Let’s talk: sustainability, Issue 2
Setting credible sustainability goals that drive value
Stakeholders are asking companies to set goals to manage environmental and social impact.
So far this year, more than half of total shareholder proposal submissions relate to Environmental and Social (E&S) matters, up from 45% for the same period in 2013. Proposals asking companies to adopt quantitative goals are also on the rise.
Goal setting plays a crucial role in ensuring that an organization’s sustainability program is driving real business value. Weak goals, and a weak supporting infrastructure to execute on those goals, not only compromise this opportunity, but could also misuse resources an organization depends on for success.
Goals should be ambitious but achievable, drive value for the business and take into account the impact on the key resources and relationships the organization depends on for success. Organizations face many challenges when embarking on the journey to set relevant and contextual goals that reflect the organization’s strategy, including:
- Clearly defining your commitments
- Aligning your commitments with your business strategy
- Engaging top-level executives and middle-management
- Determining what counts and setting priorities
- Identifying potential progress statements (metrics that can be quantified) while balancing the costs for reporting and the usefulness of the information
- Building infrastructure to produce reliable and complete data for progress statements
Many environmental goals can be directly linked to increased cost savings, such as energy efficiency, which increases financial capital and reduces dependency on natural capital.
While environmental goals offer the most apparent value in regard to resource efficiency, setting and achieving social goals can have an impact on business success as well, especially over the long-term. Reputational risks can be hiding in the supply chain and impact a company’s social license to operate.
Additionally, goals related to employee satisfaction, training, remuneration, health and safety directly impact employee retention, which impacts the bottom line and your organization’s stock of human or intellectual capital.
When setting goals, there are a number of things to consider:
- Assemble the right team. As a first step, ensure that you engage the correct people across your organization in the goal-setting process. Executive input and buy-in is critical, as is input from those on the front line who will be charged with implementation.
- Do not overextend. Setting a goal for every environmental, social and governance (ESG) area could potentially stretch internal resources too thin, limiting performance and impact. Consider goals that can be measured with suitable criteria and allow for third-party assurance.
- Don’t put the cart before the horse. Think about how your company is going to measure and manage progress toward goals before you set them. Goals need to be achievable, measurable and realistic.
- Assess relevance and context for goals. Sustainability goals must be relevant to your business model and the key resources and relationships you depend on for success. They should also consider the context in which your business is, or could be, impacted by externalities.
- Be prepared for the naysayers. Sustainability goals will be scrutinized, and external parties will try to poke holes in your plan. Clearly define key terms in your commitments and consider third-party assurance of your progress statements.
- Practice patience. Multiyear goals can allow for more meaningful progress to be enacted. It takes time to develop the infrastructure to drive progress. Targets should be set in a way that provides the most value for the business over time.
In today’s business environment, being a good neighbor and employer is very important in building and sustaining success. Setting goals to drive E&S benefits will serve as a guide to building and achieving business value and brand reputation.
With pressure for transparency on the rise, it is imperative that these goals also have objective, measurable and relevant criteria for credibly reporting on the company’s progress.