A new approach to developing sustainability KPIs [key performance indicators] for all corporate sectors has been put forward by a team of senior industry figures and academics.
The proposals, aimed at encouraging the use of sustainability reporting in the US, differ from previous KPI regimes in that they stress materiality. The authors hope the proposal will enable firms to move from a compliance driven “disclosure” mindset to one of managing – and even competing on – sustainability issues.
The 88-page From Transparency to Performance: Industry-Based Sustainability Reporting on Key Issues has been backed by The Hauser Center for Non-profit Organizations at Harvard University and the Initiative for Responsible Investment.
The authors are Steve Lydenberg, Chief Investment Officer at Domini Social Investments, Jean Rogers, Principal at consulting firm Arup and
David Wood, Director of the Initiative for Responsible Investment.
The trio acknowledge the work of the Global Reporting Initiative as well as the France’s New Economic Regulations, scoring systems from indexfirms Dow Jones and FTSE as well as the systems devised by SustainAbility and AccountAbility.
Other organisations such as European financial analysts’ group EFFAS and Tomorrow’s Company are also looking at the wider issue of integrating ESG reporting.
The study’s authors argue that guidance must be relevant to the core operations of the business and that the sustainability data disclosed as must be relevant to key stakeholders.
And they say that determining a “legitimate process” for implementation is the important first step in going down the road to mandatory disclosure.
They have concentrated on how a process for determining KPIs might be developed, rather than on determining indicators themselves. Their method relies on three principles — simplicity, materiality, and transparency. It could be useful for regulators or stock exchanges; corporations; stakeholders and investors.
The new approach calls for a third party to identify indicators that represent the greatest material impacts and opportunities for a particular sector.