Summary of Key Concepts

Key Concepts: Indicators and Narrative Discussion

Look for quantitative indicators that measure the company’s progress in accomplishing sustainability objectives. However, also read the narrative discussion for interpretation of the indicators.

Quantitative indicators: These are similar to the instrument panel lights in an automobile, but the warning lights cannot always explain a problem completely. A mechanic might need to do more investigation to solve the problem.

Narrative discussion: Qualitative information is similar to the mechanic that does the further analysis. It helps with a deeper understanding of the indicators. It can explain why a trend is occurring or what an organization is doing to ensure a positive trend or to change a negative trend in the future.

Key Concepts: Efficiency and Effectiveness

Efficiency considers how few resources can be used to provide an output.

Effectiveness considers whether the result or desired outcome was achieved regardless of cost.

Cost effectiveness considers both efficiency and effectiveness.

Look for all three types in a performance measurement system.

Key Concepts: Linking Indicators to Policies

An organization often develops a separate environmental or social policy, separate from its overall economic strategy. However, the environmental or social policy should be consistent with the organization’s economic strategy. The policy should integrate the ideas put forth in a number of documents to provide a holistic representation of the organization. Some of the documents that are useful for reference when creating a sustainability policy are the following:

  • Vision Statement
  • Mission Statement
  • Core Values and Beliefs or Code of Ethics
  • Existing Policies
  • Contractual Obligations
  • Stakeholder Requirements
  • Guiding Principles

Once the policy has been created then indicators should be linked to key words and phrases to ensure that the organization is measuring what it has committed to doing.

Key Concepts: Characteristics of Indicators

Indicators should be tested against a set of characteristics to ensure that they meet the needs of the reporting organization and the stakeholders. SMART or another set of characteristics can be used to ensure indicators are appropriate.

SMART is an acronym used to remember the following characteristics:

  • Specific
  • Measurable
  • Achievable
  • Relevant
  • Timely

Key Concepts: Input, Output, and Outcome as Related to Efficiency and Effectiveness

Look for a mixture of input, output, and outcome indicators in organization’s sustainability reports to understand fully the various aspects of an impact and its link to efficiency and effectiveness.

Some indicators use the ratio of input to output which is a measure of efficiency. Efficiency indicators answer any of the following questions:

  • What quantity of resources (input) are used to reduce a certain environmental impact (output)?
  • What quantity of resources (input) are used to produce a certain quantity of products (output)?
  • How many hours of work (input) are used to provide a certain quantity of charitable donations (output)?

If just outcome is of concern, then effectiveness indicators are used. They determine the extent to which an objective was accomplished, regardless of cost. Effectiveness or outcome indicators answer any of the following questions.

  • How well does a certain technology reduces GHG emissions?
  • How satisfied are the communities in which we operate?
  • How well do our procedures preserve biodiversity?

Other indicators use the ratio of input to outcomes to measure more thoroughly the cost effectiveness of certain activities Cost effectiveness indicators answer any of the following questions.

  • Which technology provides the greatest reduction of GHG emissions at least cost?
  • Which benefits are most satisfying to our employees and cost the least?
  • Which procedures provide the greatest biodiversity at the least cost?

Key Concepts: Ability to Measure

When reviewing the indicators that an organization provides in its sustainability report, keep in mind that the ability to measure the input, outcome, or output will determine the type of indicator that is selected. Ability to measure will also affect whether a quantitative indicator or a qualitative discussion is provided on a topic.

  • A indicator, such as training hours or costs (input), is often used, as knowledge retained (output and outcome) is difficult to measure.
  • Climate change (outcome) is difficult to measure; therefore, an indicator of GHG emissions (input) is provided instead.
  • Biodiversity (outcome) is difficult to measure; therefore, procedures to protect biodiversity (input) can be provided in a narrative discussion.

Key Concepts: Leading, Lagging

Look for both leading (input) and lagging (output/outcome) indicators for critical impacts to ensure that the organization is monitoring both the cause and the effect in an efficient and effective manner:

Cause: monitor with leading indicators
Effect: monitor with lagging indicators

Key Concepts: Eco-efficiency, Cross Cutting

Learn to be a critical thinker when interpreting indicators in a sustainability report. Ask yourself the following questions:

  • How does the indicator compare to a benchmark?
  • How easy/difficult is the target for the company to reach?
  • Does the indicator meet the SMART characteristics?

Also, remember that reporting is a continuous improvement. Sometimes readers think the organization is not providing exactly the type of, or all the, performance indicators it should. However, there are many factors that affect an organization’s ability to provide information that meets both management’s benefit and stakeholders’ expectations.