Environmental, social and governance (ESG) accountability is increasingly a feature of many companies’ annual reports, with the trend for linking sustainability performance to executive pay growing by the year. In a survey by Corporate Secretary, 60% of European respondents stated their board tied ESG goals to executive pay, compared to only 37% of North American boards.
Reporting and remunerating according to ESG performance remain a voluntary decision, based largely on recognised impacts on company effectiveness and brand perception; however, mandatory reporting is on the way. Already more than 1,300 of the UK’s largest registered companies will need to report using Task Force on Climate-Related Financial Disclosures (TCFD) in financial years starting after 6 April 2022.
Despite this, there is still a surprisingly large amount of greenwashing going on. Some companies are still not afraid to make sustainability claims that are based on creative fudging of the numbers, and the regulators are taking note.
The Competition & Markets Authority (CMA) has sent a shot across the bows of the industry to encourage corporates to get their houses in order. In July 2022, it placed Asos, Boohoo and George at Asda under investigation to verify their green credentials.
The carrot and stick of bonus versus litigation is a start. But for meaningful change, sustainable behaviours need to be embedded across the business. As “what gets measured gets done”, this means setting key performance indicators (KPIs) at as granular a level as possible, across every team and department.
Nestle UK & Ireland’s Dr Emma Keller, head of sustainability, explains: “Breaking down the big long-term goals into tangible, actionable and meaningful goals at department-, team- or individual-level is essential if all the actions are to ladder up to the overall aim. After all, reaching net zero and becoming a genuinely regenerative organisation that puts more back in than it takes out is new territory – no one has been there yet, and no one has all the answers.”
B Corp is measuring the triple bottom line. It’s a change from a shareholder model to a stakeholder model
What is clear is that, overall, there is an acceleration in the number of companies taking steps to make a measurable (and therefore, accountable) impact on sustainability. But first, it’s important to get ‘what’ you’re measuring pinned down, as well as ‘why’.
“I prefer the word ‘impact’ to ‘sustainability’. ‘Sustainability’ is so overused and it’s conceptual, whereas ‘impact’ is much easier to measure. Every action you take has an impact on people and the planet and you can work out what that is,” comments Hannah Keartland, who was formerly financial director and then head of innovation at Cancer Research UK before launching her consultancy as an outsourced chief impact officer.
“Look at procurement. If we buy this item, what is its impact? You can then look through the whole supply chain and say, ‘What’s the packaging? How was this produced? How was it transported? What were the impacts on people and the planet, water and waste in every single stage of that journey?’ You can map that back.”
There are myriad examples of how organisations are trying to codify their efforts to create a measurable and reproducible set of behaviours that lead to tangible change. But they are often as different as they are many.
Good provenance
Conventional raw materials are generally accepted to be more harmful to the environment and human health than organic raw materials. Weleda is committed to including 80% minimum certifiable organic raw plant materials and the team reports directly to the company’s managing directors. The company is also certified by the union for ethical biotrade, meaning it must follow strict processes to meet requirements and submit to audits.
One of the most difficult elements of delivering a product or service that is sustainable through and through is ensuring that the supply chain meets exacting requirements. Fashion ecommerce site Farfetch insists on a stringent ethical sourcing policy, demanding that partners and other suppliers meet requirements such as providing an environment that considers employee health and safety and complies with national laws. But the company acknowledges that “it is not always possible to monitor and control the conditions of each individual involved in the production of the products”.
Tom Berry, global director of sustainable business at Farfetch, would not be drawn on specific KPIs per department, only saying that: “Sustainability is a very broad subject and touches all departments. Each department needs to take ownership and leadership of the elements it can most influence.”
Ethical cosmetics company Lush relies more on forging relationships than actuarial targets to inspire its staff towards sustainable behaviours. “The Lush strategy is about how we build engagement by bringing the people on the front line closer to the people who must do the work. If we have direct connections with the indigenous communities being affected by palm oil in Indonesia, the people formulating the products have a vested interest because they have formed a relationship with these people. It’s not a number, it’s not a target, it’s real people, real lives and real relationships,” insists Ruth Andrade, Lush lead for giving, regenerative impact and organisational development.
Wise buys
In its advisory report Empowering Sustainability Heroes, Nestlé highlights the approach taken by Greene King pubs. With differently sized sites, one of supply chain director Vance Fairman-Smith’s tasks is to work with pub teams to identify dishes that create waste in some locations but not others. “We had bread in our supply chain in boxes of 48 loaves, when for a lot of pubs this was too many. This creates space and waste issues.” In the UK, food waste makes up 6% to 7% of greenhouse gas (GHG) emissions.
McLaren Racing is the first Formula One team to release a sustainability report. It’s currently in the middle of discussing how introducing sustainability KPIs might work across its business. Kim Wilson, McLaren’s director of sustainability, reveals that KPIs under discussion for procurement could include being incentivised to work with key suppliers, those who have the greatest impact on the organisation’s GHG footprint and/or where there is the greatest opportunity to implement change. The aim would be “to decarbonise the goods and services provided and actively address the social impacts of their supply chain”.
All in the mix
Naturally, many companies are looking to include recycled products in their outputs or reduce carbon in their production processes. For example, Weleda’s product development board is responsible for achieving 65% recycled material or bioplastics in its natural cosmetics primary packaging (based on the weight of all packaging produced).
“We are going to do this product carbon footprint that includes all the raw materials, all the supply chain, all the transportation and we have this goal anchored in the corporate strategy,” says Weleda’s Kärlis Kalns, sustainability manager.
Impacts are also considered in non-tangible goods. Erris de Stacpoole, PR and communications lead at integrated agency group Unlimited, explains that advertising production is an area that can have relatively high carbon emissions. Linking to Ad Net Zero, the advertising industry’s emissions pledge, the company is working with AdGreen to introduce its levy on all client productions and will impose it on at least three client productions in 2022. “We’ve also looked at every element of a shoot to see how we can meet our 2030 carbon neutral pledge,” she says.
The account teams join in these efforts, and their specific KPI is to be able to share the carbon footprint of briefs to encourage clients to take sustainable options in all Unlimited’s creative work. A third-party specialist has been engaged to help measure and monitor those emissions and reporting will begin once the company has been able to establish a baseline.
It’s a people thing
Building advocacy for sustainable behaviour across the business is almost as important as setting defined KPIs. Making sure staff understand the impact of their behaviour is a critical part. Greene King has created champions at each one of its sites – people who are passionate about sustainability. The business has also added sections on energy and waste to its training, and incentives – including financial ones – are being considered for these champions in the future.
Weleda uses the Theory U model, which shifts from individual-centred behaviours to collective ones that should support a more sustainable, healthy life. It is used to prioritise internal goals, with 145 workshops held over two years for collegial leadership training alone. “People who want to work on innovative and sustainable solutions need creativity, vulnerability and trust,” Kalns says. “They have to feel safe. We can never make a KPI based on individuals’ ability to be vulnerable, but at least we can quantify workshops and training hours. That’s where we’re at currently.”
Again, Lush prefers to replace classrooms with action. At Brighton Pride 2022, the local store ran a litter pick, part of the company’s overarching aim to monitor the waste it collects. “It’s about winning hearts and minds, making people feel proud of what they’re doing,” explains Andrade.
Unless there is a regulatory framework to follow, many companies will beat their own path towards what ‘measurable sustainability impacts’ mean to them. But there is a desire for those frameworks and datasets to measure against and motivate where necessary. Even Lush, with its preference for engagement over targets, notes that it’s diving deeper into insight to inform future activity.
Becoming a genuinely regenerative organisation that puts more back in than it takes out is new territory – no one has all the answers
“There’s a lot of work in integrated reporting and we’ve been discussing how we do it much more. We don’t have it yet. We have been working quite closely with the business intelligence team to increase their capacity, so they can help us. Just now we are setting up dashboards mixing non-financial and financial data,” reveals Andrade.
Aisling Connaughton, co-founder and sustainability solutionist at women-led sustainability consultancy Cyd Connects, reveals that, of all the sustainability frameworks she uses to help clients reach their goals, one of her most used is the B Corp accreditation. Not only does being able to put the B Corp logo on brand assets promote a great deal of trust in customers, but it also helps the organisation make defined progress – and continued improvement.
“B Corp is measuring the triple bottom line. It’s a change from a shareholder model to a stakeholder model. Underpinning it is the B impact assessment, which is now used all over the world,” explains Connaughton, saying that there were 400 B Corps in the UK at the start of 2022 and by the end of the year, there are predicted to be 1,200.
“It’s a living, breathing dashboard – and it’s free,” she adds. “You can have different team members looking at the ESG frameworks, bringing in multiple stakeholders across the business. It puts you on a points system and, in the same way you’d want to see your money go up, you also want to see your environmental and societal points go up.”
Continuous improvement comes from a process of ongoing auditing and yearly benchmarks. Companies need to acquire 80 points to gain the B Corp mark and then improve that score every year. Between now and 2025, for example, Weleda is seeking to achieve 125 points to prepare for the next certification.
However granular a company can make KPIs that contribute to company-wide progress towards a more sustainable future, it must ultimately be led coherently at a top level. Again, there is some contention as to who exactly is responsible for sustainability strategy.
Wilson maps out the organisation chart: “Organisations where the CEO sees sustainability as a strategic business priority and proactively drives it from the top, holding each member of the C-suite accountable for driving performance through their function, will make the most impact. It needs both a top-down and bottom-up approach which is why we have established environmental and social impact working groups.”
Nestlé UK & Ireland has a similar viewpoint, “starting with the top” and making sure targets “cascade down through teams and there is clear responsibility and accountability,” suggests Keller. At Weleda, Kalns insists the process is always wholly collaborative and “any employee can share their ideas” but ultimately, after the small team of five dedicated sustainability employees, “the final decision on strategy is made by the head of corporate sustainability with the board of directors at the highest level.”
Environmental, social and governance (ESG) accountability is increasingly a feature of many companies’ annual reports, with the trend for linking sustainability performance to executive pay growing by the year. In a survey by Corporate Secretary, 60% of European respondents stated their board tied ESG goals to executive pay, compared to only 37% of North American boards.
Reporting and remunerating according to ESG performance remain a voluntary decision, based largely on recognised impacts on company effectiveness and brand perception; however, mandatory reporting is on the way. Already more than 1,300 of the UK’s largest registered companies will need to report using Task Force on Climate-Related Financial Disclosures (TCFD) in financial years starting after 6 April 2022.
Despite this, there is still a surprisingly large amount of greenwashing going on. Some companies are still not afraid to make sustainability claims that are based on creative fudging of the numbers, and the regulators are taking note.
