How to measure sustainable performance: KPIs and Metrics

Procurement is at the forefront of sustainability measurement. Tracking sustainable performance is teamwork.

Measuring sustainability helps with tracking progress, evaluating the effectiveness of actions taken, building stakeholder engagement, evaluating tradeoffs, establishing reward mechanisms, meeting new requirements, and communicating goals.

Reporting on Environmental, Social, and Governance (ESG) goals relies on reliable and accurate numbers. According to McKinsey, companies measure their sustainability achievements within procurement so that they can drive faster growth, attain higher valuations, drive down costs and reduce waste.

Sustainable business conduct eliminates risk, supports a long-term mindset, and addresses rapid changes in the world.

The spend data is there: what we are buying, who from, how much we buy, and where it is made. Despite the business case for responsible sourcing, many companies don’t use sustainability measures as primary criteria in decision-making or supplier reviews.

In this blog we will cover how procurement can measure sustainability performance and set targets for sustainability.

How to measure sustainable performance?

Organizations should consider the total impact on the economy, the environment, and society, not only relating to what is relevant for the company's internal stakeholders. The best way to ensure relevance is to use a formal standard that allows you to report in a structured and transparent way.

So far, there is no one globally accepted system for sustainability tracking and reporting. The GRI Standard is used by 73% of the world's 250 largest companies, across more than 100 countries.

The GRI Standards are a modular system comprising three series of Standards: the GRI Universal Standards, the GRI Sector Standards, and the GRI Topic Standards. Each Standard begins with a detailed explanation of how to use it.

As we move towards more standardization, making comparisons will be easier and transparency will increase.

What are the KPIs for sustainable procurement?

Each organization will choose different metrics based on what is important or material to their business and their industry.

Sustainable procurement can mean a lot of things, from measuring CO2 footprint to mitigating modern slavery. If you're not sure, check out our complete guide Sustainable Procurement 101. 

Let's break down some real performance metrics you can use: 

Environmental sustainability metrics

Environmental sustainability metrics are the main area for tracking sustainability in most organizations. Environmental metrics cover a wide range of activities impacting climate, waste, and energy use.

Sustainability KPIs include:

• CO2 emissions reduction in kt
• Energy consumption in kWh
• Water usage in metric tons
• Waste reduction in cubic meters
• Plastic reduction in metric tons
• Material efficiency in material input per unit of service (MIPS)
• Noise pollution in decibels
• Compliance with chemical safety requirements
• Compliance with environmental standards
• Number of suppliers audited against environmental standards

Energy and emissions

The carbon emission and other pollutants resulting from the burning of fossil fuels are major factors contributing to climate change.

Efforts to improve energy efficiency include migrating to more renewable energies to reduce harmful greenhouse gas (GHG) emissions. UK-based Carbon Disclosure Project (CDP) offers help and supports disclosing the environmental impact of major corporations.

Its focus is on using carbon accounting principles to measure GHG greenhouse gas (GHG) emissions. Also, the International Integrated Reporting Council (IIRC) provides a comprehensive corporate reporting option that is useful when proving sustainable value to potential investors.

Scope 1 emissions, the direct emissions, are the simplest to track. Scope 2, the indirect emissions, resulting from the consumption of acquired electricity, steam, heat, and cooling. Organizations can use software and equipment, such as sensors, to accurately measure their energy consumption.

Scope 3 emissions, the supply chain emissions, are harder to track and validate. Scope 3 is where procurement can bring visibility and transparency into supply chain GHG emissions. Reliable environmental reporting requires working closely with suppliers and setting common goals. 

Water

Water is a key sustainability metric for most organizations, especially in manufacturing and the FMCG sector. Organizations can track their water usage, quality, the cost of water pollution on the environment as well as loss of water through leaks and evaporation.

Leading companies are influencing suppliers to reduce and track their water use to reduce costs and save the environment.

Waste

Companies are beginning to focus on their contribution to the circular economy through waste management.

Waste includes food and packaging waste, hazardous materials, debris and industrial waste, and final disposals. Plastic packaging and single-use materials can be replaced with recycled, recyclable, routable or circular materials.

Social and governmental metrics

Areas such as employee welfare, diversity, and inclusion that depend on numerical statistics can be monitored directly.

Tracking other social metrics is less straightforward. Measuring performance against human rights goals such as improvement in living conditions and creating work opportunities in affected communities requires data and detailed analysis.

The Anker Living Wage and Living Income Research Institute provides a methodology as the basis for producing high-quality, consistent, objective information about living wages and wage gaps.

The aim is to support wage improvement strategies and programs in ESG projects. This methodology has been used since 2017 to estimate living wages at Patagonia, a leading manufacturing company in ESG reporting.

In Governance, success is defined by the level of adherence to policy and regulations within the specific industry sector for both your own organization and the supplier base.

Corporate social responsibility KPIs include:

• Compliance with Code of Conduct
• Compliance with UN global conduct
•  Share of suppliers audited against CSR standards
• Compliance with safety and security requirements
• Work-life balance, working hours
• People development, learning hours
• Community engagement, volunteering hours
• Share of diverse suppliers in the supply base
• Share of suppliers that filled in self-assessment questionnaire (SAQ)
• Diversity, equity, and inclusion (DEI) survey result

What can procurement leaders do?

Requirements for sustainable procurement are evolving and the KPIs must follow. Supplier’s commitment and performance against environmental, social and governance standard needs to be evaluated as part of procurement processes and policies.

Many suppliers have vested sustainability as part of their offering and are willing to show initiative in the hope of new business opportunities and preferred supplier status. Many times, the best practices, innovations, and industry-leading examples come from the supply chain.

Evaluating sustainability performance enables setting targets and taking corrective actions to drive improvement and do business that is sustainable in the long run. Below we have laid out 8 steps to start measuring sustainability performance in procurement.

Success factors in sustainability tracking

Reliable data, efficient processes, industry knowledge and analytical competence are all elements needed to track internal and external sustainability performance and communicate results to stakeholders.

Technology, automation, and AI enable efficient reporting practice and focus on taking action based on insights. With thousands of suppliers, procurement needs to identify emission hotspots and which areas of spend have the highest ESG impact and potential for improvement.

Focusing efforts on key suppliers and risk categories is often the first step. Visibility and fresh data are vital for the success of your sustainability strategy, as ESG requirements, market conditions, and supply chains keep evolving.

Header photo by Markus Spiske (unsplash.com)