Going green isn’t a fad for customers, 66% of whom consider sustainability when they make a purchase. And ESG (environment, social and governance) isn’t just a corporate buzzword for employees, who want to work for employers doing right by the planet.
Soon, the government may start keeping track, too. This year, the U.S. Securities and Exchange Commission (SEC) proposed that public companies start including carbon and climate risk data in annual reports and SEC registration documents. The proposal follows a legislative trend happening around the world, including in the European Union and New Zealand.
Savvy companies have proactively started tracking ESG progress. However, while 95% of S&P 500 companies shared their ESG information publicly as of June 2021, only 10% of audit committees noted having oversight responsibility for ESG reporting.
“This is something senior leadership should be looking at year-over-year to see what the trendlines are,” said William Paddock, co-founder and managing director of WAP Sustainability, a consulting firm that helps organizations launch sustainability programs. “After all, it’s rare to see a company that doesn’t want to save money or take care of its customers. And this data can help with both.”
There are significant advantages to getting started before anyone forces your hand: You’ll need time to develop quality data systems to improve your carbon accounting process. Get ahead now, and your organization will be ready to report if required.
See how role-model companies are measuring their sustainability progress.
Start By Measuring These Four Categories
If you’re new to ESG reporting, Andrew Dempsey of outdoor equipment retailer REI Co-op suggests that teams start by assessing impact in four categories. “Energy, water, waste and carbon — and they’re absolutely necessary for companies to be setting targets and progress against,” says Dempsey, who is a senior manager of sustainability at the cooperative.
REI started measuring its carbon footprint in 2006, well before most companies, and set its first climate target that same year. Those goals included: a commitment to tracking the company’s carbon footprint, transitioning to a zero-waste organization and becoming carbon neutral by 2020.
If your team’s sustainability arm is in its nascent stage, start by asking these questions related to four environmental focus areas.
- Energy consumption. How much energy is being used by our company? What types of energy are we consuming (renewable sources versus non-renewable?) Measurable units can vary, but include:
- Kilowatts or megawatts; therms or cubic feet if using natural gas.
- Water usage. How much freshwater is our company using? How much wastewater have we produced this year? Are we producing any water through sustainable practices, like rainwater harvesting? Measurable units include:
- Gallons or 100-gallon increments.
- Water quality, including stressed or polluted watersheds.
- Waste generation. How much trash is the company creating? How robust is our recycling program? And are there opportunities to create a compost solution to bypass either? Measurable units include:
- Metric tons.
- Carbon: What is our company’s carbon footprint? What volume of greenhouse gasses do we emit when making our product? How much greenhouse gas does our product generate itself? Measurable units include:
- Kilograms or megatonne of carbon dioxide equivalents, also known as CO2e.
Dempsey says these metrics are front and center when REI thinks about the production process, how goods are transported and how that experience is designed for the customer. For REI, that means enabling customers to make informed decisions about the environmental impact of the products they purchase — whether that’s through labels that impart their environmental impact or through the information retail employees pass along to customers.
After considering these common metrics, ESG leaders should look for opportunities to set unique goals for their companies. “Measuring water usage is one metric. But you can drill down and get even more specific within each of these main buckets,” Dempsey says. “And all of that is data that informs your company’s progress. They’re all unique yardsticks.”
Going Beyond the Basics
Once you’ve established metrics related to energy, water, waste and carbon, your team should look for sustainability metrics specific to your industry or company. To spark your thinking, we gathered the qualitative measures ESG leaders are already using.
Amount of Energy Created or Generated
If your company has switched to renewable energy — like solar, wind or water — consider tracking the amount of energy generated or the cost that you have saved by using your power source. In 2019, Hansel Toyota of Petaluma, California, installed solar panels throughout its dealership, covering more than 30 acres. “It’s been really eye-opening,” said Merrilee Roscoe Alvarado, who runs the dealership’s sustainability program. “Over the past year, we reduced our energy use by 71 metric tons and generated enough renewable energy to power nine homes each year. That blew me away.”
Water Use Related to On-site Landscaping
The team at Hansel Toyota removed all of the dealership’s grass and landscaping, or let it die off. Old landscaping was replaced with plants and vegetation native to the California dealership’s environment. “That significantly reduced the amount of watering we had to do to maintain that grass,” Roscoe Alvarado said. “Not only does it look beautiful. We also saved significantly on our water bill.” The dealership reduced its water use by 31% year over year, to the tune of $10,034 in savings.
Number of Community Outreach Events
Sustainability is not just about saving money and kilowatts. Socially responsible companies are dedicated to community outreach and telling their sustainability stories. “This is an incredibly important topic for customers right now,” said Paddock. “They want to know what you’re doing in this area, and how you’re giving back to the community where you do business.” In the case of Hansel Toyota, for example, that means hosting community clean-up and recycling events, which increase in frequency year over year.
Employee Satisfaction and Retention
ESG reporting goes beyond environmental metrics; social and governance are also areas you should measure. Case in point: Signify, Inc. (formerly Philips Lighting), which sees its team as a metric, too. Internally, Signify set two major social and governance metrics for employees: doubling its percentage of women in leadership positions by 2025, and lowering its TRC (work-site accidents) rate to less than .30.
“Our people are essential to making this a great place to work,” said Juliette Gaussem, head of ESG reporting for Signify.
If you provide an eco-friendly good or service, are you seeing higher sales year over year? Customers are understandably skeptical about “greenwashing” — the term coined for businesses that make misleading environmental claims. Make sure you can back up your marketing with credible data.
So, You’ve Tracked Your Data — Now What?
Once you’ve identified your sustainability metrics, the next step is tracking them over time. Annual measurement is the best practice. Some companies use software, some use a service and some use a combination of both.
“In our experience, data organization and identification is most of the work,” Paddock said. “This is where the service comes into play. Someone to help build the processes, procedures and data environment to support high-quality carbon accounting that meets the future scrutiny from investors and regulators.”
To encourage follow-through, consider tying your executive bonus structure to sustainability performance. For example, Chipotle Mexican Grill announced that its ESG strides would be tied to compensation. If the company achieves its ESG goals, Chipotle executives could receive an increase in their annual incentive bonuses of up to 15%. If benchmarks are not met, bonuses will shrink. An increase in locally-grown ingredients and reducing greenhouse gas emissions are among sustainability metrics tied to compensation.
Once you’ve successfully begun tracking and making progress related to your company’s environmental impact, the next step is turning to suppliers. REI holds the brands it carries in-store accountable, too.
“We publish product impact standards that we ask all external brands to comply with, as well,” said Dempsey. “We send an annual product questionnaire with questions that speak to climate, diversity and inclusion, and so on.”
Signify has taken a similar approach when working with suppliers, in the hopes of creating an environmentally-conscious ripple effect throughout their industry.
Did we miss any sustainability metrics? Send us an email to share.