Context-Based Metrics Needed to Create Sustainability Value
Recently, DNV GL announced the results of our latest Tomorrow’s ValueTM Rating (TVR), a benchmark of global best practice in sustainability. For the 11th year in a row, we evaluated how well companies understand their risks and opportunities — and how prepared they are to create future business value through sustainable business practices.
The TVR rating examines the sustainability practices of companies worldwide, analyzing how well companies have embedded sustainability in their core business models and strategies, how effectively they involve and manage stakeholder expectations, and if/how they use sustainability risks as a lever to drive innovation across the value chain. The analysis is done through the lens of five key measurement domains: strategy, engagement, governance, innovation and value chain.
This year while we are encouraged by great examples of companies’ approaches and performance, there are still significant gaps that we believe business must address in order to truly create long-term value both for business, our environment and society. For example, while our research shows that SMART targets are being set across key material sustainability issues, often they are either inconsistent or lacking in ambition. Additionally, in most cases they lack a connection to scientific research, and therefore the ultimate goal we are all trying to reach — decreasing our impacts on biodiversity, climate change, and society so we can truly live within our planetary boundaries.
However, select members of the TVR — Diageo, BASF and particularly 2014 TVR leader Unilever — stand out for their ambitious, SMART targets and sensible milestones. Unilever is attempting to radically decouple its growth from its impacts and has set a target of halving the environmental impact of its products by 2020 while still maintaining economic growth in that period. But we do not see this approach across the board in the companies we assessed in 2014.
The world’s top companies urgently need to establish new, science-based metrics for sustainability and develop a vision with firm commitments to achieve the necessary change to live within one planet. As the global TVR 2014 report states: “In line with increasing demands for transparency, companies will need to set and communicate metrics that are rooted in a scientific understanding of what our limits are and what we can do to stay within them.”
The State of Context-Based Sustainability
Today, many organizations express a commitment to sustainability, but their current performance, stated objectives and goals are often disassociated from the transition pathways suggested by sustainability principles and the supporting science.
The key challenge we face is to take the good intent and generally shared aspiration that sustainability is good for our planet, society and commerce and translate this into actions at an organizational level. These actions need to address the scaling up of performance improvements as well as the urgency and speed of change needed.
Increasing adoption of science-based goals will help organizations understand the real risks and opportunities facing their current business models.
Another key challenge companies face is aligning these goals to what is actually possible given resource and budget constraints, as well as what they feel comfortable committing publicly to their stakeholders. I recently spoke to Bill Baue, co-founder of the Sustainability Context Group, a global community of thought leaders and practitioners who advocate for Context-Based Sustainability. According to Baue:
“Currently companies are comparing year-on-year environmental and social performance for their own company, but what really matters is measuring yourself against real-world limits and thresholds. If we wish to be sustainable in our collective global impacts, we need to heed what science is telling us — not just for ourselves, but for the planet — as the line in the sand. In many ways we don’t have a choice. Science and science-based goals are a proxy for what our world requires. Science-based metrics demonstrate in many cases how far we are from a truly sustainable business model that exists within biophysical limits.”
The good news is that more and more companies and stakeholders are recognizing the need for this shift and there has been an increase in the number of companies leveraging context-based approaches to evolve their sustainability strategies, goals and targets. For example, the process of aligning Ford’s GHG emissions reduction target to science has resulted in more aggressive targets than previously stated by the company. Additionally, Autodesk states that if all companies were to apply its GHG emission reduction strategy — C-FACT— we would be on a path to the reductions necessary to align to the IPCC targets.
Industry efforts to address context-based sustainability are also developing. For example, the WRI, CDP and WWF have launched the “Mind the Science, Mind the Gap”initiative that “allows companies to set credible, science-based GHG emissions reduction targets on a company-wide level — with as little effort as possible and consistent with the IPCC 2°C scenario.”
Collaborative Approaches Are Key
Context- and science-based goals may have to be considered at the industry or value chain level, because a company on its own might not be able to make sufficient change to its value chain independently.
This is not to say that corporate goals should not be challenging and that the responsibility should fall on stakeholders throughout the value chain. Companies need to work to understand the science- or context-based goal and then work back from this to come up with scalable short-term goals that are achievable and realistically bring in all parties necessary to achieve the long-term goal. This must also be supported with education and capacity building programs that ensure all players have an understanding of the opportunities these efforts provide and the potential challenges to be overcome.
The Journey Ahead — Sophisticated Approaches
Recent work by scientists at the Stockholm Resilience Centre showed that we already have exceeded three of the nine planetary boundaries within which we must remain for humans to thrive. While we all recognize that building a business which equally balances financial, ethical, environmental, and social aspects is a journey that does not happen overnight, this will always be a challenge, and it is not an excuse for inaction.
The 2014 TVR findings suggest that companies must become more sophisticated in their approaches to addressing key sustainability risks and opportunities. A strategy rooted in context-based metrics, goals and targets is one way of doing this. As we state in the TVR findings: It’s not necessarily about more measurement. It’s about better measurement, better targets and new ways to meet them.
This article was originally written by Dave Knight, for Sustainable Brands, when he led DNV GL’s USA Sustainability practice and can be found via this link – https://www.sustainablebrands.com/news_and_views/new_metrics/shyla_girvetz/context-based_metrics_needed_create_sustainability_value