|Measuring Up - Toward a Common Framework for Tracking Corporate Environmental Performance (WRI, 1997, 48 pages)|
This broad sampling of internal and external uses of corporate environmental performance indicators holds some important lessons. First, there are a variety of users of EPIs inside companies and among their many stakeholders. This diversity of perspectives has fed the proliferation of different metrics. Different languages, regulatory cultures, and priorities in countries compound the confusion. The four key EPIs proposed in Section 2 focus managerial and public attention on a firm's basic material and energy inputs and outputs as products and wastes.
The second lesson, EPI consumers share an interest in comparability, transparency, and scope. This desire is reflected in the internal rationalization of environmental information management systems in multinational corporations and in the push to reform reporting formats and requirements under existing regulatory programs. These characteristics should serve as design principles for a common framework for tracking environmental performance.
The third lesson, many opportunities exist for expanding the use of these key EPIs and weaving them into the overall fabric of environmental accountability. The final section highlights several of these opportunities and points the way toward progress on four broad fronts:
· Making Environmental Performance
Measurement Standard Business Practice
· Recognizing Firms that Demonstrate Improved Performance and Greater Disclosure
· Expanding Public Access to Environmental Performance Information
· Facilitating Standard Formats for Environmental Performance Reporting
For each challenge, a set of recommendations is presented that specify what needs to be done and point to some promising examples of steps in the right direction.
5.1 Making Environmental Performance Measurement Standard Business Practice
Except for such mandatory reporting requirements as pollutant emissions, most firms are still in the dark about the environmental performance of their business activities. This makes the firms vulnerable to changing regulations, stakeholder expectations, and customer demand. Excellence in environmental performance will become an integral part of business economic viability. The following recommendations are aimed at helping firms better measure, manage, and improve environmental performance:
Firms should establish environmental goals corresponding to these EPIs. Indicators provide critical links in the chain of vision, strategy, and implementation. With a strategy of resource productivity, pollution prevention, and product stewardship, firms will realize both economic and environment benefits. A growing array of companies are already using EPIs to quantitatively track progress toward corporate environmental performance goals. Judging by voluntary corporate environmental reports, companies such as Novo Nordisk, Kunert, Nortel and British Petroleum are moving in this direction. What is more, Dow Chemical recently announced 10-year environmental goals that include: reducing chemical emissions and waste generation per pound of production by 50 percent and energy use per pound of production by 20 percent (Stavropoulos, 1996).
Firms should use these EPIs to benchmark their performance internally and against other companies. Systematic comparison of environmental performance is valuable to provoke questions about performance and opportunities for improvement. Others outside of companies are already beginning to do such benchmarking. With the expansion of publicly available data sets, such as national pollutant release and transfer registers, firms will benefit from greater access to comparable international information. Internally, firms should use these EPIs to measure the effectiveness of their environmental management systems.
Companies should revamp their information systems to integrate these EPIs into their internal management and reporting systems. Embedding quantitative measures of materials and energy flows in the corporate information architecture will help ensure that environmental performance is factored into business decisions throughout the firm. In 1992, for example, GM's Europe Technical Development Center in Germany began developing an information system to support materials management as well as environmental reporting. The resulting system is now being piloted at other GM facilities in Europe and North America. Lessons learned in this experience will be incorporated into new plants in Thailand and Poland with the goal of creating a tool to support pollution prevention, lifecycle assessment, and regulatory reporting on a global basis (GM, 1996). Companies in the process of overhauling their internal systems for management information, accounting systems, and technical communication have a golden opportunity to fold these EPIs into the design.
Firms should integrate these EPIs into managing their supply chains. Companies committed to improving environmental performance along the product chain should require standardized information on these EPIs from their tier one suppliers. The resulting information can serve the downstream firm in two ways. First, it flags environmental issues that might otherwise pass unnoticed, issues that could interrupt supply or tarnish the reputation of their products. Second, it helps shift some of the responsibility for answering customer environmental queries to the suppliers. Certainly, environmental performance won't replace cost, quality, and reliability as key criteria in choosing suppliers, but it should be a factor in responsible management.
Firms should incorporate EPIs into internal incentive schemes. Since these EPIs are linked to resource productivity as well as environmental improvement, firms that factor them into internal incentive can drive the organization in the desired direction. A few firms are beginning to tie salary bonuses and other rewards to such EPIs as pollutant emissions and nonproduct output, but the WRI-Tellus survey suggests such opportunities for aligning employee incentives with corporate goals remain largely untapped.
5.2 Recognizing Firms that Demonstrate Improved Performance and Greater Disclosure
Experience has shown that mandatory disclosure of environmental performance is a powerful incentive for improvement. At the same time, many companies find that current key economic drivers - for example, tax policy, accounting systems, regulations, and lending policies - often work in the opposite direction and fail to reward firms that invest in better environmental performance. These recommendations aim to better understand the interplay of environmental and economic performance, and identify policy changes to bring them into closer alignment.
NGOs and others should test these EPIs by benchmarking a variety of firms. Firms that excel in environmental performance can't expect customers, communities, or shareholders to be supportive if this information never sees the light of day, which is why external benchmarking of environmental performance is crucial to competitive advantage. By publicizing EPIs, NGOs, advocacy groups, researchers, and others raise the price of poor environmental performance. Comparative case studies of operations in different locations, analyses across whole industry sectors, and other analyses will demonstrate that there is a demand for environmental performance. Practical research of this sort will also uncover where the most serious data gaps are and force greater comparability across political jurisdictions.
Further research is needed to make the link between these EPIs and financial performance. Research into the apparent relationship between environmental and financial performance is beginning to home in on specific economic benefits, such as the cost and availability of capital, insurance rates, and, for publicly traded firms, the share price (Feldman, et al., 1996). So far these analyses have relied on the conventional descriptions of environmental performance, including regulatory violations, spills, and pollutant releases. These analyses should be extended to the measures of environmental performance proposed above, with a working hypothesis that firms with greater energy and material efficiency realize economic benefits simultaneously. Further research should examine the links and gaps between corporate environmental reporting and financial reporting.
EPIs need to be incorporated into alternative regulatory approaches. Calls for regulatory streamlining, reduced paperwork, and other reforms in exchange for superior environmental performance require credible indicators to assure the effectiveness of the changes. As articulated in the Aspen Principles, alternative paths for cleaner, cheaper environmental protection should be predicated on a set of clear and measurable environmental goals. Policy experiments such as the U.S. EPA's Project XL and the Common Sense Initiative, which are testing the feasibility of regulatory innovations, should be judged in part on their success in demonstrating improved environmental performance and in testing new ways of reporting this to other interested parties.
It should be required that these EPIs are reported in government procurement schemes. In many countries, government purchasing accounts for a large share of the marketplace. Consequently, public sector procurement, which covers everything from office supplies to weapons systems, can considerably affect the economy. Procurement guidelines that require information on environmental performance will reward manufacturers and retailers committed to measuring and reporting their environmental performance. In the United States, Executive Order 12873 already calls on federal agencies to buy and use environmentally preferable products. Standardized reporting on EPIs provides common ground on which the environmental performance of products during manufacture, use, and disposition can be evaluated.
Not all companies report on environmental performance and those that do often focus on only selected aspects.
5.3 Expanding Public Access to Environmental Performance Information
An assortment of mandatory and voluntary initiatives currently govern the disclosure of corporate environmental performance information, which creates an incomplete patchwork. Not all companies report on environmental performance and those that do often focus on only selected aspects of performance. On the voluntary front it is typically the environmental leaders that report. While these voluntary efforts are commendable, a mandatory approach is also needed to ensure information is also publicly available on laggards as well as leaders. The following recommendations are targeted at a range of U.S. and international initiatives that have the potential to increase the information flow on environmental performance:
National governments should establish pollutant inventories and broaden them to include these EPIs. The growth of pollutant inventories is building a comparable international information base; however, most national inventories narrowly focus on large generators, the industrial sector, and pollutant emissions alone. To increase their usefulness for policy makers and the public, these inventories must expand to include other crucial categories of environmental performance and sources other than large industries. An example of an expansion is the U.S. EPA's efforts to extend coverage of the TRI program to other sectors, including mining and electric utilities, and the reporting of chemical use. What is more, in many countries, small and medium-sized enterprises account for the majority of environmental effects and nonindustrial sectors, including transportation and municipalities, make sizable contributions, too. Countries in the process of developing national pollutant inventories should incorporate indicators on nonproduct output, materials efficiency, and energy consumption, and apply them broadly across the economy.
Local governments should promote the disclosure of these EPIs where national efforts are lacking. Local governments have a natural interest in the performance of firms operating in their jurisdictions. In the absence of national inventories, state and local governments should establish their own inventories built on these EPIs. For example, the New Jersey and Massachusetts initiatives on environmental performance measurements have both reduced hazardous waste generation, and saved local companies money. At an even more localized level, the City of Eugene, Oregon has established a charter that requires all hazardous substance users to file an annual public report listing inputs and outputs of all hazardous substances. Although these examples focus on toxics, other localities can tailor their efforts to match local concerns, e.g., water usage in arid regions.
The current revolution in information technology provides the necessary tools to rationalize and integrate an assortment of disparate information.
Corporate codes of practice should incorporate these EPIs to increase credibility and demonstrate progress. Voluntary codes, while hampered by their limited reach, are valuable in extending disclosure about environmental performance in locations where few formal requirements for public reporting are in place. They also represent an opportunity to introduce consistency and comparability in reporting approaches. Groups of business and organizations, such as PERI, CECODES, and CERES, have made some progress on public reporting of corporate environmental performance indicators.
5.4 Facilitating Standard Formats for Environmental Performance Reporting
The time has come to rationalize information and reporting strategies on environmental performance measurement. It is in the interests of firms, governments, and others to converge on a standardized reporting system. Anyone who has tried to obtain information on corporate environmental performance will know only too well that public availability does not necessarily equate to accessibility. Facilities are identified and classified in conflicting ways, many government databases remain largely unlinked, and specific pollutants are defined in multiple ways. Even where the information is publicly available, making practical use can require sifting through massive paper records, often inconveniently located. The current revolution in information technology provides the necessary tools to rationalize and integrate an assortment of disparate information schemes within a single framework.
National governments shod develop and employ standardized data reporting schemes. A common sense approach is to rationalize the conflicting definitions that have grown up separately under air, water, and waste regulations. As a result, firms, regulators, and others will be able to consolidate environmental performance information, including the four EPIs proposed in this publication, lightening the reporting burden on the regulated community, while improving the quality of the data collected. Admittedly, upgrading a country's environmental information system can take years. But as a country undertakes this necessary task, agencies should organize their efforts around standard information elements and link these with environmental performance. As one example, the U.S. EPA's Facility Identification Initiative is working to standardize the definition of facilities subject to federal environmental reporting and permitting requirement.
Publicly available information on environmental performance should be made widely available on the Internet. The mushrooming of on-line access to public environmental information has boosted the utility of EPIs to companies, community groups, NGOs, researchers, and others on every continent. As the experience in the United Kingdom demonstrates, the Internet represents a powerful tool for relaying environmental performance data worldwide. The World Wide Web might also serve as a supplemental repository for EPIs voluntarily reported by firms, governments, consortia, and other providers.
National governments should link these EPIs at the facility, industry, and sector-level with national and global environmental goals. Merging EPIs at the micro and macro levels allows firms, officials, and the public to judge for themselves the contribution of individuals toward overall environmental goals and the effectiveness of environmental policy. As environmental performance information expands and grows more consistent in quality and scope, national governments, industry associations, NGOs, and others will be able to contrast the performance of specific facilities or companies against more aggregated trends. As exemplified by the North American initiative on pollutant inventories, consistent management of environmental information facilitates broad international comparisons.
Environmental performance indicators have a powerful appeal to business managers and outside parties. But to be most useful, this information must adhere to basic guidelines of what gets measured and how. The four categories of environmental performance - materials use, energy consumption, nonproduct output, and pollutant releases - help firms, regulators, communities, and others reach beyond the traditional focus on compliance, turning the spotlight instead on resource efficiency, pollution prevention, and product stewardship. Business leaders committed to these goals can gauge their performance in these areas, establish goals, and publicize their progress. At the same time, government reporting requirements and their information management needs major reorganization: EPIs provide key elements for this overhaul. Communities, investors, NGOs, researchers, and others with a stake in the environmental performance of business should press for credible, comparable environmental information and reward those firms and sectors who rise to this challenge. From these collective efforts, a new system will emerge of accountability for corporate environmental performance, and a robust framework for evaluating progress toward environmental objectives from the local to the global scale.