Eco-Efficiency: Are you realizing all the benefits?
A new WBCSD guide offers companies advice on how to select, use and report on eco-efficiency indicators, thereby helping them measure their progress toward sustainability. Several companies have already put its advice to the test in a special one-year pilot program. Sustain picks out some of the main themes of Measuring Eco-Efficiency (
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Foreword
While eco-efficiency has attracted a growing number of converts, companies still lacked a standard format which they could use to measure and assess their performance.
All that is now about to change. At the end of June, we are launching a guide for companies to report performance on eco- efficiency. Measuring Eco-Efficiency puts forward an eco-efficiency measurement framework that can be used by all companies, from multinationals to small family-run firms, regardless of their sector or geographical location.
Over a two-year period, our working group developed a common framework on eco-efficiency reporting that we believe is meaningful for decision-making, highly practical for reporting, and serves the needs of external stakeholders while avoiding any attempt to impose rigid rules. Indeed, its flexibility is one of its greatest strengths.
In the process of our work, we consulted many people with an interest in, and responsibility for, eco-efficiency. We also got invaluable feedback from a 12-month pilot program in which 24 companies from 15 countries tested the eco-efficiency indicators proposed in the report.
As the co-authors of Measuring Eco-Efficiency, we believe that it will help forge the link between environmental and economic performance, a link which is crucial for progress toward sustainable development.
We urge all companies to adopt the framework put forward in the report as part of their overall reporting strategy.
Introduction
Guidance on how business can apply the eco-efficiency concept as part of an overall commitment to sustainable development is the centerpiece of this breakthrough report. It proposes an eco-efficiency measurement framework that can be adopted by all companies, from multinationals to small family-run businesses, regardless of their sector or geographical location.
The report, Measuring Eco-Efficiency: A guide to reporting company performance, is co-authored by WBCSD council members Robin Bidwell, chair- man, ERM, plc, and Hendrik Verfaillie, president of Monsanto.
Bidwell and Verfaillie say it is not realistic to try to adopt a single ‘one- size-fits-all’ approach to reporting eco-efficiency, nor to devise one single measure of performance. Business is far too diverse for that, they argue. Instead, the report seeks to establish a general framework that is flexible enough to be used widely, allows for adaptation and can be easily interpreted by a cross-section of business.
Various environmental indicators have of course been used before, but the eco-efficiency indicators recommended in the report, which relate environmental impact to financial performance, are totally new. It is this, the authors believe, which sets the WBCSD report apart from previous work on the subject.
The eco-efficient path to sustainability
Eco-efficiency is about business creating more value from fewer raw materials and less energy, and reducing its emissions. The concept, championed by the WBCSD since the early 1990s, is geared to helping companies, individuals, governments and other organizations become more sustainable. It links economic and environmental progress— the two core ingredients needed to promote growth while preserving the sanctity of the environment.
But eco-efficiency is just one of the forces driving business toward sustainable development. Embracing social goals, such as improving workers’ education and community relations, is also critical to success. Furthermore, industry cannot achieve sustainability on its own. It needs to operate in partnership with governments, which are responsible for economic policymaking and infrastructure-building, and civil society, guilty of wasteful consumption habits.
The new measurement tool
Companies may have many reasons for choosing to measure their eco-efficiency performance. They may wish to track progress, or identify and prioritize opportunities for improvement, or single out cost-savings and other benefits that are attributable to greater eco-efficiency. Perhaps, also, a company may want to demonstrate why improvement in certain areas has been limited. Monitoring eco-efficiency can lead to better decision-making, and is also a way of informing external stakeholders about progress toward sustainable development.
For all these reasons, and more, a growing number of companies are incorporating eco-efficient practices into their corporate strategies. The WBCSD’s new guide provides these companies with a unique tool to assess their efforts in-house and communicate the results to outsiders. Indeed, those outsiders may themselves also find the eco-efficiency indicators and reporting framework useful. Bankers, insurers, investors, analysts, shareholders, international standards bodies, communities, consumers and interest groups all stand to gain from a first-hand reading of the report.
For the financial community, for example, eco-efficiency indicators promise to bridge the gap between the supply of separate environmental and economic data. Because the indicators provide an assessment of how environmental practices affect the bottom-line, they could become a standard element in the evaluation of a company’s credit-worthiness and risk profile.
Simply put, measuring eco-efficiency can be represented as:
| product or service value |
| environmental influence |
Progress in eco-efficiency can be achieved either by increasing the top of the fraction or by reducing the bottom, though ideally through a combination of the two, explains the WBCSD’s Markus Lehni, who is leading the eco-efficiency program.
Generally-applicable and company-specific indicators
The report defines a number of generally applicable indicators that are relevant and meaningful to all companies and have a uniformly accepted definition and measurement method. They include, for example, the quantity of products manufactured, the company’s net sales and its water consumption.
In addition, the WBCSD guide provides advice and information on how firms can formulate company-specific indicators which are tailored to fit the nature of the company’s business and individual circumstances. These are no less important than the general ones: they are intended to complement the general indicators.
Generally applicable indicators
These can be used by all businesses, no matter what their sector, size, or location. They include:
Value indicators
- Quantity of product/service produced or sold
- Net sales
Environmental influence
- Total energy consumption
- Water consumption
- Material consumption
- Greenhouse gas emissions
- Ozone depleting substance emissions
The use of generally applicable indicators will provide a ‘platform of comparison’ for companies operating in the same sector. It will mean, for example, that automobile manufacturers should be able to judge where they stand on certain indices in comparison with their competitors. Institutions such as banks and insurance companies will also find it useful to have a sectoral comparison mechanism which takes into account the link between economic benefits and resource use.
“However, although comparison is important, the eco-efficiency indicator program is about learning, much more than ranking,” says Lehni.
Toward more effective decision-making
The report lists eight criteria which eco-efficiency indicators should meet if they are to allow companies to successfully develop measurement programs which are scientifically supportable, environmentally relevant, accurate and useful.
High on the list is the criterion that indicators must be informative and helpful in the decision-making process. “After all,” says Lehni, “the indicators’ primary value is to help management make decisions about how production processes and product designs can be changed to reduce the use of resources or environmental fallout. Or to decide how the performance of a product can be improved in ways that improve its eco-efficiency.”
“The quality of decision-making increases with the level of detail and diversity of the indicators used,” he adds. “Because eco-efficiency indicators and trends can be used to validate business decisions, it’s then easier for companies to set objectives.”
Other important criteria are that indicators should be clearly defined, measurable, transparent and verifiable. They must also be understandable and meaningful to an outside audience.
Integrating indicators into the mainstream
The report says that measuring eco-efficiency should not require much extra effort or many more resources because this would be counter-productive. Most of the information needed to calculate the ratios can normally be culled from existing data sources, it says. These may be financial, purchasing, cost, waste disposal or environmental reports. “We should follow the rule of ‘collect less and use it’,” says one WBCSD member. “In other words, any data collected must be used for something.”
One of the report’s recommendations is that eco-efficiency indicators should not warrant a separate report. Instead, the aim should be to integrate the approach and information into existing reports and ideally to include an eco- efficiency profile in the company’s annual report and accounts, or in its environmental report, if it produces one.
Pilot program puts theory to the test
In compiling the report, valuable information and feedback was gathered from a year-long pilot program in which 24 companies of differing sizes and backgrounds volunteered to test the indicators and the report’s recommendations. “The experience of the participants gave us useful insights into the practicalities of measuring eco-efficiency,” says Markus Lehni. “Overall, the response to the ‘acid test’ was positive.”
“The eco-efficiency indicators concept is easy to understand, and its use and application makes good business sense to us,” commented one pilot participant. “Keeping the framework flexible and avoiding a rigid reporting format are key points for its acceptance and practicability.”
The companies taking part in the pilot program described seeing clear benefits from adopting a reporting mechanism linked to their needs. There was a general consensus that eco-efficiency monitoring lived up to people’s expectations of helping to track performance and identify potential opportunities for improvement.
Also it served to clarify business goals and objectives and sharpen the focus of decision-making. Some participants pointed to the positive results that had come from involving marketing, financial, product development and production people in the program. Most companies were enthusiastic about how it allowed them to set benchmarks, which would help them to make year-to-year comparisons of performance.
Trial and error
The pilot test, however, also demonstrated that eco-efficiency measurement is not an exact science. There are pitfalls and challenges to overcome in implementing any new measurement system.
One of the trickiest tasks, according to those taking part in the trial, was trying to define certain indicators, such as material and waste, for which there are still no commonly accepted definitions. Another problem mentioned was that of identifying the areas that should be included in an eco-efficiency analysis. Although the report suggests that the main focus should be on areas directly under a company’s control - for example, design and manufacturing - it acknowledges that relevant upstream and downstream activities should also be addressed. The difficulty lies in obtaining an accurate gauge of resources used by third parties. Companies have less influence on, and very often inadequate data about, their suppliers and end-users.
“All this means that companies may experience teething troubles when embarking on an eco-efficiency measurement program,” Lehni acknowledges. “And they will almost certainly need to measure their eco-efficiency performance over a period of years to gain the full benefit of their efforts. But there is a clear reward in the exercise, even for those considered ahead of the pack.”
This final point was strongly endorsed by one of the pilot study participants: “As a company, we learned that we still have many opportunities to improve our eco-efficiency, even though we felt we were already a highly profitable and environmentally responsible business when we engaged in this pilot,” he said.
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