Sustainable growth is a key theme of most corporate strategies today. In this article, we will discuss the ways to implement pillars of sustainability (ESG) into strategy.
The content of the article:
- Introduction. What is sustainability?
- Part 1. Sustainability KPIs
- Part 2. Building a Sustainable Balanced Scorecard
- Part 3. How to align the goals of the organization with SDGs
What Do We Mean by “Sustainability”?
“Sustainability” is today a buzzword:
- Some companies are talking about “sustainable” products referring to something made of recycled materials.
- Other organizations explain their sustainability strategy by making a positive impact on society or achieving important economic outcomes.
- Dictionary definition defines sustainable as “not being harmful to the environment.”
While we can find many definitions, most authors agree about three pillars of sustainability (also known under ESG acronym):
- Environmental aspects, such as making eco-friendly products, fighting pollution and climate change.
- Social impact that may vary from making a safe working environment to ecology-awareness programs.
- Important economic outcomes, for example, cost saving that results in reducing the carbon footprint as well.
Part 1. Sustainability KPIs
Here are some widely used sustainability metrics. I’m listing them here as an example of how sustainability KPIs might look like.
A better approach to sustainability KPIs would be:
- Energy consumption, kWh / year
- Energy use in offices, kWh / m2
- Energy saved due to implemented improvements, %
- Water consumption
- % of water recycled
- % of water reused
- Waste by type and disposal method
- Toxic emissions
- CO2 emissions direct
- CO2 emissions indirect
- CO2 emissions from business travel per employee
- Nitric oxide emission
- Sulfuric oxide emission
- % of non-renewable materials
- % of recycled materials used
- Product recycling rate, %
- Packaging materials recycling rate, %
- Workplace safety (more KPIs for safety)
- % of innovations that include sustainability goals
- % sustainability awareness training penetration
- % of suppliers reviewed in the context of sustainability
- % of suppliers that comply with established sustainability strategy
Specific sustainability metrics will change according to the business domain. For example, here are the sustainability KPIs for property management as presented by the United Nations Environment Program.
Part 2. Sustainable Scorecard vs. Sustainable Strategy
There is no such thing as a Sustainability Balanced Scorecard:
- Talking about Sustainable Balanced Scorecard, we are actually talking about a classical strategy scorecard that describes sustainable strategy.
So, a better question to ask is:
How can we describe a sustainable strategy using the Balanced Scorecard framework?
I saw two approaches:
- Adding perspectives. Adding additional Social and Environmental perspectives (I don’t recommend this approach, see my arguments below).
- Focusing existing strategy on sustainability. Updating the goals on your strategy map with sustainability in mind.
Why Adding “Society” or “Ecology” Perspective is a Bad Idea
This approach appeared in 2002 under “SBSC” (Sustainability Balanced Scorecard) term as the result of a two-year research project sponsored by the German Ministry for Science and Education. The “Sustainability Balanced Scorecard” research was done by the Institute for Economy and the Environment (St. Gallen) and the University of Lüneburg.
The result of the research was the method of integration earlier developed sustainability ideas into an existing Balanced Scorecard framework by adding two additional perspectives to the Balanced Scorecard method: Society and Environment.
KPMG introduced a similar idea that focused on integrating environmental performance indicators.
What´s wrong new with these two perspectives? A short answer:
Adding the perspectives shifts the focus of the organization from strategy to performance measurement.
BSC Designer practice shows that companies with more perspectives tend to convert their strategy scorecard into a KPI scorecard and use perspectives as containers for their countless metrics.
Tracking sustainability KPIs is a must, but we need to track them in the context of certain goals and strategy; otherwise, their impact will be limited.
Focusing Existing Strategy on Sustainability
A better approach would be to analyze the current strategy scorecard and make sure that the goals mapped across all perspectives meet the requirements of sustainability.
A starting point would be to expand the list of stakeholders. Who is interested in achieving sustainable goals? In the best case, all stakeholders are. The typical sustainability stakeholders are:
- Governmental regulators
- Green customers: sustainability-aware clients and employees
- Local communities
Focus the Goals in Each Perspective
The next step is to estimate the sustainability component of the business goals. It’s similar to what we did when going through four perspectives, but in this case, the questions will be asked in the sustainability context:
- Do customer goals take into account the interests of sustainability stakeholders?
- Do internal goals estimate the environmental impact (waste, energy, impact on water and air)?
- Does the learning and growth perspective help promote sustainability values and culture? How does IT help the company to be more sustainable?
- Do talent-related goals (see the HR scorecard) take into account labor best practices, impact on community?
Reporting Sustainability with Global Reporting Initiative (GRI)
The perception of sustainability varies across domains, communities and individuals. Some initiatives promoted by the organization as environmentally-friendly might be perceived as not relevant by green customers.
Organizations need a globally recognized framework to focus their sustainability strategy. In this context, we have two important players:
- Global Reporting Initiative (GRI)
- UN Sustainable Development Goals (SDGs)
The Global Reporting Initiative provides a set of reporting standards giving companies specific guidance on what information they need to report on depending on their operational domain.
The UN´s Sustainable Development Goals (SDGs) will be more relevant to the level of strategy. Many organizations (see, for example, the “Community investment” in Bank scorecard article or The Emirates Group Environmental Report) align their strategies to the SDGs. Below, we discuss an example of such alignment.
Example of Local Sustainable Development Frameworks
Similar to SDGs, there are some country-specific sustainable frameworks. In many cases, that will make more sense for local companies.
Part 3. Align the Goals of Your Organization with SDGs 2030
On September 2015, the United Nations (UN) organization introduced 17 Sustainable Development Goals (SDGs) and specific objectives to support these goals. Later in July 2017, the measurement part of SDGs was defined, adding 1-2 indicators for each of the objectives.
In this article, I´ll show step by step how organizations can align their strategies with these Sustainable Development Goals.
The UN website is a comprehensive source of information on the topic. A starting point could be an official infographic. Before moving ahead with the details, it is also a good idea to learn about the general principles of the implementation of the SDGs.
Choose the Goals and Indicators
The document is structured in the following way:
- First comes one of the global goals (respectively Goal 1… 17). For example, global Goal 7 is “Ensure access to affordable, reliable, sustainable and modern energy for all”
- Under each of the global goals you will find more specific objectives. For example, objective 7.2 is “By 2030, increase substantially the share of renewable energy in the global energy mix”
- Finally, on the right from the objective you will find a target, or an indicator used to measure the objective´s performance. For example, for the goal 7.2, there is just one indicator – “7.2.1 Renewable energy share in the total final energy consumption”
What Goals to Choose?
It depends on the type of your organization and your current strategy. A good idea is to look at the SDG index for the countries where your organization branches are located and find the areas of the potential improvements at the country level.
Mapping the Goals
To map the goals, you can use an existing strategy map, as probably you already have some goals that might sound a lot like the goals from SDGs. Alternatively, create a separate strategy map dedicated specifically to the SDGs.
Place the goals on the map. To make the goals visually appealing, consider using the official graphics provided by the UN.
Link Your Strategy to SDGs
Show how your goals contribute to the SDGs goals:
- Use links between the goals on your strategy map and the map with SDGs
- Calculate the targets/indicators of SDGs using the indicators from your scorecard
Software Automation Example
The example below will mostly make sense for BSC Designer software users. Other readers can benefit from the ideas described and follow a similar approach in the automation software that they use.
Map Global Goals
Create a new scorecard and place there the global goals that you plan to support. Instead of using the classical 4 perspectives, use Global goals. For example, if we choose global goals #4, #5, and #7 (see the “global indicator framework” mentioned above), the strategy map will look something like this:
Map Specific Objectives
Under each of the global goals we can now add relevant objectives. In the case of your organization, the objectives might be formulated more specifically. We can copy the original description of the objective into the “Description” field.
The resulting map will look like this:
Align Indicators with the Objectives
In the next step go to the KPIs tab to add relevant indicators there. In the global indicator framework, the indicators are listed in the column on the right:
It is a good idea to adjust the indicators to the realities of your organization, and add the original indicator in the description field.
The quick way to align some initiatives with global goals is to use the “Initiatives” button:
You can quickly map there some ideas, budget and time required.
That approach works well if you design a basic SDGs strategy map and don’t want to connect it to other strategy maps in your organization. If you already have some strategy maps in your organization and want to show how they are contributing to the global goals, then read the next 2 chapters.
Align Your Strategy with SDGs Goals
Now it’s time to show how your strategy is aligned with SDGs goals. To do this, we will need to link two scorecards by their business goals. On scorecard will be SDGs scorecard and another will be the scorecard with the strategy from your organization.
For example, the objective “Objective 7.2 – Increase the share of renewable energy” might be supported by the “Energy scorecard”
Learn in Cascading section of the user manual how to connect two scorecards by goals or indicators.
Data for the SDGs Indicators
Now, let’s work on the data. How exactly is your organization affecting the performance of certain SDGs indicators? There are several ways to show this connection.
First, you can go directly to the KPIs tab and enter some data manually. For example, you can specify that the “5.5.1 – Proportion of seats held by women” in your organization is 47%:
Another way is to calculate the indicator’s data is by using data from other indicators (cascading). For example, inside the “4.4.1 Proportion of youth with ICT skills” indicator we can add an indicator from another scorecard.
We are not limited by one indicator only, so we can also add more indicators, for example, we can select the “Diversity and inclusion” indicator from the “HR” scorecard.
By default, the performance of the “4.4.1 Proportion of youth with ICT skills” will be calculated as an average of the performance of the child indicators. The benefit of this approach is that we can build indexes from indicators that are measured on different scales and use different measurement units:
Sharing Your SDGs Scorecard
You might want to make your SDGs 2030 scorecard public and share it with a local community. To do so check out the respective section of the manual.
No goals are achieved without action, so make sure that your organization and you personally work on the goals. Feel free to share your experience in the comments below and use the @GlobalGoalsUN hashtag proposed by UN.
- Access templates. Sign-up with a free plan at BSC Designer for immediate access to 30 scorecard templates, including Sustainable Strategy Template discussed in this article.
- Master skills. Check out free video tutorial for the Balanced Scorecard. Master your strategy planning and execution skills with Strategy Execution training.
- Automate. Learn what Balanced Scorecard software is and how it can make your life easier by automating strategy execution, KPIs, and strategy maps.