How Green Are Your Metrics?

The game has changed and the bar has been raised. No longer is simply having a sustainability policy enough. Results are the only things that matter. Yet, while we all must do our part for the environment, to the investment community, sustainability is a competitive differentiator that generates profit, not a charitable contribution they make because it gives them warm fuzzies.

Hundreds of institutional investors are making investment decisions today based on such tools as the Carbon Disclosure Project, the Dow Jones Sustainability Indexes, Innovest Strategic Value Advisors’ “Wall Street” ratings (AAA to CCC), and Ceres reports. These and other organizations have developed stringent lists of key performance indicators that rank at the very top of best practices companies should strive to follow. While there are too many to list here, we’ll provide an overview of those most common and critical, as well as a resource guide at the end to help you delve further.

At the dashboard level, there are four key areas companies should be making improvements in and measuring when trying to affect a positive change in greenhouse gas emissions:

reducing your carbon footprint;
reducing energy/fuel consumption;
utilizing more renewable and sustainable resources; and
recycling or reducing waste.

Reducing Your Carbon Footprint
Your marketing program has a carbon footprint. According to the Institute for Sustainable Communication (ISC), which helps companies map the footprint of their printed media, measuring your marketing program’s carbon footprint requires input from your entire media and marketing supply chain, including printers, paper suppliers, ad agencies, production houses, service bureaus, outdoor media suppliers, and magazine publishers. You need to know:

whether your raw materials are from renewable, sustainable, or recycled sources;
the route and distance of every delivery step, from raw materials to the final customer mile;
the type and amount of energy used in each step of the process;
how much waste is generated as a result of each step of the process and where that waste ends up; and
how the product is recovered from the customer after its useful life has ended.

That last point is important, as there is increasing legislation that requires companies to take ownership of product recovery. “Most companies assume that after they’ve sold the product, they no longer have any responsibility for the fate of that product,” says Don Carli, senior research fellow for the ISC and president of consultancy Nima Hunter Inc. He notes that in Europe, the concept of extended producer responsibility is being applied to electronics and packaging and is beginning to be looked at here as a regulatory issue at the state level.

Once you have these metrics met, there are organizations, such as the Institute for Sustainable Communication and climatecrisis.net, that can help you use them to calculate your actual carbon footprint.

Going forward, whether your supplier or partner has a sustainability strategy and how consistent those strategies are across your entire ecosystem will grow increasingly more important.

The Vancity Group, the parent company of the Vancouver City Savings Credit Union, provides a good example of measuring its green efforts. The financial services firm is the 2006 winner of the Ceres-Association of Chartered Certified Accountants Sustainability Reporting Award for the “Best Sustainability Report.” Under the category of greenhouse gas emissions, Vancity tracks:

To view the entire Vancity Accountability Report, visit: www.vancity.com.

Carli also reminds us that digital media isn’t free of a carbon footprint either. “There’s a huge energy issue associated with digital media,” he explains. “How many data centers are required to host the Web page? How many megawatts of power are required to maintain that data and pump it through the system to provide a stream of electrons to get it to the consumer?” About 40% of U.S. electrical power is from coal-fired power plants today, he says, a very un-environmentally friendly energy source.

Reducing Energy/Fuel Consumption
Matthew Kiernan, CEO of Innovest, recalls a seminar he chaired with former Secretary of State Madeleine Albright to launch the Carbon Disclosure Project, a global database of best practices in sustainability management and measurement, designed for institutional investors to use, and through which more than 1,000 companies have reported their greenhouse gas emissions to date.

At the meeting, someone took a stab at Citigroup, and there happened to be a Citi exec in the audience. In her company’s defense, Kiernan says, the woman stood up and said “I’ll have you know we recycle 36,000 tons of paper every year and use low-watt light bulbs.” Well, this made Kiernan cringe, because reducing energy must go well beyond using low-watt light bulbs. In fact, the self-admitted statement was mentally filed away to be added (not favorably) to the factors that make up Innovest’s Citigroup rating.

Conversely, a good example is Wal-Mart, which has publicly stated in its sustainability report that it plans to convert its entire fleet of vehicles to alternative energy by 2010. But “they’re not looking strictly at cost savings, they’re looking at risk prevention,” explains the ISC’s Carli.

“What is the business interruption risk that could result from a significant spike in petroleum prices or from the lack of availability of petroleum as a result of a terrorist attack? Suddenly the whole issue of whether ethanol — an alternative fuel source that is made from products such as corn grown on local farms — has higher maintenance costs than fossil fuel becomes moot, because if you didn’t make those changes to something less prone to terrorism, your risk levels would be too high.” He adds, “And what happens if a carbon tax is introduced?” In fact, he says, it already has been in 15 states. “Suddenly the cost of alternative energy can be seen [on the balance sheet] very differently.”

Wal-Mart is also redesigning its fleet to make the vehicles more aerodynamic, which will aid in reduction of energy consumption, offering a whole host of different metrics, Carli says.

Reducing, Renewing, or Recycling Resources
Two key areas where substantial value is being made in reducing, renewing, or recycling include responsible forestry and reduced packaging.

The Forest Stewardship Council “seal.” The Forest Stewardship Council is perhaps the most brand-value driven piece of the sustainability chain, and requires qualitative measures to determine its worth. The FSC sets standards for the purchase of paper and wood products. Utilizing the FSC logo on products sold, such as plywood and copy paper, and products produced, such as catalogs and magazines, means that the raw materials the finished products came from were harvested from sustainable forests using proper and ethical techniques and that endangered forests were preserved.

“People have died from mudslides due to illegal logging practices,” explains Michael P. Washburn, Ph.D., consultant to the Forest Stewardship Council. “If companies are buying FSC-certified paper or wood, the due diligence has already been done. They’re not going to risk using illegal wood. There is a great deal of employee pride around that kind of commitment to responsible forestry, and over time it expands out to the customers and helps redefine the brand.”

Reducing product packaging. Smaller packaging is not only less expensive, it also leads to fewer shipping containers and reduced shipping costs. Fewer containers also results in lower fuel emissions output per shipment. In one example in Wal-Mart’s sustainability report, the retailer reports that reducing packaging on its Kid Connection toy line saved:

3,425 tons of corrugated materials;
1,358 barrels of oil;
5,190 trees;
727 shipping containers; and
$3.5 million in transportation costs.

Coca-Cola is reducing product packaging by removing the number of raw materials involved in package creation. The drink manufacturer’s aluminum cans, glass contour bottles, and polyethylene terephthalate (PET) bottles have been reduced by 33%, 57% and 32% respectively since their original introductions. Also, the company says that since these packages are lighter, they enable the trucks to burn less fuel to transport them.

These are good examples of the types of reductions companies should measure when shifting to renewable, reusable, or more environmentally friendly materials. In some cases, package redesign leads to substantial cost savings, as many companies currently spend more money on making the packaging than they do on making the product, Carli says.

He also notes that Wal-Mart is creating a scorecard specifically to measure how well its packaging suppliers are meeting its goals, which include whether the material is renewable and how many items fit on a cube. The more items that fit on a cube and the more cubes on a truck reduce the energy per product mile.

Wal-Mart’s overall packaging reduction strategy, available on its Web site, offers insight into how other companies can make and measure improvements in this and other areas:

eliminate unnecessary packaging, boxes, or layers;
create “right-size” packages and optimize material strength;
use reusable pallets and plastic containers;
use packaging materials made of renewable resources;
select biodegradable or compostable materials;
use materials made of the highest recycled content without compromising quality; and
achieve all of the above principles at cost parity or cost savings.

Developing those statistics is not something companies like Wal-Mart and Coca-Cola are able to do in a vacuum. It requires granular metrics from all of a firm’s supply-chain partners to roll up to an overall number that might appear in a dashboard or scorecard. For instance, in the above example, Wal-Mart might need to know the starting and stopping destinations of the trucks and how far they traveled, their filled weight, how much material each truck carries, how much fuel it burns in transit, whether that fuel is regular or diesel, and how much carbon dioxide each gallon of gas emits when burned.

The value of being included in the DJSI is so important to Brazilian bank Itaú that a banner hung across the front of its headquarters, which advertises its fifth anniversary on the New York Stock Exchange, also includes the words, “The only Latin American bank in the Dow Jones Sustainability Index since its creation.”

Waste Reduction and Elimination
This is actually both a reductionist measure and a revenue builder. Right now companies are disposing of waste, such as paper and cardboard, that can be renewed or recycled if they take the time to investigate. For instance, Carli notes that paper mills might be able to convert paper sludge, which they are currently throwing away, into ethanol.

The most heavily adopted set of KPIs for environmental sustainability come from the Global Reporting Initiative (GRI). Specific to waste reduction, their metrics include:

total direct and indirect greenhouse gas emissions by weight;
initiatives to reduce greenhouse gas emissions and reductions achieved;
total water discharge by quality and destination;
total weight of waste; and
weight of transported, imported, exported, or treated hazardous waste.

For a complete list of GRI’s key performance indicators, go to www.globalreporting.org.

Converting some customer documents to digital print on demand (POD) eliminates paper inventory and energy used to maintain a storage facility. POD allows companies to print only what they need when they need it and is customized to the customer, rather than taking a mass approach. It is most commonly used to print monthly billing statements, customer letters, welcome kits, quarterly account statements, newsletters, and legal and privacy information.

When used to implement a long-term customer strategy, this technology provides significant cost savings as well as environmental impact reductions. According to case studies on (makers of Dialogue POD software) Exstream Software’s Web site (exstream.com), Aflac reduced customer document inventory 77% by switching to digital print on demand and no doubt reduced printing, mailing, postage, and overhead costs in the process, while Baltimore Gas and Electric reduced its customer document output by 7 million sheets, saving $297,000 dollars annually.

Sustainability: A Permanent Part of the Balance Sheet

There is no doubt that sustainability pays off and will play an increasingly larger role in shareholder and investor decisions going forward.

In its third Corporate Social Responsibility Report, UK retailer Marks & Spencer’s chairman Paul Myners says, “Put simply, [corporate social responsibility] helps us attract shoppers to our stores, recruit and retain the best people, form better partnerships with our suppliers, and create greater value for our shareholders.” (He also makes a point of mentioning that the retailer has been listed in the Dow Jones Sustainability Indexes.)

Innovest’s Kiernan notes, “When I travel around and chat with CEOs and ask them the question, ‘Why are you bothering to spend all this time, effort, money, and reputational capital on this?’ their number one answer — and there is no number two — is ‘We think it gives us a significant and increasingly important competitive advantage in recruiting, retaining, and motivating the best talent.’”

As final words of advice, Kiernan offers two suggestions for companies developing and implementing their sustainability plan:

Keep the gap between what you say and what you do on these issues as tight as possible — preferably non-existent. Publicizing a commitment is easy. What’s hard is getting things done with the right support and budget.
Understand that this is as much about upside opportunities as downside risk. Keep it proactive, not reactive.

We couldn’t agree more.

Click here for a complete list of resources to help you develop your KPIs and your sustainability report.

Click here for information on how to determine your marketing carbon footprint.

Click here to view a sample of the key performance indicators used to compile the Dow Jones Sustainability Index.