One View of the Best Green Investments
September 2, 2008
It’s the last weekend of the school holidays. After eight weeks, the circling sharks of my children close in for the kill. I give in to their pleading cherubic faces beaming up at me and say yes. Yes, we can go to a Theme Park.
Normally I hate the things:
- lots of other people screaming for no reason – go mountain climbing if you want scarey exercise;
- long queues waiting for something disappointing to happen – much like seeing the latest pulp Hollywood movie;
- drinks sold at vastly inflated prices – you can get that at a shopping mall without having to pay the whopping entrance fee.
(I wonder, is my natural grumpiness showing yet?)
However this time I was pleasantly surprised. Yes, there were queues, screaming and overpriced drinks. But some of the rides were actually worth it, and I almost enjoyed the day out! Read more
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WBCSD Measuring Impact Methodology — A Brief Overview
August 29, 2008
In order for a form of measurement to be truly accurate it has to be implemented by a group, not a set of individuals. For instance, it’s much easier for a group of five people to measure a thousand paces (the old mile) than five people counting a thousand paces individually.
This is why the World Business Council for Sustainable Development (WBCSD), in conjunction with the International Finance Corporation (IFC), has recently launched the Measuring Impact Methodology (MIM).
The flaw it seeks to address is one of the oldest in the book: how can different companies produce comparable figures open to close analysis if they all use different methodologies to do the measuring.
The area the framework aims to bring this rigour to is their impact among the most nebulous stakeholders: the communities within which they operate.
Stating the Outcome, Not Guessing the Result
Attempts have been made before to introduce mechanisms into business to measure their impact upon the wider community. The most widely known is the Environmental Impact Assessment (EIA).
These have been around in one form or another for over 20 years. Their place has always been as part of the project planning process in an attempt to gauge the likely impact a project will have on the wider environment.
WBCSD’s Measuring Impact Methodology is different. It aims to measure the impact a business has had upon the wider community after the event.
In this sense it is a crucial part of the sustainability measurement and compliance jigsaw which is being built up. To date there has been no framework governing how companies do this, leaving the whole area open to interpretation and the spin of greeenwashing.
Now, however, companies have a framework to work within when assessing and reporting the impact they have had upon the wider community.
Although only voluntary, companies who choose to operate outside this framework will always draw the cynical journalist who will look for the additional spina company may be trying to introduce.
The 4×4 Solution
The framework itself is remarkably simple and rests upon four steps which a company should go through:
- Set Boundaries; define the project in terms of the business activities to be considered and the geographic area in which they are occurring
- Measure the Direct and Indirect Impacts; identify those impacts under the company’s direct control and those which are not but which are influenced by the company’s activities
- Assess Contribution To Development; engage with stakeholders in the community in order to gauge how the company is supporting their development priorities
- Prioritise Management Response; plan a response to the impact the company has had, based upon the risks and opportunities identified in previous steps
The framework also defines four classes of business activities which companies should report against:
- Governance and Sustainability; the impact the company’s policies and procedures have on the wider community, including anything specifically targeted at environmental management
- Assets; the impact anything “owned” by the company has, including premises and infrastructure and how products and services are created and delivered
- People; the roles people fulfil within the company, their skills and training
- Financial Flows; the financial impact a company has within it community, typically through procurement and taxation
Nice And Easy Does It
The framework includes a detailed explanation of the various activities a company needs to go through in order to complete each step.
However unlike many others the methodology includes a macro-driven Excel spreadsheet. This gives the methodology two advantages in usability over many others.
Firstly it provides a readymade electronic reporting application so the company doesn’t need to produce its own, spend extra money buying one from a consultancy or print out an onerous amount of paper detailing all the check boxes and comment fields..
Secondly it allows personnel to learn about the framework in a very hands-on manner, reading about the steps and going through them in a hypothetical example at the same time.
Indirect Impacts
Overall this is a very welcome addition to the growing armoury of methodologies being published to help companies understand and improve the sustainability of their business processes.
It also breaks new ground in that it measures the impact of company activities after the event, rather than trying to project them and then measure how a company has performed against that target.
In addition, the inclusion of a multi-functional spreadsheet in the methodology is also welcome and one has to wonder whether other organisations will start to provide similar tools as part of their methodologies.
After all, business lives by the rationale that competition between different organisations in products and services is healthy for society. There’s no reason providers of schemes and standards should be any different!
Comparability in Sustainability Reporting
July 30, 2008
Take yourself back over 500 years to a market in the middle of any medieval town.
Farmer Giles is trying to sell his goats when along comes Farmer Bob. “How many goats will you give me for my woolly sheep?” he asks.
Farmer Giles strokes his chin. “Two,” he replies and the deal is done.
Then along comes Farmer Harold, leading a cart full of apples. “How many goats will you give me for my apples?” he asks.
Farmer Giles looks surprised. “Apples?!” he asks. “Yes, apples,” replies Farmer Harold. “You gave him two goats for his sheep, how many for my apples?”
Now Farmer Harold has a cunning plan. His wants to sell his cart of mouldy apples to Farmer Giles by pretending the mould is really some new form of wool.
However Farmer Bob gets there first. “Don’t be daft, you can’t compare apples to “pairs”, especially if it’s a cartload of apples and a pair of goats. Silly man!”
Thankfully, before the scene becomes too Pythonesque, a guard intervenes and the farmers all go their separate ways.
An Inadequate Approach
Although the trade system of barter has been largely replaced by the monetisation of goods and services, the principle of comparability is as relevant today as it’s ever been.
It is especially important from the point of view of both business consumers’ and stakeholders’. They need to be able to compare different products and services in order to determine which is best for them.
In the whimsical example above, two goats are roughly equivalent to one sheep because of the relative difference in wool yield each gives. Apples, on the other hand, don’t produce any wool (unless you’ve kept them for far too long…)
Similarly, making their good and services comparable in terms of sustainability is one of the greatest challenges facing companies today.
For instance, as reported in Pricking the Balloon of Corporate Hot Air, the top 500 companies in the world use 34 different methodologies to collate and verify their greenhouse gas emissions.
Not surprisingly, investors have branded this scatter-gun approach as “inadequate” and the WWF has called for “increased standardisation among industry sectors”.
A Principled Approach
However, there would not be an issue if all of these companies adopted the Institute for Social and Ethical AccountAbility’s AA1000 standard.
Key in this standard is the principle of comparability, which is defined as:
the ability to compare information on the organisation’s performance with previous periods, performance targets, or external benchmarks drawn from other organisations, statutory regulation or non-statutory norms.
This principle ensures that any sustainability report which meets the AA1000 Standard has had its key metrics examined to ensure they are comparable to other businesses.
In addition, the standard goes on to say:
if the indicators chosen … are unique to the organisation, comparability of performance with other organisations may not be possible
This means companies should engage with the wider community of their peers and other organisations in order to determine how their performance should be measured.
It also links very well to the principle of Materiality. In the AA1000, this requires that companies consider which indicators are normally used by other organisations operating within its sphere.
No more mouldy apples
Standards such as AA1000 are not a silver bullet and, as with all human activity, rules and standards can be circumvented by any concerted effort to distort appearances or withhold information.
However, as the concept of Collaborative Governance starts to take hold, many companies will start to realise that it is in their best interests to ensure that they can be directly compared to their competitors.
This is because if companies in the same sector report different indicators or use different methodologies, it will act as a lens and increase the perception that something is being concealed.
So, returning to the medieval market at the start, companies need to move to assure stakeholders that their sheep and goats are truly comparable and not mouldy apples in disguise.
If they don’t it will only breed distrust, which is unlikely to go down well with investors and regulators alike and could well lead to the intervention of more than just a friendly guard.
Pricking the Balloon of Corporate Hot Air
July 28, 2008
They are the crème de la crème, the cat’s whiskers, the dog’s … whatsits.
They are the best. At the pinnacle of their respective industries they are the global leaders of their time. Superlatives cannot be heaped too highly, one atop the other, to describe how highly these companies are regarded.
They are the FT Global 500: the top 500 worldwide corporations, ranked by according to market value. Few facts about them will surprise you.
For instance: nearly 15% of the companies are Banks, making it the largest sector in the list; and three of the top five companies are Oil & Gas Producers, spanning the USA, Russia and China.
The clout of these companies cannot be over estimated. The combined market value of the top ten Banks and the top three Oil & Gas Producers is over $2.4bn. This makes them more influential as a bloc than the combined FT500 companies of any nation except the USA.
Which is why the latest report by the Ethical Corporation Institute is so disappointing.
Inconsistent Emissions
Based upon the FT500 companies’ responses to the fifth Carbon Disclosure Project, the survey has collated and analysed statistics about how the companies are reporting their greenhouse gas (GHG) emissions.
Their conclusion, published in the Corporate Greenhouse Gas Emissions Reporting 2008 report, is that there is a huge disparity between the methodologies FT500 companies use to calculate their emissions.
For example, 34 different methods were used within the 500, with no consistency being shown by either individual sectors or geographic regions. This makes any comparison between companies, sectors or countries almost impossible to achieve.
In addition only half of those surveyed used a recognised standard to verify their emissions figures and of those using the most widely recognised methodology, the WBCSD/WRI GHG Protocol, less than half had their figures independently verified.
From Peanuts to Financial Performance
On the fiscal side the survey revealed the cost of collecting and independently verifying GHG emission data is around $2m. This is about one hundredth of a percentage of the market value of Henkel, the smallest company in the FT500. To you and me: Peanuts.
Compare this to how the same companies handle their annual accounts. Here they are regulated with most countries following either the Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS, formerly the IAS).
In addition, published financial figures have to be independently verified by a competent and recognised auditor. Henkel spent $13m on audit services alone in 2007, six times the hypothetical ceiling for GHG emission figure collation and auditing.
It’s worth pointing out that this comparison confirms the belief that once an area becomes regulated it is immediately more expensive for a company to service.
All the investors questioned in the survey suggested that the companies they invested in were using inadequate standards. Unsurprisingly, they also suggested that those standards could be improved by linking carbon performance reporting with the company’s financials.
Ouch .. as in OUCH!!
This post could end there by echoing the sentiments in Front Seat Sustainability or Squirrels of Sustainability, repeating the need for companies to work together on methodologies and standards in order to stay ahead of regulation.
However, there is a far sharper end to this stick than an in-principle call to arms.
In 2013, four-and-a-half years from now, EU energy producers will start trading carbon emissions under the Emissions Trading Scheme. In addition, UK companies will be subject to the more far-reaching Carbon Reduction Commitment.
Taken together these two initiatives will push up electricity prices by over 40%, according to estimates from the EU and the UK Government. Both are also planning to extend their schemes to cover all major business sectors shortly after 2013.
GHG emissions will suddenly become very expensive and investors, recognising that a non-standard approach is always more risky, are likely to look less favourably upon this bickering over methodologies.
In addition the survey suggests the costs of reporting and auditing emission figures could rise by a factor of six if they become regulated.
In short, businesses need to look urgently at how they report GHG emissions and adopt a standard which is not only transparent and comparable but also accepted amongst their peers.
Those which don’t could find the medium term financial costs will, quite literally, cripple them.
Photo Credit: brianfit
Front Seat Sustainability
July 17, 2008
I’m a bit of a DIY throwback, more inclined to bodge my own solution than use hardware provided by well known home improvement stores.
Most things which go up are usually held together by a bit of cardboard wedged in just there and I seem to have developed the use of badly fitting screws into something of an artform.
Then there’s the issue of tools. There’s many I don’t have so I regularly rely upon a strange concoction of screwdrivers and chisels to get most jobs done. Occasionally I use a sledgehammer, when the frustration gets too much.
It’s taken DIY many years to reach the stage where every shed contains a toolbox of the properly calibrated tools and each home a person with the knowledge to use them properly.
Business is embarking upon a similar cycle for the development of sustainability practices. At the moment it’s in bodge mode, with everyone patching things independently of each other, hoping that that’s what’s needed.
A Socio-Economic Assessment Toolbox
However some businesses are taking the lead and publishing the methodologies which underpin their practices, making the tools they use available to all.
Recently Caisse d’Epargne released their financial products certification methodology, as described in Squirrels of Sustainability. Similarly, Anglo American have released their Socio-Economic Assessment Toolbox (SEAT) into the public domain for any company to use.
Its primary purpose is help individual Anglo-American operations to measure and improve the impact they have upon the communities within which they operate.
To achieve this, eight steps are identified for an organisation to go through:
- Profile the current operation
- Profile the community and identify key issues through dialogue with key stakeholders
- Identify and assess current impacts, management measures and social initiatives
- Share results of the assessment with stakeholders and get recommendations for management action
- Develop Key Performance Indicators and associated management and monitoring plans
- Improve contribution of non-core activities to local community
- Post operation closure planning
- Prepare report and feedback to the community
The toolbox itself consists of 23 tools which can be deployed to fulfil these steps.
Many of them are fully comprehensive, such as the one to follow when establishing social investment programmes (pictured). This tool alone consists of over 30 steps spanning the three phases of planning, implementation and monitoring.
Sharing is Better
The most praiseworthy part of the whole venture is that Anglo American has chosen to publish their toolbox without restraint for downstream use.
This flies in the face of accepted business practice where companies either don’t share their solutions, or they seek to licence them and so generate further revenue streams.
Conversely, the need to establish sustainable business practices in a critically short period of time demands that companies collaborate freely and openly with one another.
The publication of toolboxes such as this is one way of achieving this. There is nothing particularly complicated about the tools and much of what they describe is pretty straightforward.
However, other companies also need to change their approach so that they understand the inherent value toolboxes such as this have within them. The basic planning and identification of considerations and outcomes is common to most industries and sectors.
In this way companies across business sectors can start to work together to build sustainable business practices, refining processes and methodologies and creating genuinely broad based foundations for the future.
Thankfully, DIY is not my profession otherwise my bodging ways would quickly lead to future customers hearing how inept I am and seeking other people to put up their shelves.
Similarly, businesses who don’t engage with one another in a true spirit of co-operation may find their reputation failing, and with it their ability to continue in business.