EHS managers pride themselves in utilizing
the very latest software systems to collect and track metrics.
The displays are impressive and the reports may give one a good
feeling of being in control. In
reality, some EHS managers may be winning the battle to efficiently sort
data, but loosing the strategic war to gain competitive advantage for their
companies. Metrics theory and
practice has undergone a quiet revolution over the past five years and the
long term business implications are truly astonishing.
This is the first of several columns that will be devoted to EHS metrics over the next year. Future columns will examine the "what and the how" of metrics and this one takes a look at the why, namely emerging trends that will drive more robust metric systems. If this material is new to you, I recommend that you become a very fast learner - the long term implications for your company may be very significant.
Early EHS metrics focused on regulatory compliance, injury rates, and regulated emissions tracking. In the mid 80's this list was expanded to include waste reduction and toxics (i.e., Toxic Release Inventory) data. These were the results that attracted both the public's and senior management's attention. Not surprisingly, this information often formed the factual core of early environmental reports. This "traditional set" of metrics remains as the nucleus of most internal and external environmental reports.
Conventional wisdom recognizes that an EHS program focused exclusively on minimum compliance offers no competitive business advantage.1 A company's existing operations are allowed to stay in operation and that's about it. What is not as widely recognized today is that a traditional set of metrics offers few insights and strategic guidance for business management to gain competitive advantage. Metrics theory and practice has undergone a significant evolution and leading companies are now beginning to position themselves to take full advantage of these emerging tools.
Fundamental flaws
Financial metrics matter because they are comparable, consistent, credible, and relevant to various stakeholder needs. The vast majority of EHS metrics provide essentially none of these elements. Taken narrowly and in isolation, a specific measure for a company may possess most of these traits, but as soon as one tries to make company-to-company or company-to-industry sector comparisons, the task becomes problematic. Comparisons matter. Using the financial metric analog, investment analysis may be interested that Alpha Company made a profit, but they will put their money in Beta Company, if it has a higher return on equity.
Typically, companies report total emission numbers, but what is the significance of these numbers relative to those of its competitors? What processes are better than others? What products? What company is truly green? Trend data shows progress over time within a firm or facility, but how is this progress relative to others? Is this progress adequate to attain sustainable production? What are the leading indicators? How do we manage performance, not just track end results? In summary, EHS metrics were just numbers in the past; in the future they will be used to support decisions by all stakeholders. This is a fundamental shift. Many companies have not begun to sort out the full implications.
Today's deficiencies in EHS metrics have not gone unnoticed. Organizations such as the Investor Responsibility Research Center (IRRC) have struggled to make meaningful comparisons among companies to facilitate social screening of investment portfolios.2 The job is very difficult, since information is lumped together in various ways and no generally accepted standards exist to sort, normalize or report the data.
Over the past five years organizations such as the National Roundtable on the Economy and the Environment (NTREE),3 Center for Waste Reduction Technologies, (CWRT),4 World Business Council for Sustainable Development (WBCSD),5 Global Reporting Initiative (GRI),6 and the National Academy of Engineering (NAE)7 have started to address the fundamental issues of comparable, consistent, credible, and relevant EHS metrics.
The current work by BRIDGES to Sustainability (BRIDGES), supported by the US Department of Energy (DoE) and the American Institute of Chemical Engineers (AIChE), represents the cutting edge of integrating metrics theory into practical tools for business. BRIDGES is a non-profit organization which fosters sustainable development through partnerships between universities and industry resulting in practical business tools and real world experience for students and faculty.8
In May 2000 in Austin, Texas, BRIDGES brought together leading companies, government representatives, and academics to review their interim sustainability metrics results and share an impressive sampling of future EHS metrics. These metrics include measures of material intensity, energy intensity, water usage, toxics, and other pollutants. BRIDGES will produce a guidance on metric decision rules with examples on specific processes. Although this program is focused on for the chemical industry, it serves as a model for other industries.
The most significant aspect of this work is the ability to "stack metrics" on a consistent basis across individual processes and for that matter, across the entire supply chain. Stacking metrics forms the basis of not only cross-factory and cross-company comparisons for specific products, but the ability to perform life cycle assessments and to optimize products for the environment (design for the environment). Standardization of data collection and meaningful comparisons among the various options is the key for success.
The language of sustainable development
At first glance these efforts to improve metrics may seem like another incremental improvement on existing data collection methods. It is not. Comparable, consistent, credible, and relevant metrics represent the Rosetta Stone to the language of sustainable development. There are obvious benefits such as those listed in Table 1. What is not as obvious is the profound impact that EHS metrics can have on entire industries. There are many examples of this influence, but often the discussions get framed in a broader business context. The significance of the power of EHS metrics - the triggering event - gets lost in the rush to address the new challenge.
For example, on May 11, 2000, William Ford Jr. announced that sports utility vehicles have serious safety and environmental problems. The existing national system to report comparable, consistent, credible, and relevant EHS metrics drove this announcement. Indeed, the miles per gallon and accident metrics have driven many of the automotive manufacturing, policy, legal, and regulatory decisions today. People may willingly accept a higher fuel consumption, but if the safety metrics are abnormal and they are injured, they get a lawyer.
Uniform food nutrition labeling is a list of product health metrics on the side of the container. Energy labeling on major appliances is an environmental metric. Voluntary eco-labeling in conformance with a standard is another form of environmental metric labeling. Even the thought of having foods identified with genetically engineered ingredients has caused companies such as McDonalds to declare that their potatoes will be GE free by the Fall 2000.
The "A, B, C" ratings for Los Angles restaurants is a heath and safety inspection metric. When I visit my daughter in Los Angles, I avoid the B and C restaurants and never eat at Beverly Hills Cuisine, one of the lowest rated establishments in the city.9 A fancy name like "Beverly Hills" can not camouflage heath issues, if a firm is subjected to standardized inspection and disclosure. On a much grander scale, what manufacturers do you want to move into your neighborhood? Visualize the familiar NFPA hazardous materials diamond being supplemented by key EHS metrics!
The Toxic Release Inventory (TRI) had a profound impact on reducing toxic emission, greater than a 43 percent reduction between 1986 and 1997.10 These numbers are now tracked by the Environmental Defense Fund's Scorecard.11 TRI offers a glimpse of the potential long term influence that metrics may some day have on industry.
And here's the point: when the metric (and labeling) is clear, understandable, and reliable, it can impact consumer/voter choice and ultimately, this influences legislative and regulatory action. The companies that were present at the BRIDGES meeting understand these dynamics, and they are examining how their products, processes, and their supply chain will stack up against set of metrics of sustainability relative to their competitors.
The politics of ambiguity
The vast majority of disclosure remains voluntary, and business managers have been lulled into thinking that (a) voluntary reporting will continue indefinitely, and (b) their current internal and external reporting efforts (i.e., rolling up the traditional numbers) will keep them abreast of developments. I would not count on either.
Managing the flow of information is a major factor in controlling political, social and economic outcomes. Ambiguity allows the status quo to continue or selective agendas to be pushed over more optimal solutions. Change is often prompted by the mere disclosure of new, credible information, as illustrated by the impact of the TRI. Environmental activists, non-government organizations (NGOs), and politicians understand these dynamics, and green marketing is based on it.
The politics of disclosure can shift suddenly and unpredictably if your "EHS metric" becomes the cause célèbre. For example, Prime Minister Tony Blair did a complete about face on genetically engineered foods in less than a year. The politically correct EHS metric went from 1.0 pounds of GE ingredient per pound of food to 0.0.
Elaborate command and control regulations can take years to legislate and promulgate. Establishing a new reporting metric can happen very quickly, and in the case of consumer products, self-disclosure can happen in days if consumer pressure skyrockets. In a global marketplace, lobbyists in Washington have little control over a movement originating elsewhere. My read of the politics of metrics is that Europe or Canada will shape these dynamics, not the United States, as Monsanto found out the hard way with biotech food crops. Indeed, substantive progress in the future will be based on transparency and verification. The old paradigm of command and control that the US steadfastly clings to is widely recognized as stalled and mired in incrementalism.
The environment always benefits from open disclosure. However, stakeholders may believe that this is almost always a zero sum game (e.g., the environment wins, but profits suffer). The environment should never be a zero sum game, but this is often the politics of EHS. Years ago I heard Jack Welch, CEO of General Electric, chastise his mangers to see the world as it is, not as they wished it to be. This philosophy should be applied to companies who view the world through a narrow set of EHS metrics and are clueless as to what this may all mean in an increasingly competitive environment.
Good comparative EHS competitive intelligence is very difficult to obtain and few go through the effort to assemble it. It can take years to establish and build a reliable database. Business decisions based on this information which involve risk and liability assessments are very tricky, requiring a multidisciplinary approach.12 Leading companies recognize these dynamics and are not waiting for outside influences to dominate their internal management decisions. The first step is to understand not just traditional metrics, but the leading and lagging metrics of sustainable development and where your company stands relative to other companies and stakeholder expectations.
Please Ask; Please Tell
Is there an EH&S topic you would like to address in the EH&S Advisor? Do you have information to share with your colleagues, and you are interested in possibly co-authoring a column on the subject? EM is very interested in your ideas. Please contact Richard MacLean at phone (480) 922-1620 or e-mail: maclean@competitive-e.com.
About the Author
Richard MacLean is President of Competitive Environment
Inc., Scottsdale, AZ, and the Director of the Center for Environmental
Innovation (CEI). He can be contacted at (480) 922-1620, e-mail: maclean@competitive-e.com, and website:
http://www.Competitive-E.com.
EHS Advisor Checklist
The Significance of Emerging EHS Metrics
1. Historically, EHS metrics have focused on:
· outcomes (e.g., regulatory compliance, injury rates, regulated emissions tracking, waste reduction and toxics), rather than leading indicators; and
· totals, rather than normalized date to facilitate meaningful cross industry comparisons.
2. An "outcomes and totals" approach offers business management limited strategic guidance and insight into how to gain competitive advantage.
3. Metrics theory and practice has undergone a significant evolution in the past five years:
· Organizations are now starting to address the issues of comparable, consistent, credible, and relevant EHS metrics.
· "Stacking metrics" on a consistent basis across individual processes and across the entire supply chain provides a powerful tool for life cycle assessment.
· Leading companies are now beginning to position themselves to take full advantage of these emerging tools.
4. EHS metrics can profoundly impact entire industries:
· There are many examples of this influence, but often these discussions are framed in a broader business context and the realization that an EHS metric triggered these changes gets overlooked by business management.
· Metrics can impact consumer/voter choice and ultimately, this will influence legislative and regulatory action.
· This power to shape the debate is not overlooked by NGOs and environmental activists. The politics of disclosure can shift suddenly and unpredictably if your "EHS metric" becomes the cause célèbre.
5. Leading companies recognize these dynamics and are not waiting for outside influences to dominate their internal management decisions.
· The first step is to understand not just traditional metrics, but the leading and lagging metrics of sustainable development and where your company stands relative to other companies and stakeholder expectations.
· Good comparative EHS competitive intelligence is very difficult to obtain and few go through the effort to assemble it. It can take years to establish and build a reliable database.
References1 For a discussion on "there is nothing strategic about environmental compliance" see Scott Johnson, Identification and Selection of Environmental Performance Indicators: Application of the Balanced Scorecard Approach, Corporate Environmental Strategy, Vol. 5 No. 4, Summer 1998, Page 36.
2 See http://www.irrc.org/eisweb/eismain.htm
3 NTREE, Measuring Eco-efficiency in Business: Developing a Core Set of Eco-efficiency Indicators, 1997-1998, see http://www.nrtee-trnee.ca/eng/programs/eco-efficiency/eco-efficiency_e.htm
4 CWRT, see http://www.aiche.org.cwrt
5 Markus Lehni, Project On Eco-Efficiency Metrics & Reporting, State-Of-Play Report, World Business Council For Sustainable Development, Conches-Geneva, Switzerland, March 1998, see http://www.wbcsd.ch/ecoeff1.htm#eemetrics.
6 GRI, See http://www.globalreporting.org/
7 National Academy of Engineering/National Research Council, Industrial Environmental Performance Metrics - Challenges and Opportunities, National Academy Press, Washington, DC, 1999.
8 BRIDGES to Sustainability, Houston, TX, Beth Beloff, President, 713 520-9223, http://www.bridgestos.org.
9 See http://knabe.com/content/Kn_demo_7.htm
10 Peter Baker, Washington Post, April 23, 1997.
11 See http://www.scorecard.org
12 For an overview of this subject see A. Rappaport and R. MacLean, Environmental Accounting for Competitive Advantage, Chapter 6, Environmental Management and Business Strategy: Leadership Skills for the 21st Century, John Wiley & Sons, November 1998.
