Measuring sustainability performances is becoming increasingly important for both large corporations and SMEs. On one hand, obtaining ESG certification opens several business opportunities for companies, relating to funding, partnerships and service offering. On the other hand, measuring ESG performances can be a difficult journey, especially for SMEs which, however, cannot back down from this challenge. The European Corporate Sustainability Reporting Directive (CSRD), in fact, has extended the obligation to produce a sustainability report also to SMEs listed on one of the Member States' markets.
Drafting this report, as well as certifying one's sustainability performance, first requires identifying the right KPIs. This process can be very time-consuming and difficult, precisely because of the heterogeneous nature of indicators related to sustainability, which, we should remember, embraces three dimensions: environmental, economic and social.
Why is so difficult to identify the right sustainability KPIs
To understand the nature of the challenge, it is sufficient to look in brief at the information that need to be included in the Corporate Sustainability Report, which are:
- A brief description of the company's business model and strategy.
- A description of the enterprise's policies in relation to sustainability issues.
- The major actual or potential negative impacts of the enterprise, in relation to sustainability issues and any actions taken to identify, monitor, prevent or mitigate these actual or potential negative impacts or to remedy them.
- The main risks to the enterprise related to sustainability issues and how the enterprise has managed these risks.
- The key indicators necessary for reporting the information mentioned.
As we can see, sustainability KPIs are not only important because they help calculate a company's sustainability performance, but they also must be listed in the reporting itself. Getting them right, therefore, is imperative.
The value of international standards in helping companies identifying the right sustainability KPIs
In identifying the right sustainability KPIs, valuable guidance can come from the work of internationally recognized agencies that have studied, developed and updated these benchmark indicators over time.
The Global Reporting Initiative (GRI), for example, is among the most appreciated agencies by the international community. It is an international non-profit body established for the purpose of setting standards for reporting on the sustainable performance of companies and organizations of any size, belonging to any sector and country in the world.
The approach used by GRI combines a set of general indicators with KPIs relevant to the industry in which the company operates. It is a holistic approach, but one that guides companies step by step in identifying the most relevant KPIs.
While, in fact, some indicators may apply across the board to companies operating in any sector - such as, for example, those related to reporting practices and other organizational details, like activities, governance systems, and procedures - others are related to the industry in which the company operates and to the topics most relevant to the company.
Especially important is the identification of material topics, which represent the organization's impacts on the economy, the environment and people, including those on their human rights.
These are then complemented by sector KPIs, which are useful for assessing the impact of business operations on sustainability, which, of course, varies depending on the industry.
Sustainability KPIs, monitoring and assess them with an ESG solutions
Although the work done by entities, such as GRI, provides valuable guidance for companies that want to report on their ESG performance, the process can still be long and difficult. Even once the right KPIs have been identified, in fact, it is not always easy to transform the data into strategic information that can concretely help a company assess its ESG performance and implement strategies for improvement.
This is why more and more organizations are choosing to rely on consulting firms that work in this area and offer solutions for monitoring sustainability related KPIs. Solutions that allow both to assess the sustainability of the company at the overall level, in the various areas of the business and throughout the supply chain.
However, the choice of solution, as well as of partner, is crucial because when it comes to data, it is not enough to know where to look. In fact, availability must be combined with the quality of the data: incorrect or outdated data will return an untrue picture of the business. That is why it is important to rely on companies that combine an innovation and standards-based approach with consulting and support services aimed at ensuring data quality.
