Selecting Non-Financial KPIs for Sustainability Reporting

1. DIRECTIONS
MONTHLY
SUPPLEMENT
OCTOBER/
NOVEMBER 07
TRENDS AND ISSUES IN THE WORLD
OF CORPORATE REPORTING
FINDING YOUR
OWN PATH
SELECTING NON-FINANCIAL KPIS
FOR SUSTAINABILITY REPORTING

2. Directions Monthly October/November 2007 Issue 17
Welcome to Directions Monthly. In this edition we take a look at how companies
tackle the issue of finding meaningful and relevant key performance indicators
(KPIs) that will help them effectively identify, manage and make progress on
their corporate responsibility impacts. At their best these indicators should
also help companies find the business opportunities in embedding responsible
business practices and the smart companies are defining their own.
David McKnight of Ernst & Young gives his insights on some current
approaches, and the pluses and minuses of using standards like GRI.
Lucie Harrild Pavan Athwal
In the world of sustainability reporting, effective measurement
is not a question of following the pack, as what is right for one
company or marketplace will not necessarily be right for the next.
What are examples of good sustainability is a KPI for the amount of land occupied, there
KPI reporting? Avoiding recent Ernst & is no indicator on the amount of land disturbed
Young Corporate Responsibility services or reinstated each year from their mining
clients, I have selected companies from the operations. Another key issue for the sector
mining (Anglo American), retail (Waitrose), is transparency and like other leading mining
telecommunications (Vodafone), private reports, Anglo American disclose the taxes and
equity (3i), oil and gas (ExxonMobil) and royalties paid to each government.
beverage (Heineken) sectors to explore what
seems to be best practice. Of course this A related key issue is demonstrating the
selection omits sectors that include some benefits to the communities in which they
of the leading reporters, but boundaries operate. As an indicator of these benefits,
have to be set for the sake of brevity. Anglo American report an “economic value
added” KPI. Further insight to their economic
So, how do you identify good sustainability contribution would be gained with the inclusion
David McKnight KPI reporting? Well, KPIs are meant to help a of a definition or explanation of this indicator.
Senior manager business define and measure progress towards
Ernst & Young’s Corporate its goals. In terms of sustainability the lens for Overall, the leading mining company reports
Responsibility Services defining KPIs is wider, in that companies should include KPIs across many of the material
report KPIs on those aspects that are most issues. With the exception of a meaningful land
material to the company and its stakeholders. management KPI, Anglo American appears
to be right up there with them. To enhance
So, how do the reports stack up? Looking first disclosure, the sector next needs to consider
at Anglo American’s 2006 Report to Society, KPIs on some of the other sensitive issues
a wide range of KPIs are presented that such as resettlement, local community health,
cover many of the company’s most material and the Voluntary Principles on Security and
issues. These include workforce HIV in Africa Human Rights.
❝
and safety, although given Anglo American’s
current focus on safety, the addition of leading
safety indicators would help stakeholders
understand the efforts being made. A range of
environmental KPIs are disclosed for each of KPIs are meant to
the operating companies. However, whilst there
help a business define
and measure progress
towards its goals.
❞
The Waitrose 2006 CSR Report includes KPIs
across a range of sustainability dimensions,
including supply chain and transportation.
The supply chain KPIs disclosed are based
on the findings of supplier risk assessments.
Though it is not clear whether this relates to
suppliers for own-brand goods or if it also

3. Directions Monthly October/November 2007 Issue 17
❝
Some companies are already
being brave and smart enough
to define their own path in
non-financial reporting. More
❝
need to think for themselves and
break out of the pack mentality.
covers other suppliers. Also it would be more equipment at the end of its life would be performance including accident rates, water
meaningful if the findings were categorised useful, particularly in countries where there consumption, effluent, emissions to air, and
by the risk they relate to, eg labour practices, does not appear to be a local operating packaging. There are no metrics on supply
health and safety, etc. A good next step would company (such as Nigeria which receives chain environmental impacts such as transport,
be to include KPIs on supplier audits. 43% of re-used phones). Overall, the KPIs or biodiversity and sustainable agriculture.
disclosed are very similar to those reported There are no KPIs on social investment, health
The ‘avoided mileage from back and forward by the other European mobile operators and wellness, responsible drinking, marketing
hauling’ indicator presumably helps manage indicating that these are what the sector and consumer education. Additional metrics
greenhouse gas emissions and the topical considers most material. are provided in the GRI G3 Index and
‘food miles’ issue, however a definition would data sheet on the web, including senior
aid clarity. The report also discusses another The KPIs presented in the ExxonMobil 2006 management diversity, workforce turnover,
topical issue, customer health and nutritional Corporate Citizenship Report are based on political contributions and a survey of
information, but unlike some others in the the sector reporting guide from the American operating companies on the consideration
sector, KPIs are not included. Petroleum Institute/International Petroleum of human rights in supplier selection. The
Industry Environmental Conservation data sheet does not include year-on-year
Overall, Waitrose discloses KPIs in most of Association. Consequently the ExxonMobil performance comparison or targets. I also
the areas covered by its peers, apart from report includes KPIs that are similar to its couldn’t help noticing that there were
health and nutrition. One competitor also has peers and cover what the industry consider no cases of discrimination reported in a
a brownfield development metric and another to be the material issues for which data is company with over 55,000 employees.
has an employee ethics code KPI. Waitrose readily available.
may consider that these are not material Overall then, which is the best of this bunch?
because of its strategy or ownership structure Disclosing KPIs on revenue transparency The KPIs and boundaries in all of the reports
(employee owned partnership). No one in the has been problematic for the international are for the most part reasonably clear.
sector reports KPIs on the impact of large oil companies, but Exxon does disclose total The distinguishing factor and probably the
retailers on local businesses. taxes paid to governments (aggregated – important ones to stakeholders are KPIs
not detailed by each country) and refers on the issues that are most material to the
The 3i report is by far the shortest (7 pages) to reports published under the Extractive business. Therefore the best one has to be
but this is not necessarily a bad thing. The Industries Transparency Initiative (EITI) Anglo American – it presents indicators on key
report covers their approach to employee on payments to certain host governments issues such as HIV, taxes and royalties paid to
development, health and safety, environment, such as Chad. each government, and economic value added
and community investment. A performance (although the latter needs further explanation).
indicator is included on each aspect and there Unlike many of its European peers, it is not
is a target on their office greenhouse gas Exxon policy to prohibit political contributions, What is the future of KPI reporting? Currently,
footprint. This appears to be 3i’s first report but they do disclose the contributions made it appears that in some cases reporters
so no comparison is made with previous in the US (albeit that such disclosure is legally are collating information specifically for
years’ performance. The report says that required in other regulatory filings). Exxon reporting and complying with GRI. A more
corporate responsibility is taken into account also have a gender and US/non-US workforce pragmatic approach to applying GRI is to
in investment decisions but no details or diversity KPI. use the company’s materiality process to
indicators are provided. This is surely of the determine what metrics to report. Indicators
highest level of interest to stakeholders? ❝ The important ones to stakeholders are
KPIs on the issues that are most material
on material issues are also more likely to be
used in managing the business. Currently
The Vodafone 2006 Corporate Responsibility
Report includes indicators across the
to the business. ❞ metrics also tend to be output/lagging
metrics (emissions, incidents, etc) with
dimensions of CR including revenue However, unlike some of their peers, Exxon do some input/leading indicators (eg, community
distribution, diversity, community investment not disclose KPIs on breaches of their ethical investment). Engagement with business
(voluntary investments and those made under behaviour requirements or environmental leaders and investors would be enhanced
licence conditions), supplier evaluations, and safety fines paid. Exxon do include some with indicators on outcomes – linked to
investor and opinion former concerns and the metrics concerning their workforce malaria key factors such as brand and strategy.
results of a MORI survey on mast siting. There and HIV programmes in Africa, but these
are no KPIs on electromagnetic radiation, are not to the same level of detail as in the Some companies are already being brave
but the subject is discussed in detail. KPIs Anglo American report. and smart enough to define their own path
are provided on the re-use of handsets in in non-financial reporting. More need to
“lower-middle-income countries”. However, The Heineken 2006 Sustainability Report think for themselves and break out of the
an explanation on the ultimate fate of this presents KPIs on safety and environmental pack mentality.

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SALTERBAXTER ADVISE
COMPANIES ON STRATEGY,
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COMMUNICATIONS AND DESIGN.
Our clients are extremely varied and include FTSE 100 companies; some
of the world’s most exclusive brands; independent, entrepreneurial
businesses; world leading educational establishments; law firms; private
equity firms and media companies.
We name companies, re-invent companies, and re-position companies.
We help companies communicate with shareholders and advise them on
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A key area of our expertise is corporate reporting and we advise leading
UK and European organisations on strategy and design for their financial
and CR communications programmes. We currently work with 11 of the
UK FTSE 100.
Contact:
Lucie Harrild Pavan Athwal
lharrild@salterbaxter.com pathwal@salterbaxter.com
Tel: +44 (0)20 7229 5720 Tel: +44 (0)20 7229 5720
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