the effect of those changes on the customer service process.

Process metrics measure both efficiency and effectiveness of changes to processes. You can use them to benchmark against best practices for a business function or for processes particular to your industry. You can also use them to show the effect of adopting best practices.

Outcome or output metrics. Examples of outcome metrics are the energy saved by changing to LED lights, leads generated by a digital marketing campaign, and the score on an employee engagement survey after implementing a paid volunteer program. These metrics could provide more information if you compared each to a predicted outcome. As you can see, some of these examples are also absolute metrics and process metrics.

Don’t get hung up on the terms!

Sometimes you can and should measure a factor or aspect of performance using more than one type of metrics. Often you can and should build an absolute metric into a context-based or a process metric. Sometimes a metric is both a process and outcome metric. Understanding different types of metrics is not about labeling your metric. It’s about understanding that you have to think about what you want the metric to achieve.

The Sustrana Metrics Library will help you get a sense of the data points you could track. Your job will be to create the metrics that will provide the information you need to tell a useful story about your sustainability efforts.

Types of policies

Sustainability policies are used to communicate to employees and customers a commitment to managing and improving environmental, social, and economic sustainability over time.

For example, environmental sustainability policies will communicate commitments related to greenhouse gas emissions or waste management. Policies related to social sustainability will communicate commitments on matters like human rights or diversity and equal opportunity. Governance policies cover commitments related to subject such as executive compensation or social license to operate. The graphic below depicts the relationship between sustainability policies, categories of sustainability focus, and a key topic within each of those categories.

Management policies

Management policies guide how a business manages and achieves sustainability goals and commitments. In Sustrana, management policies correspond directly to each of Sustrana’s core sustainability issues.

Management policies shouldn’t need to be re-written every year. This is not to say that the policy and commitment should be vague. They should be specific and clear enough to provide direction, but not so detailed as to prescribe exactly how the company will achieve its commitment. It’s important to strike the right balance of clarity and detail, leaving flexibility to reach the same ends by different means as circumstances change.

Operational policies

Where management policies concern the principles by which a business is managed, operational policies provide for specific rules that help a company operate in an orderly fashion on a day-to-day basis. Operational policies often provide the details of carrying out management policy commitments in daily business. They establish the details of expected behaviors, norms, and duties with regard to specific activities and are more readily amended to reflect changing circumstances and needs. In the sustainability areas, these might include policies on:

No Smoking
Buy Local
Flexible or Compressed Work Week
Green Cleaning
Integrated Pest Management

A mid-level manager is typically the person responsible for implementing an operational policy.

Shelf vs. Active policies

Sometimes companies will adopt a policy in response to a current, urgent need to act. The urgency can come from, for example, a key customer who demands that the company adopt a particular policy as a condition of doing business.

Companies often respond to the pressure by cobbling something together from policies they find on the Internet, without giving much thought to implementing the policy. It is adopted and then sits on a shelf, never to yield fruit. It is never reviewed, nor does it provide any value.

This represents a huge missed opportunity to reap the value that developing, implementing, and managing a policy can bring to a company.

Active policies create value

On the other hand, strategic, focused policies can help a company thrive.

Stakeholders from throughout the company participate in the development process. The policy is carefully aligned to the company’s overall goals, values, and strategies. It states specific commitments that the company is making. It assigns responsibilities for implementing and monitoring commitments. This process ensures accountability and creates value for the company.

The policies that emerge are active, and the company’s actions are tracked, measured, and evaluated. The policies undergo regular review and change as needed. The result is a map that directs the company’s decision-making and actions consistently and effectively.

But the development process, by itself, isn’t enough to maintain an active policy. It’s critical that employees learn about and receive training on the meaning and application of the policy. Employees involved in the implementation of the policy need to:

understand the underlying reasons for the development of the policy
identify the ways in which its application will impact their official duties
commit to adhere to provisions that apply to their actions

When it comes to level of commitment, think about what’s right for your company. Defining how you will implement and monitor policy compliance helps your company think through what commitments it is capable of taking on. Pick a policy area and try it!

Materiality assessment

Defining the materiality of sustainability issues is an important component of building an effective program. A materiality assessment helps your organization identify and focus on issues that really matter to everyone with a significant ability to influence the success of the business. It helps avoid getting distracted by issues that don’t rise to the top during the assessment process. When doing a materiality assessment, you want to gather input on the fullest range of sustainability issues possible and gradually narrow the focus by looking at what matters to stakeholders, as compared to what management thinks is most important.

Here are the key benefits of conducting a materiality assessment:

Focus – directs where to spend time and limited resources
Credibility – provides a rationale for strategy; is becoming the global standard for reporting
Efficiency – reduces wasted time/resources
Transparency – builds relationships and trust with stakeholders
Risk Management – identifies and prioritizes problem areas, including many of which the organization was not previously aware

A materiality assessment can and should inform strategy development and reporting.

It provides insight from stakeholders about the importance of the relevant sustainability issues you have identified. This perspective helps you have broader insights into the most important issues for stakeholders. Reporting and strategy development both benefit from stakeholder involvement and one materiality assessment can be used for both purposes. Keep in mind that reporting and strategy are not the same. Deciding what issues to focus on in your strategy (forward-looking) is very different from deciding what to disclose in your sustainability report (backward-looking). For that reason, the topics prioritized and the stakeholders contacted may be different.

Timing for a materiality assessment

Materiality assessments often vary in scope depending on where a company is in its sustainability journey. Most companies start with a limited process and work up to a fuller process over time.

When you are just beginning to understand and test the process, you should consider doing an assessment annually. The time in between assessments should be used to build pathways for better and broader engagement. It should also be used to expand knowledge of sustainability issues and how they might affect your organization.

As companies become more adept at doing materiality assessments, many shift to doing them every two to three years. The level and breadth of insight and perspective gained in the assessment supports deep understanding. Meaningful work can be laid out for a longer period of time. For companies at this stage in their sustainability journey, stakeholder communications continue through the interim period and a watchful attention is present so that emerging issues still surface.

Resources

Goals, targets, KPIs

There are many ways that people define goals, targets, and key performance indicators (KPIs). Here are definitions and examples of how Sustrana talks about goals, targets, and KPIs so that you can better understand our content.

Goals are high-level, clear statements that describe what the organization seeks to achieve in a particular area by a particular point in time.

Targets are quantified statements that define goal achievement (final target); they can also be used to define progress toward a goal (interim targets). A target includes metrics. The most common metrics are intensity and absolute. Other metrics include context-based, process, and outcome metrics. A target is quantitative.

Key Performance Indicator (KPI) is a quantitative or qualitative unit of measure to show how well a company is making progress towards goals. KPIs are used to assess the current state relative to the conditions that must exist for success. KPIs can also be thresholds for measuring the continued maintenance of a desired state or level once it has been achieved.

Here is an example:

Goal: Achieve carbon neutrality by 2025.

Targets:

Reduce GHG emissions 35% by 2020 from a 2007 baseline.
Reduce GHG emission by at least 500 million tons of carbon dioxide equivalents by 2025 from a 2007 baseline.
Convert 50% of fossil fuel-based energy generation sources to renewable by 2025.

Some Interim Targets:

Reduce energy consumption by 5% in the first year.
Install solar panels on all owned facilities to convert 10% of energy generation sources within first five years.

KPIs:

Gigajoules of energy used per year
Metric tonnes of CO2e
Number of solar panels purchased

If you are going to set a goal, you need a plan for how to achieve it. To be most effective, long-term, multi-year goals should connect to annual or quarterly milestones. A milestone is an agreed upon point in time at which a KPI is used to assess progress or by which a target is achieved. Milestones allow a company to periodically evaluate progress and make adjustments as needed.

Policies basics

Business policies represent a commitment to shape corporate behavior in a particular way. They send a clear message to stakeholders that the policy topic is one the organization cares about and will be accountable for. They articulate how the business defines and guides itself, and provide a standard for measuring performance. A company’s vision should inform policies, and each policy should clearly define acceptable and expected behavior for its subject matter.

Why have policies?

Developing clear, written business policies brings structure and direction to how a company functions. Effective policies make a company’s actions more consistent. They guide employees and support more confident decision-making. In addition, policies:

Provide predictability, by setting the company’s direction around specific issues
Communicate to stakeholders the company’s values and intentions to act in a certain way
Get everybody rowing in the same direction and provide a measure for accountability
Generate traction for progress in policy-related projects and initiatives

What makes an effective policy?

Not all policies can achieve these benefits. Too often, companies respond to pressure to adopt a particular policy by assembling a set of generic statements often culled from the Internet. This results in a passive document – an “on-the-shelf” policy – that is largely ignored and provides little or no value to the company.

For a policy to be effective and bring value to the company, it must be carefully and thoughtfully developed. The policy must clearly articulate commitments and expectations that the company intends to live up to. Management must monitor and consistently enforce the policy. An effective policy:

Explains why the policy is being adopted
Lists exactly what the company commits to do
Identifies and explains how the company will implement, monitor, and enforce the policy commitments
Empowers development of the roles and systems needed to hold the company accountable for compliance with the policy
Provides for regular review and updating

Policy management

Good governance requires effective policy coordination and oversight. Policy management is about creating a system to establish, maintain, audit, and enforce business policies. The system should have a clear structure that includes how to:

keep policies up to date,
communicate expected behavior, and
ensure accountability

It should include robust guidelines for maintaining the integrity of the company’s policies and procedures. For example, a large part of an organization’s governance responsibility is to promote ethical behavior. An ethics policy lays out a company’s values with guidelines for proper behavior. It includes requirements for training the workforce on the expected ethical behavior.

A policy management system would ensure that the policy and the consequences of non-compliance are well understood. It would put in place mechanisms to ensure accountability. These might include tracking, whistle blower protections, and prescribed consequences or corrective action. The management system would include delegation of authority, empowerment, reporting, and management oversight.

More and more, shareholders and other stakeholders are requiring robust policy management. They are asking board of directors and executive level management to play an active role in oversight. They are asking for greater assurance that a company will follow and enforce its policies. And they want transparency in reporting on these activities. The goal of these requests is to build confidence and trust between stakeholders and the companies with which they engage. Good policy management protects against lawsuits and reputational risks.