|Measuring Up - Toward a Common Framework for Tracking Corporate Environmental Performance (WRI, 1997, 48 pages)|
You can't manage what you don't measure, states a well-known adage. Business environmental performance is a case in point. Many forward-thinking firms recognize the need to better manage the environmental impacts of their activity. At the same time, others outside of firms - communities, regulators, investors, and customers - are demanding more meaningful information on corporate environmental performance. While these diverse audiences share a common interest in environmental performance, no agreement has emerged on how to measure it. Environmental performance indicators (EPIs) - information used to measure and to motivate progress toward environmental goals - can serve the information needs of business managers, as well as others outside corporate walls. But for EPIs to really be effective, a common set of metrics must emerge that are universally adopted and understood by all.
This demand for meaningful information comes at a time of explosive change in communication and other information technologies. As a senior Clinton Administration official noted, "Today, a high school student in Pittsburgh, Pennsylvania has better access to federal statistics than a top government official five years ago" (Katzen, 1997). But is it possible to find a common set of environmental metrics to serve such diverse audiences? Doesn't every firm desire different, custom-tailored measures? Would universal environmental reporting compromise confidential business information?
The idea of tracking corporate environmental performance is nothing new. Driven by regulations and self-interest, most firms keep tabs on environmental compliance, spills and accidents, and pollutant releases. Unfortunately, other than staying on the right side of the law, such EPIs are not much use in most business decisions. Compliance metrics, such as the number of violations, tend to ignore superior performance, and rarely lower regulatory burden or create positive public recognition. Since these indicators are predicated on today's rules, they do not anticipate future requirements. Fundamentally, compliance does not guarantee that countries or regions will live within their means environmentally.
The topic of EPIs has attracted increasing attention in the United States and many other countries (Atkinson, 1996; UNCSD, 1995; USEPA, 1995). Yet, most EPI efforts focus on either the internal world of corporate management (Epstein, 1996) or the external world of public right-to-know (UNEP/SustainAbility, 1996; Unison, 1995). This publication shows that the full potential of corporate EPIs is realized only when they serve decision-makers both inside and outside company walls.
Building a Common Framework for Environmental Accountability
A universal framework governing the measurement and communication of corporate environmental performance is coming. It will resemble today's system of financial reporting - for much the same reasons: comparability, transparency, and completeness are prerequisites for independent evaluation.
This movement is already underway in some parts of the world, but will reach across national borders, bolstered by trends in public access to information and the globalization of business. Its leaders include the multinational Nortel, activists like Friends of the Earth-United Kingdom, Dutch government planners, and progressive businesses in Colombia.
In less than a generation, society will look back at the availability of environmental performance information today and be amazed at he gaps, clutter, and noise. We will wonder how environmentalists, regulators, and firms could have claimed so much progress with so little credible information. With the gradual adoption of standard EPIs, comparability - across firms, sectors, and countries - will permeate both internal management systems and external reporting. This framework will facilitate comprehensive analysis of resource consumption and pollution extending far beyond manufacturers to capture the environmental dimensions of the energy sector, agriculture, transportation, housing, and other economic activities. Transparency will encourage greater competition in environmental performance.
For many segments of society, the implications of this transformation will be profound:
· Business will view standardized
reporting on environmental performance as a routine business output and a
potential source of customer and shareholder value.
· Financial institutions will connect environmental performance with economic value, and incorporate EPIs into investment, insurance, and lending decisions.
· Consumers will be able to distinguish between products and providers based on environmental performance during production, use, and disposition.
· Communities will have ready access to information on the environmental performance of local facilities and be able to benchmark them against operations, firms, and industries around the world.
· Government agencies including environmental authorities, will foster this change by revamping their own management of information and drawing on environmental performance information to evaluate policy reforms.
Is this vision unrealistic? Overly optimistic? This framework is not only plausible, but ultimately inevitable. Consider the evolution of financial accounting. A century ago a firm's accounts were a private matter. The suggestion of standardized reporting on earnings, assets, and liabilities was nearly unimaginable. But following the collapse of the stock market in 1929, firms and investors saw the value of systematic disclosure. As financial and managerial accounting has matured, firms have accommodated this requirement while maintaining detailed internal records for the sake of internal management, and yet drawing from this information and the body of "generally accepted accounting principles" (GAAP) to report publicly.
This new global framework for measuring and reporting corporate environmental performance is being assembled from pieces available today - voluntary corporate disclosure, increasing transparency in regulatory policy, and the shift in mindset from compliance to performance. New information technologies, especially the nexus of computing and communications, will provide the infrastructure and tools to acquire, analyze, and disseminate information worldwide. Anyone with Internet access will find credible, comparable information on the environmental performance of businesses across the globe. Corporate environmental leaders will be recognized, while corporate laggards, and those who shy away from public accountability, will feel the pressure from environmentally savvy communities, consumers, and investors.
With the gradual adoption of standard EPIs, comparability - across firms, sectors, and countries - will permeate both internal management systems and external reporting.
The next section places corporate EPIs into a larger context and argues for four key categories of EPIs to satisfy managerial and public policy needs. This section also presents the results of a survey of environmental managers, highlighting some commonly used EPIs and the characteristics that make them useful. Section 3, examines how such EPIs are being applied within companies. Applications of EPIs outside of companies are explored in section 4. Finally, the publication concludes with recommendations for actions to lay the foundation of a new framework for measuring corporate environmental performance.