By Daniel Harrington & Luca Vervoort
The famous quote from Peter Drucker summarises the importance of pairing up your sustainability strategy with the measurement of Key Performance Indicators (KPIs).
“[only] what gets measured, gets managed”
KPIs reflect your performance against strategic objectives and help you understand where you're going when implementing your sustainability strategy. Therefore, KPIs allow you to rapidly put in place corrective actions if needed.
Identifying relevant KPIs and tracking them over time is a fundamental part of any sustainability strategy. Nevertheless, this does not come without challenge.
Particularly, you must understand:
- What to measure;
- How to tailor KPIs to your organisation’s needs;
- The next steps to take after selecting KPIs.
Keep on reading the article and download the free guide to find out all you need to know about the above!
Measuring what matters: how to identify relevant issues
You can find many lists of generic KPIs online. While these can offer inspiration, the main challenge is to identify a set of KPIs that fulfil your business’s specific needs.
A valuable way to identify relevant issues for your company is by conducting a materiality analysis.
Through a materiality analysis, businesses can understand the hotspots of their operations. If you want to learn more about the steps to conduct one, read our blog article “4 Steps to Conduct a Materiality Analysis”.
Moreover, materiality analysis helps a company synthesise strategic objectives, the company identity, and its sustainability objectives into a cohesive strategy supported by relevant KPIs and targets.
The term materiality has a financial background. Originally, it referred to a business’s financial, economic, legal or reputational risk.
In 2006, the Global Reporting Initiative forged the concept of double materiality. According to it, companies should communicate about how sustainability issues impact their organisation and how their operations affect people and the planet.
The concept of double materiality now lies at the foundation of most sustainability reporting standards, including the upcoming Corporate Sustainability Reporting Directive.
You cannot tackle every and anything: narrow your focus
You can reflect on your business’s priorities by answering the following questions:
- What are your mission, vision, and values?
- What are our short- and long-term goals?
- What are our biggest priorities?
- What topics matter most to our stakeholders?
In fact, once you’ve identified the relevant topics, the list of indicators you might want to track could grow very fast. Nevertheless, KPI stands for Key Performance Indicator. As such, it’s important to narrow down the list to the most important ones.
Tailoring KPIs to your own organisation
Your organisation is unique, and so should your KPIs. The characteristics that define your company, such as size and industry, will affect how you select and define your Key Performance Indicators. Below are some features you should keep in mind when building your KPIs.
Tracking individual KPIs per entity, and consolidating them on a group level, is essential for large organisations to analyse, report and reflect on their targets. This approach also allows you to understand the weight each location has on the corporate’s overall sustainability impact.
It can also be interesting to define KPIs by assessing the coverage of your organisation’s actions throughout its entire operations. Such KPIs provide a clear idea of your overall progress on a certain objective.
Small organisations are often less complex, and a more limited selection of meaningful KPIs will generate the most impact. With fewer resources, it is important to prioritise quality over quantity. Be critical, think big picture, and keep in mind that a KPI should help you measure progress on your sustainability targets.
The industry you operate in will dictate some KPIs that are relevant to monitor. An organisation in the chemicals industry will prioritise very different indicators than a recruitment firm. Additionally, certain industries are bound to specific standards and regulations, and stakeholders will expect reports on such measures.
Here again, the materiality analysis serves the purpose of focusing your attention on what matters the most for your organisation and stakeholders.
Benchmarking your KPIs with competitors can provide you with strong insights to finetune your monitoring system. Nevertheless, it is important to keep in mind that your business and your competitors’ businesses likely have unique sustainability goals which require unique reporting. You can use competitor reporting to identify industry standard KPIs, but make sure not to lose sight of your business’s own goals.
Next steps after defining your KPIs
You don’t only need to understand where you stand. You also need to know where you want to go. That is why you should use KPIs to establish sustainability targets and measure progress towards them over time.
In doing so, you put your business on the path towards continuous sustainability improvement. Communicating progress on sustainability targets is also an excellent way to increase stakeholder engagement. For example, your business can publish an annual sustainability report summarising key milestones from the past year.
Finally, monitoring your KPIs can quickly become a daunting task, particularly if your business monitors a long list of indicators across different locations or entities. To save time and increase accuracy, it is recommended to implement a KPI dashboard.
Countless options are at your disposal, from simple to highly complex. The size of your organisation, budget, and number of employees will affect what solution you select. If you’re just getting started, an Excel KPI dashboard is a low-cost, low-maintenance tool to begin tracking and reporting on your KPIs.
For organisations looking for a more sophisticated solution, a third-party platform is worth considering. These will offer strong data protection, support from experts, and extra functionality tailored to your company’s specific needs.
The process to identify the right KPIs can be difficult. However, KPIs are essential to monitor progress on sustainability goals, increase your organisation’s positive impact, and maintain strong stakeholder engagement. When done correctly, you will be in a stronger position to measure and improve sustainability performance over time.