Initatives
2degrees

MANAGING SUSTAINABILITY ... Are we addicted to sustainability target-setting?

Burgess COMMENTARY
My comment in this thread:

Targets are better than nothing, but for the most part they are a very weak part of the management toolbox. I argue for metrics and incentives to drive progress and performance and improve the state of affairs. The problem in the modern economy and society is that the mainstream metrics ignore many things of great importance. I call the main mainstream metrics the terrible trio. They are (1) money profit for business, (2) stock prices in capital markets for investors, and (3) GDP growth for macroeconomic observers. There are many other metrics that address many of the important issues in society, but none of these has much traction, and, compared to the terrible trio, they might as well not exist. However, this has to change. We have absolutely got to have metrics that not only make it possible to report on money profit performance, but also on ALL the impacts that economic activity has on the economy, the society and the environment. My work in this area is called TrueValueMetrics. For every economic activity there are stakeholders other than the investors and C-level executives of business, and they absolutely must not be ignored as is the case with the infamous terrible trio. In my approach to management, for every target there have to be metrics, and there also have to be related incentives and consequences. This is not rocket science ... this is basic management, and it works! Peter Burgess

MANAGING SUSTAINABILITY ... Are we addicted to sustainability target-setting?

Bad habit: Are you addicted to targets?

Mission Zero is the brainchild of Interface carpets founder Ray Anderson. The aim is to eliminate any negative impact the company may have on the environment by 2020. It’s an ambitious, some might say impossible, mission. But it certainly lives up to Anderson’s belief that “a good target should take your breath away”.

Anderson designed Mission Zero back in 1994 and, almost 20 years on, it’s no longer the only big, bold sustainability target in town. Unilever has its wide-reaching Sustainable Living Plan and Marks and Spencer has its revamped Plan A with 180 targets. More recently, the hotel group Accor launched its Planet 21 initiative complete with actions and goals in 21 areas of its business. There are many more.

But while sustainability targets are being announced left, right and centre, this shouldn’t dilute their importance, says Dan Crossley, principal sustainability advisor at Forum for the Future. “They can empower and drive innovation,” he explains. “Some people have got target fatigue, but not me – I’m a bit of a target junky”.

So, why is it that companies are so addicted to sustainability targets? Is it a bad habit? Or can the targets provide a corporate “high”, inspiring staff, driving change and wooing would-be investors?

For businesses, targets are a way of life, so the concept is nothing new. What has changed is the weight of expectation around those linked to sustainability. No longer is this a CSR box-ticking exercise or one-upmanship with competitors – setting serious sustainability targets makes serious business sense. Consumers may, as one environmental accounting firm puts it, “be deaf to the big announcements”, but investors certainly aren’t.

Damian Burton is United Utilities’ sustainability advisor. He says the City investment funds are beginning to use performance against sustainability targets to positively and negatively screen would-be investments. “Whether targets are right or not, the absence of them would impact negatively on reputation,” he says. “It’s perhaps even creeping into reasons, or not, to invest in a business.”

Unilever’s CEO Paul Polman caused quite a stir when he announced his company’s Sustainable Living Plan in 2010, suggesting that he only wanted to attract investors that were equally committed to the targets being set. “If you don’t buy into this,” he explained, “then I respect you as a human being, but don’t put your money in our company.”

By 2020, Polman hopes to have overseen a halving of the company’s environmental impact and a doubling of its size. Only time will tell if the plan delivers for its investors, but the signs are good. Last year’s Carbon Disclosure Project (CDP) found that those leading on carbon reporting were out-performing the overall Global 500 (the world’s 500 largest companies) in terms of share price. It’s not rocket science, the report concluded, with companies that are reporting and disclosing information able to make better use of resources to maintain, or even improve, margins.

PepsiCo’s energy target provides an interesting case in point. The food and drink manufacturer wants to be “fossil fuel free” by 2023. That won’t be easy. “We know how to get halfway there, but we’re not sure about the other half yet,” admits sustainability director, Martyn Seal. That will take new innovation and new business partnerships, but it’ll be worth it, he adds. “If we can make that target then we’ll be in a strong position. It would be a strategic advantage for us.”

A few other factors would have to fall in place, of course – a rise in carbon price and a continuing rise in fossil fuel prices would be a good start, as would some more policy drivers to help some of the more innovative renewable projects look a bit more attractive. But PepsiCo, for one, won’t be waiting around for policy.

And it’s not alone. If anything, it is global Plc rather than policy that is the driving force behind sustainability targets. The UK has its Climate Change Act, with a target to cut greenhouse gas emissions by 80% by 2050, but on an international level there is nothing yet in place to follow Kyoto. Cynics would question the “teeth” of any new deal, with other sustainability targets having been missed – most notably, and markedly, the 2002 Convention on Biological Diversity commitment to reduce the rate of global biodiversity loss by 2010.

Some might question whether businesses would show the same apathy to missed targets. PepsiCo’s Seal admits that if progress isn’t up to speed then the boardroom is quickly “on the case” not least because meeting the targets is important to the success of the business.

There is also a reputational issue, but that shouldn’t sway companies to set lower targets. “If you’re meeting all your targets all of the time, then you’re not stretching yourself,” says Mike Barry, who heads up Marks and Spencer’s Plan A project. He also says that those companies that shy away from reporting their progress publicly on the basis of “doing rather than reporting” are, in fact, “talking rubbish”.

Indeed, with many of the headline corporate targets set well into the medium to long-term future, updating all stakeholders on a regular basis is critical. “We’re committed to transparency, no matter what the result,” says Kelly M. Semrau, SC Johnson senior vice president for global corporate affairs, communication sustainability. “However, we make it a priority to set goals that are realistic, but impactful.”

So, do those in charge of Mission Zero at Interface still believe that Anderson’s target, set in 1994 with a deadline of 2020, remains realistic in 2012? “Companies often look at what’s possible when they set targets, so if a 20% reduction in carbon is possible, they’ll set the target at 15%,” explains Ramon Arratia, European sustainability director.

“But those targets are set based on what the technical guys know today, which means you are also ruling out innovation. Our target means we have to explore some pretty radical stuff. After all, what’s the point of a target if you know you’ll hit it?”

David Burrows is a freelance journalist.

A clearly defined target provides value in that it identifies the accounting that will take place (baseline of comparison, abolute vs. normalized goals, what factors are included in data tracking, etc.). One problem is that metrics become surrogates for overall program success, and that is where many problems lie. A review of corporate metrics and sustainability programs reveals that few metric categories (GHG, water, waste reductions, etc.) use the same bases, and consequently can't easily be compared to determine if the metric actually represents a commendable level of corporate performance. There appears to be no shortcut for diving into each program and determining if it hangs together in a credible way. Zero impact goals are now making the picture even cloudier, and I'd suggest that any metric that contained a value of zero had better come with very clear operating instructions. Asperational goals are fine, but there is no shortage of organizations who've said they are heading toward zero with not even a credible outline to get there.

I agree with Ramon in principle that targets you know how to hit discourage innovation. However, your board, management, or staff may not be ready to innovate - it may not be a big part of the culture, or the organisation may have historically run on the basis that you find the innovations first, then bake them into your forecasts. In other words, I suspect that targets based more on hope than knowledge simply would not motivate people in all organisations.

Targets are better than nothing, but for the most part they are a very weak part of the management toolbox. I argue for metrics and incentives to drive progress and performance and improve the state of affairs. The problem in the modern economy and society is that the mainstream metrics ignore many things of great importance. I call the main mainstream metrics the terrible trio. They are (1) money profit for business, (2) stock prices in capital markets for investors, and (3) GDP growth for macroeconomic observers. There are many other metrics that address many of the important issues in society, but none of these has much traction, and, compared to the terrible trio, they might as well not exist. However, this has to change. We have absolutely got to have metrics that not only make it possible to report on money profit performance, but also on ALL the impacts that economic activity has on the economy, the society and the environment. My work in this area is called TrueValueMetrics. For every economic activity there are stakeholders other than the investors and C-level executives of business, and they absolutely must not be ignored as is the case with the infamous terrible trio. In my approach to management, for every target there have to be metrics, and there also have to be related incentives and consequences. This is not rocket science ... this is basic management, and it works! Peter Burgess