Measuring the Impact – and ROI – of Corporate Sustainability

42877439812_9959d3a7e6_kBy Henk Gilhuis, Rainforest Alliance, Senior Monitoring and Evaluation Officer

Businesses are under increasing scrutiny and pressure from stakeholders and society to become more accountable for their environmental and societal impacts. Those who have committed to do so, a milestone in itself, can choose from an increasing variety of reporting frameworks. Which reporting framework to choose? What does it take to implement these? Henk Gilhuis, Senior Monitoring and Evaluation Officer of RA, reports back from the latest Innovation Forum Conference, held in London this past week.

Financial institutions are becoming more of a driving force for corporate sustainability reporting. Larry Fink, CEO of leading investment fund BlackRock, recently issued a “letter to CEO’s,” which clearly resonated with the Forum’s participants. This letter is worth quoting, because it articulates in a compelling way the reasons why this investor has decided to engage more actively with shaping the long term strategies of the companies it invests in.

“Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. (…) In the current environment, these stakeholders are demanding that companies exercise leadership on a broader range of issues. And they are right to: a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process.

Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? 

I want to reiterate our request, outlined in past letters, that you publicly articulate your company’s strategic framework for long-term value creation and explicitly affirm that it has been reviewed by your board of directors. (…) Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation to climate change – affect your potential for growth.”

With pressure on companies to articulate their corporate sustainability strategies, the next questions arise: How to set sustainability commitments and targets? How to report on those? And: how useful are these reports?

Listening to the experiences from across a variety of sectors and business (a.o. food industry, chemicals, high-tech, mining, transportation, financial institutions) I learned that many roads lead to Rome. On the bright side, this means that every business, being unique, has to decide and figure out what level of commitment it wants to make and how it is going to report and be accountable. The good practice here is: start with mapping and addressing those critical areas / issues where your business has the largest (risk of) impact. For one company this may be its impact on land use or land conversion / deforestation, for another it may be its social impact in terms of working conditions in its supply chain. “Materiality” and “risk” are terms often used in this context. There is no need to report on all 17 SDGs! Focus on those impacts that matter most to your business. Focus is needed, because measuring a company’s impact usually demands mapping its supply chain, which is often a daunting task in itself. Hence the importance of establishing collaboration and getting buy in across the value chain.

A variety of frameworks, methods and metrics are available to estimate or measure environmental and social impacts. Some rely on valuing / monetizing impacts, meaning that CO2 emissions, deforested hectares and workers injured on the workplace are all converted into money. The advantage of these methods is that different types of impacts are added up and expressed in one single figure that “speaks” to many stakeholders, not in the least the shareholders and investors: money. A disadvantage is that such valuation methods have many built-in assumptions, which tend to become “black-boxed”.

Reporting frameworks become more useful with the number of businesses adopting them. If the methods and metrics are consistent and aligned, this creates possibilities for internal and external benchmarking.

Sustainability reporting goes hand in hand with setting company specific, measurable and time bound targets. How does one set credible and meaningful company specific carbon emissions reduction targets?  Not every company has to invent the wheel, and an initiative like “Science Based Targets” is bringing this knowledge and systems within reach of all companies.

“Targets adopted by companies to reduce greenhouse gas (GHG) emissions are considered “science-based” if they are in line with the level of decarbonization required to keep global temperature increase below 2 degrees.”

Getting one’s sustainability targets and reporting right, however is more a craft than a science.  In the social domain, there is less alignment on methods and metrics than in the environmental domain. But progress is being made, for example in establishing a growing number of local benchmarks for a living wage, such as those of Global Living Wage Coalition. This is an important step to align actions and policies of companies, governments and societal actors to achieve a living wage for all workers.

Within the Rainforest Alliance, our Evaluation and Research team is committed to monitoring and assessing the impacts of our work using three different approaches. First, we collect basic data for all farms or farm groups, forestry enterprises, tourism businesses, and carbon projects participating in field projects or certification, validation, and verification audits. These program-wide monitoring data are analyzed to document the reach of the Rainforest Alliance’s programs and characteristics of the producers with whom we work. Next, we conduct more intensive sampled monitoring, using a control group where possible, to compare conditions before and after certification, verification, or technical assistance. Finally, we support focused research to test specific hypotheses about program impacts and to evaluate broader or longer-term results, for instance at a landscape scale. This is usually conducted by third parties, with the Rainforest Alliance’s input limited to hypothesis development, logistical support, or assistance with interpretation of the findings.

According to participants, the increasing demand for sustainability reporting does not mean that those reports are actually being read and used. This has to do with the nature of such reports and the needs of different audiences.  No single report can meet the needs of all audiences. It is important to develop a narrative that “tells the story” behind the figures of sustainability reports. Compelling narratives touch on the reason why a company exists, its sustainability ambitions, its demonstrated performance and achievements, not to forget its challenges and lessons learned. And most probably, the story of a company’s progress in meeting its sustainability targets needs to told differently to different audiences.

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