Title: Session 8: Measuring and Communicating on Sustainable Supply Chain Performance
1- Session 8 Measuring and Communicating on
Sustainable Supply Chain Performance -
2Approach to Sustainable Supply Chain Management
(SSCM) Overarching Framework
Framing the Issues
Preparing for Implementation
Assessing Impact
Session 4 Sustainable Supply Chains as a Lever
of Competitive Advantage
Session 1 From Sustainable Development to
Sustainable Supply Chains
Session 5 Integrating Sustainability into the
Supply Chain
Session 8 Measuring and Communicating on
Sustainable Supply Chain Performance
Session 2 Governance of Supply Chains I From
Compliance to Voluntary Standards
Session 6 Managing Stakeholder Relations
Session 7 Building Supply Chain Partnerships
Session 3 Governance of Supply Chains II
Introducing International Labour Standards
3Session objectives
- Understand the importance of measuring and
monitoring to improve sustainability performance
in supply chains - Learn about widely adopted methodologies and
tools to measuring and monitoring supply chain
and sustainability performance - Understand the challenges involved in identifying
relevant metrics and consistently measuring
results - Explore tools and systems to track and
communicate results to stakeholders
4Agenda
- 8.1 A review of Corporate Performance
Measurement and Reporting - 8.2 Drivers for sustainability measurement and
reporting - 8.3 Measuring supply chain and sustainability
performance - 8.4 Reporting on sustainable supply chain goals
and progress - 8.5 Class discussion Reporting on sustainable
supply chain performance
5Talking about performance measurement
- What is performance measurement?
- Why measuring?
- Measuringagainst what?
- How to measure?
6The roadmap to sustainabilitys biggest priority
by far is performance.Companies must produce
tangible results that put them on a truly
sustainable path.Performance will be the
ultimate measure for evaluating a companys
progress towards achieving sustainability. Richar
d LockeDeputy Dean and Professor of
Entrepreneurship,MIT Sloan School of Management
7Four views on business performance measurement
systems
- An integrated set of planning and review
procedures which cascade down through the
organization to provide a link between each
individual and the overall strategy of the
organization (Rogers, 1990) - one output of strategic planning senior
managements choice of the nature and scope of
the contracts that it negotiates, both explicitly
and implicitly, with its stakeholders. The PMS
is the toolto monitor those contractual
relationships. (Atkinson et al, 1997) - A PMS enables informed decisions to be made and
actions to be taken because it quantifies the
efficiency and effectiveness of past actions
through.analysis, interpretation and
dissemination of appropriate data. (Neely, 1998) - A strategic PMS translates business strategies
into deliverable results. Combine financial,
strategic and operating measures to gauge how
well a company meets its targets (Gates, 1999)
8Performance measurement is certainly NOT about
profit alone
- By early 1980s, Johnson and Kaplan highlighted
the shortfalls of financial performance measures
to reflect changes in the competitive environment
and strategies of organisations - The 1990s saw a performance measurement
revolution (Eccles, 1991 Neely, 1999) and a
proliferation of frameworks that integrate wider
criteria - Balanced Scorecard (Kaplan and Norton, 1992)
- Performance Measurement Matrix (Keegan et al,
1989) - SMART Pyramid (Lynch and Cross, 1991)
- Baldrige Criteria for Performance Excellence
- Performance Prism (Kennerley and Neely, 2000)
- European Foundation for Quality Management (EFQM)
Excellence Model - Six Sigma
9Bottom line, the overall concept of corporate
performance has evolved to integrate measures
beyond financial indicators
- After the accounting and reporting scandals of
the early 2000s (e.g. Enron), corporate
governance became a priority for stakeholders,
from regulators to consumers - Additional stakeholder demand for transparency in
areas such as board level remuneration, internal
controls, procurement practices and management
oversight have set new standards for corporate
reporting - Closer scrutiny of practices, results and overall
performance has resulted into more complexity,
new metrics, new measurement systems and greater
information available for stakeholders - The emergence of Globally Accepted Accounting
Principles (GAAP) and International Financial
Reporting Standards (IFRS) have formalized the
need to measure and communicate broader corporate
activity through reporting. - More recently, the concept of Triple Bottom Line
(TBL) emerged, referring to the expansion of
accounting of financial performance to make
corporations accountable for their environmental
and social impacts.
10Agenda
- 8.1 A review of Corporate Performance
Measurement and Reporting - 8.2 Drivers for sustainability measurement and
reporting - 8.3 Measuring supply chain and sustainability
performance - 8.4 Reporting on sustainable supply chain goals
and progress - 8.5 Class discussion Reporting on sustainable
supply chain performance
11Drivers for measuring sustainability performance
- Monitor, review and adjust
- Transparency and legitimacy support claims for
actions - Increased demands from multiple stakeholders
shareholders, customers, community, suppliers,
investment community - Increased visibility of sustainable supply chain
activities within overall business operations - Align sustainable supply chain goals and
performance with corporate performance
12The business case approach (Brown, 2006)
creating value for shareholders
- Social and environmental accounting seen as an
expanded management toolkit for increasing
shareholder value (Hedstrom et al., 1998) - Focuses on identifying and pursuing forms of CSR
and SEA that result in win-wins for both business
and wider stakeholders (Brown, 2006) - BITC (2003) states that there are rewards to
reap from an effective business-led approach
that make the business case compelling - A way to demonstrate positive impact on society
(BITC, 2003), and to head off campaigns from
activists.which have the potential to threaten
business interests (Litvin, 2003) - Business leaders are increasingly acting upon
this responsibility (to report) because it makes
good business sense. It helps companies mitigate
risk, protect corporate brand, and gain
competitive advantage(Deloitte, 2002)
13Business benefits from sustainability reporting
(WBCSD, 2003)
- Creating financial value
- Attracting long term capital and favourable
financing conditions - Raising awareness, motivating and aligning staff,
attracting talent - Improving management systems
- Risk awareness
- Encouraging innovation
- Continuous improvement
- Enhancing reputation
- Transparency to stakeholders
- Maintaining license to operate
14The Stakeholder-Accountability Approach (Brown,
2006) promotes a more open and transparent
society
- While stakeholders share interests, there is
considerable potential for conflicts of interests
(Brown) - Managements primary responsibility is to society
and managerial performance should be evaluated
in terms of both profit and the accomplishment of
social initiatives (Chen, 1975) - The Corporate Report backs up the notion that
stakeholders have rights to information
(Accounting Standards Steering Committee, 1975) - Accountability as being called to account for
ones actions - Recognizes the economic, social and political
power that corporations have in society - Companies accountable for the use of financial,
human and community resources entrusted to them
and that affected parties need safeguards against
potential abuses - Access to information plays an important
monitoring role in the process
15Beyond theory the view from practitioners
- Key reasons for measuring supply chain
sustainability - Illustrative example from the shipping industry
Innovation
Attract
Attract
Source North American Sustainable Supply Chain
Report 2010
16Agenda
- 8.1 A review of Corporate Performance
Measurement and Reporting - 8.2 Drivers for sustainability measurement and
reporting - 8.3 Measuring supply chain and sustainability
performance - 8.4 Reporting on sustainable supply chain goals
and progress - 8.5 Class discussion Reporting on sustainable
supply chain performance
17Evolution of supply chain measurement systems
(Beamon, 1996)
- Single performance measures e.g. cost, customer
satisfaction (Christopher, 1994), supplier
performance (Davis, 1993), risk management
(Johnson and Randolph, 1995). Key considerations - Inclusiveness
- Universality
- Measurability
- Consistency
- Strategic goal-driven measures type of
performance measurement directly related to the
manufacturing strategy (Maskell, 1991) - Performance meeting strategic goals
- Performance measure as a driver for achieving
vision and goals - Strategic goals seldom refer to a single
performance measure, but to a combination of
measures
An effective supply chain performance measurement
system must rely in a combination of measures
that acknowledge the interrelations within the
supply chain, consider risks and uncertainties
and are consistent with an organizations
strategic goals.
18Three types of performance measures for supply
chains (Beamon, 1999)
- Total cost of resources
- Distribution/manufacturing cost
- Inventory investment, obsolescence
- Return on investment (ROI)
- Quality
- Customer response time
- Number of items produced
- Number of on-time deliveries
- Manufacturing lead time
- Shipping errors
- Customer complaints
- Volume flexibility e.g. seasonality
- Delivery flexibility e.g. transport disruptions
- Product mix flexibility demand variations
- New product flexibility
19Frameworks for measuring social and environmental
performance of supply chains broadly disseminated
and adopted
- WBCSDs Measuring Impact Framework
- Global Reporting Initiatives Guidelines for
measuring and reporting on sustainability
performance - Prince of Wales Accounting for Sustainability
Project Connected Reporting Framework - AccountAbilitys AA1000 Accountability Principles
20The Global Reporting Initiative guidelines is
the most widely adopted measurement and reporting
framework
The cornerstone of the framework is the
Sustainability Reporting Guidelines. The third
version of the Guidelines - known as the G3
Guidelines - was published in 2006, and is a free
public good.
21The GRI Guidelines and supplements
- The GRI Guidelines
- Sector supplements providing guidance that
captures sustainability issues faced by specific
industry sectors, e.g. financial services,
telecommunications, auto manufacturing, mining - Technical protocols providing detailed
measurement methods and procedures for reporting
on indicators contained in the core guidelines
e.g. energy indicators providing definitions
(e.g. direct vs. indirect energy) and measurement
methodologies (e.g. conversions, units) - National annexes providing national (local)
country perspectives and particular influences,
nuances and contexts to sustainability - Issue guidance documents on topics such as
diversity and productivity
22The GRI Standard Disclosures
- Measures express strategic approach, management
goals, and performance results through three
kinds of disclosures
- Profile disclosures set the overall context for
understanding performance - such as strategy and
governance. - Management Approach disclosures explain how
specific sustainability issues are managed,
including goals and targets. - Performance Indicators elicit comparable
information on economic, environmental, and
social performance.
Source Global Reporting Initiative G3
Guidelines, accessible at www.globalreporting.org
23Measuring Economic Performance according to GRI
- The economic dimension of sustainability concerns
the organisations impacts on the economic
conditions of its stakeholders and on economic
systems at a local, national, and global levels
(GRI3.1). They show - Flow of capital among different stakeholders
- Main economic impacts of the organisation
throughout society
24Measuring environmental performance according to
GRI
- Performance and measures relative to inputs
(e.g., material, energy, water) and outputs
(e.g., emissions, effluents, waste). - Performance and indicators relative to
biodiversity, environmental compliance,
environmental expenditure and the impacts of
products and services. - Corporate goals in the area and Policy
- Organisational Responsibility Management
accountable for executing process - Training and awareness Procedures aimed at
creating awareness and training - Monitoring and Follow Up
- Monitoring, corrective and preventive actions
with emphasis on the supply chain - List of certifications for environment-related
performance or other approaches to
auditing/verification for the reporting
organization or its supply chain. - Additional Contextual Information
- Key successes and shortcomings
- Environmental risks and opportunities
- Key strategies and procedures for implementing
policies or achieving goals.
25Sample Environmental Performance Indicators
required by GRI
Source Global Reporting Initiative G3
Guidelines, accessible at www.globalreporting.org
26Measuring social performance according to GRI
- 1. Labour Practices and Decent Work
- United Nations Universal Declaration of Human
Rights - United Nations Convention International Covenant
on Civil and Political Rights United Nations
Convention International Covenant on Economic,
Social, and Cultural Rights - Convention on the Elimination of all Forms of
Discrimination against Women (CEDAW) - ILO Declaration on Fundamental Principles and
Rights at Work and The Vienna Declaration and
Programme of Action - ILO Tripartite Declaration Concerning
Multinational Enterprises and Social Policy - Organisation for Economic Cooperation and
Development (OECD) Guidelines for Multinational
Enterprises - 2. Human Rights
- Main issues nondiscrimination, gender equality,
freedom of association, collective bargaining,
child labor, forced and compulsory labor, and
indigenous rights - Body of law treaties, conventions, declarations
- 3. Society
- Impacts on local communities
- Bribery, corruption, monopoly
- 4. Product Responsibility Customer Health and
Safety, Labeling, Marketing, Customer Privacy,
Compliance
27Sample Social Performance Indicators required by
GRI
28Additional sector-specific indicatorsSector
supplements
- Working Group
- Media
- First Draft
- Airports
- Construction Real Estate
- Event Organisers
- Final Draft
- Food Processing
- NGO
- Oil Gas
- Pilot
- Apparel Footwear
- Automotive
- Logistics Transportation
- Public Agency
- Telecommunications
- Final
- Electric Utilities Financial Services Sector
Supplement obligatory to obtain level A from 1
January 2010 - Mining Sector Supplement required to obtain GRI
Application level A from 31 December 2011
29Agenda
- 8.1 A review of Corporate Performance
Measurement and Reporting - 8.2 Drivers for sustainability measurement and
reporting - 8.3 Measuring supply chain and sustainability
performance - 8.4 Reporting on sustainable supply chain goals
and progress - 8.5 Class discussion Reporting on sustainable
supply chain performance
30The number of companies reporting on GRI
Guidelines continues to expand, with increased
SME and emerging markets participation
Number of Reports 2010
Geographic Distribution 2010
9 growth in China
68 growth in Brazil
Source Global Reporting Initiative 2010
Statistics
31Global reporting statistics show an upward trend
in the number of reports including meaningful
sustainability information
Global Output Report 2010
FTSE100 Constituents Reporting
In 10 years, the number of reports mentioning
significant sustainability achievements grew by 6
times (Corporate Register)
Annual growth 2009-2010 of FTSE100 Companies
including meaningful sustainability information
reached 10 percent
32From corporate reporting to sustainability
reporting
- As discussed, it is widely acknowledged that
financial reporting captures only a portion of a
companys value creation potential and corporate
risks - Intangible factors such as strategy, innovation
capacity, talent retention, reputation
management, commercial risk reduction (e.g.
bribery, occupational accidents), resource
efficiency and others can be measured and
disclosed through sustainability reporting - Sustainability reporting complements financial
reports by integrating non-financial value
drivers, such as human capital formation,
corporate governance, management of environmental
risks and the ability to innovate - Reporting on social and environmental performance
allows establishing the link between business
strategy and sustainability by assessing the
sustainability issues influencing the companys
competitive advantage cost leadership,
product/service differentiation and the formation
of intellectual capital - It is a tool to communicate with stakeholders,
disclose and discuss risks, uncertainties,
challenges and trends that may materially affect
financial performance
33Sustainability Reporting
- Sustainability reporting is the practice of
measuring, disclosing and being accountable to
internal and external stakeholders for
organisational performance towards the goal of
sustainable development. - Sustainability reporting is a broad term
considered synonymous with others used to
describe reporting on economic, environmental,
and social impacts (e.g., triple bottom line,
corporate responsibility reporting, etc.). - GRI Sustainability Reporting Guidelines
- Version 3.1, 2010-2011
34Market forces influencing sustainability reporting
- Institutional investors risk management,
compliance and performance - Sustainability investment performance track
record - Sustainability driven corporate competitiveness
and profitability measurement - Competitive benchmarking
- Guidelines and indicators of performance UN
Principles for Responsible Investment (UNPRI),
FTSE4GOOD and Dow Jones Sustainability Indexes,
Ethibel Sustainability Index (Standard Poors)
Financial/Market Forces
Stakeholder Forces
- Voluntary sustainability initiatives and
accountability - Stakeholder pressure for mandatory disclosure
- Stakeholder pressure for mandatory pension fund
disclosure - UN Environmental Programme Finance Initiative
(UNEP FI), UN Global Compact, Global Reporting
Initiative (GRI), Carbon Disclosure Project
(CDP), Coalition for Environmentally Responsible
Economies (CERES)
Regulatory Forces
- National environmental and financial metrics and
disclosure demands - Intergovernmental legislation and action plans
EU communication on CSR from November 2011 - Mandatory Reporting on Greenhouse Gases Rule
(US), OECD Guidelines for Pension Fund
Governance, Sarbanes-Oxley Act
35To Report or not to Report?
- Factors influencing decision to report relate to
size, stakeholder relations, regulatory
requirements, etc. - Reporting has evolved to integrate several
formats and channels - Stand-alone Sustainability Reports
- Integrated Corporate and Sustainability Reports
- Interactive online Reports
- Online, dedicated websites with regularly updated
information - Different channels and content for different
stakeholders
36Future outlook sustainability and integrated
corporate reporting mainstreaming
- Governments and the financial community strongly
driving the trend - In France, a new law has expanded requirements
for sustainability reporting to non-listed firms,
becoming mandatory for around 2,600 companies. - In South Africa, companies listed on the JSE
Securities Exchange must comply with the King
Report on Corporate Governance for South Africa
(King III), which recommends that companies
should produce an integrated report rather than a
separate annual financial report and
sustainability report. - Mainstream investors increasingly looking for
reliable information that can be independently
verified and benchmarked within and across
sectors - One out of every seven written questions from
shareholders of companies on the CAC401, during
general assemblies in 2010 related to
sustainability issues - Specialist companies, such as Vigeo, Eiris and
SAM, have emerged to provide sustainability
ratings, providing independent assessments of ESG
performance
1. Frances main stock index. It The index
represents a capitalization-weighted measure of
the 40 most significant values among the 100
highest market capitalized stocks on Euronext
Paris bourse.
37Agenda
- 8.1 A review of Corporate Performance
Measurement and Reporting - 8.2 Drivers for sustainability measurement and
reporting - 8.3 Measuring supply chain and sustainability
performance - 8.4 Reporting on sustainable supply chain goals
and progress - 8.5 Class discussion Reporting on sustainable
supply chain performance
38Class Example and Discussion Danones Human
Rights Indicators
39Class Discussion Danones Human Rights
Performance Indicators
- As preparation for the module, you have read the
Danone Sustainability Reports Section on Human
Rights Performance Indicators and related pages - In your groups, take 45 to discuss this section.
Please use the following questions in guiding
your discussion - In your view, what are the main (2-3) initiatives
Danone is taking forward in this area and what
have been the results so far? - What are specific tools through which Danone
measures the sustainability of their suppliers
practices? - How are the corporate headquarters and the
Country Business Business Units (CBUs) working
together in implementing and monitoring
procedures and practices? - What are in your view, areas on which Danones
disclosure on human rights performance could
improve? Please provide specific examples.
40Conclusion
- Several approaches to measuring and tracking
supply chain performance, but no one-size fits
all solution - Measuring and communicating allows for increased
credibility and trust amongst all stakeholders
(including workers) - Measuring and monitoring as a systematic process
contributes to increased operational efficiency
and hence, overall performance improvement - Different stakeholders are interested in
different metrics. Tailor efforts and
communication accordingly - The journey has just began. Transparency will
become ever more important for consumers,
investors, suppliers as instant connectivity
grows and consumers engage at a deeper level with
business
41Back up Slides
42Application Levels
Report Application Level
C
B
A
C
B
A
Report on 1.1 2.1 2.10 3.1 3.8 3.10
3.12 4.1 4.4 4.14 4.15
Report Externally Assured
Report on all criteria listed for Level C
plus 1.2 3.9 3.13 4.4 4.13, 4-16 4.17
Same as requirement for Level B
Report Externally Assured
Report Externally Assured
G3 Profile Disclosure
Not Required
Management Approach Disclosures for each
indicator Category
Management Approach Disclosures for each
indicator Category
G3 Management Approach Disclosures
Report on each core G3 and Sector Supplement
Indicator with due regard to the Materiality
Principle by either a) Reporting on the
Indicator or b) Explaining the reason for its
omission Not applicable is not valid Must
explain i.e. not material, no data, no
commitment, proprietary information
Report on a minimum of 20 Performance Indicators,
including at least one from each Economic,
Environmental, Human Rights, Labour, Society,
Product Responsibility Core Additional
Indicators
Report on a minimum of 10 Performance Indicators,
including at lease one each of Economic, Social
and Environmental Core Indicators
G3 Performance Indicators Sector
Supplements Performance Indicators
Indicator Guidelines 1. Depend on what level of
report (A, B, C) you are aiming for 2. Always
core, then additional, then sector supplements,
then others (industries, new, other)
43Reporting Principles
Defining Content Materiality Topics and indicators that reflect social, environmental, economic impacts that would influence stakeholder assessments and decisions
Stakeholder Inclusiveness Identify stakeholders and explain how responded to their expectations
Sustainability Content Performance in the wider context of sustainability
Completeness Material topics, indicators and definition of reporting boundary to reflect impacts
Defining Quality Balance Reflect both positive and negative aspects of performance
Comparability Issues and information should be selected, compiled and reported consistently
Accuracy Information sufficiently accurate and detailed for stakeholders to access performance
Timeliness Reporting occurs on a regular schedule and information is available in time to make informed decisions
Clarity Information presented in a manner that is understandable and accessible
Reliability Information and processes used to prepare report should be gathered, recorded, compiled, analysed and disclosed in a way that could be subject to examination
Boundary Setting The Sustainability Report should include the entities over which the reporting company exercises control or significant influence both in and through its relationships with various entities upstream (e.g. supply chain) and downstream (e.g. distribution customers)
Source GRI G3 Guidelines
44Measuring against what?
Societal Values / Norms Standards/Principles/Instr
uments
- Companys own values and stated mission. This may
explicitly set out social, economic and
environmental goals - Values and interests that reflect views and
aspirations of key stakeholders - Values institutionalized in law, conventions or
rooted social norms
Specific stakeholder Values / Views
Firm Core Values
Source Simon Zadek, The Civil Corporation,
2006
45Linking Sustainability metrics and Business
Strategy metrics
- What are the relevant metrics and KPIs?
- Economic growth
- Customer satisfaction
- Employee engagement
- Stakeholder engagement
- What are the Key Thrusts?
- Strategic priorities
- Market, financial, business objectives
- Targets
What is the Vision, Goals, Objectives for the
company? What is the vision for sustainability?
What are the specific sustainability goals? How
do they fit with business strategy?
What would be specific metrics related to
sustainability goals?
How are the sustainability goals woven in our
supply chain activities?
Source Latitude
46Linking Sustainability Strategy and metrics
Example Marks and Spencer Plan A
Specific activities related to sustainability
objectives integrated with other activities
Specific metrics related to sustainability
objectives
Sustainability related Objectives (By 2012)
Reduce environmental impact
- Climate Change
- Reducing energy use
- Using green energy
- Tackling food miles
- Helping consumers cut carbon
- Fuel efficiency in warehouses
- Energy efficiency in warehouses
- Number of Green factories
- Number of Green Stores
- Store Energy consumption
47Key considerations in setting metrics to measure
progress
- There is an underlying objective for the
measurement. - Measurement terminology is defined and used
consistently throughout the organization. - Information needed for the measurements is
obtainable. - The measurement will create behaviour that is in
concert with organizational goals and objectives. - While there will likely be a combination of
lagging and leading indicators, leading
indicators are more appropriate to help predict
how the organization will perform in the future. - The measurements should be used to track
performance trends. - Appropriate benchmarks and targets are identified.
Source Butler et al, 2008