Session 8:

Measuring and Communicating on

Sustainable Supply Chain
Performance

1
Approach to Sustainable Supply Chain
Management (SSCM): Overarching Framework

Preparing for
Framing the Issues Assessing Impact
Implementation

Session 4: Sustainable
Session 1: From Supply Chains as a Lever
Sustainable Development of Competitive Advantage
to Sustainable Supply
Chains
Session 5: Integrating
Sustainability into the Session 8: Measuring
Supply Chain and Communicating
Session 2: Governance of on Sustainable Supply
Supply Chains I: From Chain Performance
Compliance to Voluntary Session 6: Managing
Standards Stakeholder Relations

Session 3: Governance of Session 7: Building Supply

Supply Chains II: Chain Partnerships
Introducing International
Labour Standards 2
 Session objectives

 Understand the importance of measuring and monitoring to

improve sustainability performance in supply chains

 Learn about widely adopted methodologies and tools to

measuring and monitoring supply chain and sustainability
performance

 Understand the challenges involved in identifying relevant

metrics and consistently measuring results

 Explore tools and systems to track and communicate results

to stakeholders

3
 Agenda

8.1 A review of Corporate Performance Measurement

and Reporting

8.2 Drivers for sustainability measurement and reporting

8.3 Measuring supply chain and sustainability performance

8.4 Reporting on sustainable supply chain goals and

progress

8.5 Class discussion: Reporting on sustainable supply chain

performance

4
Talking about performance measurement

1. What is performance measurement?

2. Why measuring?

3. Measuring…against what?

4. How to measure?

5
 The roadmap to sustainability’s biggest priority by far is
performance.
Companies must produce tangible results that put them on
a truly sustainable path.
Performance will be the ultimate measure for
evaluating a company’s progress towards achieving
sustainability.

Richard Locke
Deputy Dean and Professor of Entrepreneurship,
MIT Sloan School of Management

6
 Four views on business performance
measurement systems

“An integrated set of planning and review procedures which cascade down through
the organization to provide a link between each individual and the overall strategy
of the organization” (Rogers, 1990)

“…one output of strategic planning: senior management’s choice of the nature and
scope of the contracts that it negotiates, both explicitly and implicitly, with its
stakeholders. The PMS is the tool…to monitor those contractual relationships.”
(Atkinson et al, 1997)

“A PMS enables informed decisions to be made and actions to be taken because it

quantifies the efficiency and effectiveness of past actions through….analysis,
interpretation and dissemination of appropriate data.” (Neely, 1998)

“A strategic PMS translates business strategies into deliverable results. Combine

financial, strategic and operating measures to gauge how well a company meets
its targets” (Gates, 1999)

7
 Performance measurement is certainly
NOT about profit alone

 By early 1980s, Johnson and Kaplan highlighted the shortfalls of financial

performance measures to reflect changes in the competitive environment
and strategies of organisations
 The 1990s saw a “performance measurement revolution” (Eccles, 1991;
Neely, 1999) and a proliferation of frameworks that integrate wider criteria:

• Balanced Scorecard (Kaplan and Norton, 1992)

• Performance Measurement Matrix (Keegan et al, 1989)
• SMART Pyramid (Lynch and Cross, 1991)
• Baldrige Criteria for Performance Excellence
• Performance Prism (Kennerley and Neely, 2000)
• European Foundation for Quality Management (EFQM) Excellence
Model
• Six Sigma

8
 Bottom line, the overall concept of corporate
performance has evolved to integrate measures
beyond financial indicators

 After the accounting and reporting scandals of the early 2000s (e.g. Enron), corporate
governance became a priority for stakeholders, from regulators to consumers

 Additional stakeholder demand for transparency in areas such as board level

remuneration, internal controls, procurement practices and management oversight
have set new standards for corporate reporting

 Closer scrutiny of practices, results and overall performance has resulted into
more complexity, new metrics, new measurement systems and greater information
available for stakeholders

 The emergence of Globally Accepted Accounting Principles (GAAP) and

International Financial Reporting Standards (IFRS) have formalized the need to
measure and communicate broader corporate activity through reporting.

 More recently, the concept of Triple Bottom Line (TBL) emerged, referring to the
expansion of accounting of financial performance to make corporations accountable for
their environmental and social impacts.
9
 Agenda

8.1 A review of Corporate Performance Measurement and

Reporting

8.2 Drivers for sustainability measurement and reporting

8.3 Measuring supply chain and sustainability performance

8.4 Reporting on sustainable supply chain goals and

progress

8.5 Class discussion: Reporting on sustainable supply chain

performance

10
Drivers for measuring sustainability performance

 Monitor, review and adjust

 Transparency and legitimacy: support claims for actions

 Increased demands from multiple stakeholders: shareholders, customers,

community, suppliers, investment community

 Increased visibility of sustainable supply chain activities within overall

business operations

 Align sustainable supply chain goals and performance with corporate

performance

11
The “business case” approach (Brown, 2006):
creating value for shareholders

 Social and environmental accounting seen as an expanded management toolkit for

increasing shareholder value (Hedstrom et al., 1998)

 Focuses on “identifying and pursuing forms of CSR and SEA that result in win-wins
for both business and wider stakeholders…” (Brown, 2006)

 BITC (2003) states that there are “rewards” to reap from an effective “business-led
approach” that make “the business case compelling”

 A way to demonstrate “positive impact on society” (BITC, 2003), and to “head off
campaigns from activists….which have the potential to threaten business interests…”
(Litvin, 2003)

 “Business leaders are increasingly acting upon this responsibility (to report) because
it makes good business sense. It helps companies mitigate risk, protect
corporate brand, and gain competitive advantage…(Deloitte, 2002)

12
Business benefits from sustainability reporting
(WBCSD, 2003):

 Creating financial value

 Attracting long term capital and favourable financing conditions

 Raising awareness, motivating and aligning staff, attracting talent

 Improving management systems

 Risk awareness

 Encouraging innovation

 Continuous improvement

 Enhancing reputation

 Transparency to stakeholders

 Maintaining license to operate

13
The Stakeholder-Accountability Approach (Brown,
2006): promotes a more open and transparent
society
 While stakeholders share interests, there is considerable potential for conflicts of
interests (Brown)
 Management’s primary responsibility is to society and managerial performance
“should be evaluated in terms of both profit and the accomplishment of social
initiatives” (Chen, 1975)
 “The Corporate Report” backs up the notion that “stakeholders have rights to
information” (Accounting Standards Steering Committee, 1975)
 Accountability as “being called to account for one’s actions”
 Recognizes the economic, social and political power that corporations have in society
 Companies “accountable for the use of financial, human and community resources
entrusted to them and that affected parties need safeguards against potential
abuses…”
 Access to information plays an important monitoring role in the process

14
 Beyond theory: the view from practitioners

Key reasons for measuring supply chain sustainability

Illustrative example from the shipping industry

Innovation
Attract

Attract

Source: North American Sustainable Supply Chain Report 2010 15

 Agenda

8.1 A review of Corporate Performance Measurement and

Reporting

8.2 Drivers for sustainability measurement and reporting

8.3 Measuring supply chain and sustainability

performance

8.4 Reporting on sustainable supply chain goals and progress

8.5 Class discussion: Reporting on sustainable supply chain

performance

16
Evolution of supply chain measurement systems
(Beamon, 1996)

 Single performance measures: e.g. cost, customer satisfaction (Christopher, 1994), supplier
performance (Davis, 1993), risk management (Johnson and Randolph, 1995). Key considerations:
• Inclusiveness
• Universality
• Measurability
• Consistency
 Strategic goal-driven measures: type of performance measurement directly related to the
manufacturing strategy (Maskell, 1991)
• Performance meeting strategic goals
• Performance measure as a driver for achieving vision and goals
• Strategic goals seldom refer to a single performance measure, but to a combination of
measures

An effective supply chain performance measurement system must rely

in a combination of measures that acknowledge the interrelations
within the supply chain, consider risks and uncertainties and are
consistent with an organization’s strategic goals. 17
 Three types of performance measures for
supply chains (Beamon, 1999)

• Total cost of resources

• Distribution/manufacturing cost
• Inventory: investment,
obsolescence
• Return on investment (ROI)

• Quality • Volume flexibility: e.g.

• Customer response time
• Number of items produced
• Number of on-time deliveries
• Manufacturing lead time
• Shipping errors
• Customer complaints
seasonality
• Delivery flexibility: e.g.
transport disruptions
• Product mix flexibility: demand
variations
• New product flexibility
18
 Frameworks for measuring social and
environmental performance of supply chains
broadly disseminated and adopted

 WBCSD’s “Measuring Impact

Framework”
 Global Reporting Initiative’s
Guidelines for measuring and
reporting on sustainability
performance
 Prince of Wales’ Accounting for
Sustainability Project: “Connected
Reporting Framework”
 AccountAbility’s AA1000
Accountability Principles

19
The “Global Reporting Initiative” guidelines is the
most widely adopted measurement and reporting
framework
The cornerstone of the framework is the
Sustainability Reporting Guidelines. The third
version of the Guidelines - known as the G3
Guidelines - was published in 2006, and is a free
public good.

20
The GRI Guidelines and supplements

 The GRI Guidelines

 Sector supplements – providing guidance that
captures sustainability issues faced by specific
industry sectors, e.g. financial services,
telecommunications, auto manufacturing, mining
 Technical protocols – providing detailed
measurement methods and procedures for
reporting on indicators contained in the core
guidelines e.g. energy indicators providing
definitions (e.g. direct vs. indirect energy) and
measurement methodologies (e.g. conversions,
units)
 National annexes – providing national (local)
country perspectives and particular influences,
nuances and contexts to sustainability
 Issue guidance documents – on topics such as
‘diversity’ and ‘productivity’
21
 The GRI Standard Disclosures

Measures express strategic

approach, management goals,
and performance results through
three kinds of disclosures:

 Profile disclosures set the overall

context for understanding performance
- such as strategy and governance.
 Management Approach disclosures
explain how specific sustainability
issues are managed, including goals
and targets.
 Performance Indicators elicit
comparable information on economic,
environmental, and social performance.

22
Source: Global Reporting Initiative G3 Guidelines, accessible at www.globalreporting.org
 Measuring Economic Performance
according to GRI
 The economic dimension of sustainability concerns the organisation’s impacts on the economic
conditions of its stakeholders and on economic systems at a local, national, and global levels
(GRI3.1). They show:
• Flow of capital among different stakeholders
• Main economic impacts of the organisation throughout society

23
 Measuring environmental performance
according to GRI:

 Performance and measures relative to inputs (e.g., material, energy, water) and
outputs (e.g., emissions, effluents, waste).
 Performance and indicators relative to biodiversity, environmental compliance,
environmental expenditure and the impacts of products and services.
 Corporate goals in the area and Policy
 Organisational Responsibility: Management accountable for executing process
 Training and awareness: Procedures aimed at creating awareness and training
 Monitoring and Follow Up
• Monitoring, corrective and preventive actions with emphasis on the supply
chain
• List of certifications for environment-related performance or other approaches to
auditing/verification for the reporting organization or its supply chain.
 Additional Contextual Information
• Key successes and shortcomings
• Environmental risks and opportunities
• Key strategies and procedures for implementing policies or achieving goals.
24
 Sample Environmental Performance
Indicators required by GRI

25
Source: Global Reporting Initiative G3 Guidelines, accessible at www.globalreporting.org
Measuring social performance according to GRI

1. Labour Practices and Decent Work

• United Nations Universal Declaration of Human Rights
• United Nations Convention: International Covenant on Civil and Political Rights; United Nations
Convention: International Covenant on Economic, Social, and Cultural Rights
• Convention on the Elimination of all Forms of Discrimination against Women (CEDAW)
• ILO Declaration on Fundamental Principles and Rights at Work and The Vienna Declaration and
Programme of Action
• ILO Tripartite Declaration Concerning Multinational Enterprises and Social Policy
• Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational
Enterprises
2. Human Rights
• Main issues: nondiscrimination, gender equality, freedom of association, collective bargaining,
child labor, forced and compulsory labor, and indigenous rights
• Body of law: treaties, conventions, declarations
3. Society
• Impacts on local communities
• Bribery, corruption, monopoly
4. Product Responsibility: Customer Health and Safety, Labeling, Marketing, Customer Privacy,
Compliance
26
Sample Social Performance
Indicators required by GRI

27
 Additional sector-specific indicators:
Sector supplements

 Working Group
• Media
 First Draft
• Airports
• Construction & Real Estate
• Event Organisers
 Final Draft
• Food Processing
• NGO
• Oil & Gas
 Pilot
• Apparel & Footwear  Final
• Automotive • Electric Utilities & Financial
• Logistics & Transportation Services
• Public Agency Sector Supplement obligatory to
• Telecommunications obtain level A from 1 January
2010
• Mining
Sector Supplement required to
obtain GRI Application level A 28
from 31 December 2011
 Agenda

8.1 A review of Corporate Performance Measurement and

Reporting

8.2 Drivers for sustainability measurement and reporting

8.3 Measuring supply chain and sustainability performance

8.4 Reporting on sustainable supply chain goals and

progress

8.5 Class discussion: Reporting on sustainable supply chain

performance

29
The number of companies reporting on GRI Guidelines
continues to expand, with increased SME and emerging
markets participation

Number of Reports 2010 Geographic Distribution 2010

SMEs

MNEs

68% growth in Brazil 9% growth in China

Source: Global Reporting Initiative 2010 Statistics

30
Global reporting statistics show an upward trend in the
number of reports including meaningful sustainability
information…

Global Output Report 2010 FTSE100 Constituents Reporting

In 10 years, the number of reports Annual growth 2009-2010 of FTSE100

mentioning significant sustainability Companies including meaningful
achievements grew by 6 times (Corporate sustainability information reached 10
Register) percent

31
 From corporate reporting to sustainability
reporting

 As discussed, it is widely acknowledged that financial reporting captures only a

portion of a company’s value creation potential and corporate risks
 Intangible factors such as strategy, innovation capacity, talent retention, reputation
management, commercial risk reduction (e.g. bribery, occupational accidents),
resource efficiency and others can be measured and disclosed through
sustainability reporting
 Sustainability reporting complements financial reports by integrating non-financial
value drivers, such as human capital formation, corporate governance,
management of environmental risks and the ability to innovate
 Reporting on social and environmental performance allows establishing the link
between business strategy and sustainability by assessing the sustainability
issues influencing the company’s competitive advantage: cost leadership,
product/service differentiation and the formation of intellectual capital
 It is a tool to communicate with stakeholders, disclose and discuss risks,
uncertainties, challenges and trends that may materially affect financial
performance

32
 Sustainability Reporting

 “Sustainability reporting is the practice of measuring, disclosing and

being accountable to internal and external stakeholders for
organisational performance towards the goal of sustainable development. »

 «Sustainability reporting is a broad term considered synonymous with

others used to describe reporting on economic, environmental, and
social impacts (e.g., triple bottom line, corporate responsibility reporting,
etc.). »

GRI Sustainability Reporting Guidelines

Version 3.1, 2010-2011

33
Market forces influencing sustainability reporting

• Institutional investors: risk management, compliance and performance

• Sustainability investment performance track record
Financial/Market • Sustainability driven corporate competitiveness and profitability
measurement
Forces • Competitive benchmarking
• Guidelines and indicators of performance: UN Principles for
Responsible Investment (UNPRI), FTSE4GOOD and Dow Jones
Sustainability Indexes, Ethibel Sustainability Index (Standard & Poors)

Stakeholder • Voluntary sustainability initiatives and accountability

• Stakeholder pressure for mandatory disclosure
Forces • Stakeholder pressure for mandatory pension fund disclosure
• UN Environmental Programme Finance Initiative (UNEP FI), UN
Global Compact, Global Reporting Initiative (GRI), Carbon
Disclosure Project (CDP), Coalition for Environmentally
Responsible Economies (CERES)

• National environmental and financial metrics and disclosure demands

Regulatory • Intergovernmental legislation and action plans: EU communication on
CSR from November 2011
Forces • Mandatory Reporting on Greenhouse Gases Rule (US), OECD
Guidelines for Pension Fund Governance, Sarbanes-Oxley Act
34
 To Report or not to Report?

 Factors influencing decision to report relate to size, stakeholder relations,

regulatory requirements, etc.

 Reporting has evolved to integrate several formats and channels:

• Stand-alone Sustainability Reports
• Integrated Corporate and Sustainability Reports
• Interactive online Reports
• Online, dedicated websites with regularly updated information
• Different channels and content for different stakeholders

35
 Future outlook: sustainability and integrated
corporate reporting mainstreaming…

Governments and the financial community strongly driving the trend

 In France, a new law has expanded requirements for sustainability reporting to non-
listed firms, becoming mandatory for around 2,600 companies.

 In South Africa, companies listed on the JSE Securities Exchange must comply with
the King Report on Corporate Governance for South Africa (King III), which
recommends that companies should produce an integrated report rather than a
separate annual financial report and sustainability report.

 Mainstream investors increasingly looking for reliable information that can be

independently verified and benchmarked within and across sectors

 One out of every seven written questions from shareholders of companies on the
CAC401, during general assemblies in 2010 related to sustainability issues

 Specialist companies, such as Vigeo, Eiris and SAM, have emerged to provide
sustainability ratings, providing independent assessments of ESG performance

1. France’s main stock index. It The index represents a capitalization-weighted measure of the 40 most significant values among the 100 36
highest market capitalized stocks on Euronext Paris bourse.
 Agenda

8.1 A review of Corporate Performance Measurement and

Reporting

8.2 Drivers for sustainability measurement and reporting

8.3 Measuring supply chain and sustainability performance

8.4 Reporting on sustainable supply chain goals and

progress

8.5 Class discussion: Reporting on sustainable supply

chain performance

37
Class Example and Discussion: Danone’s
Human Rights Indicators

38
 Class Discussion: Danone’s Human Rights
Performance Indicators

 As preparation for the module, you have read the Danone Sustainability Report’s
Section on Human Rights Performance Indicators and related pages
 In your groups, take 45’ to discuss this section. Please use the following questions in
guiding your discussion:
• In your view, what are the main (2-3) initiatives Danone is taking forward in
this area and what have been the results so far?
• What are specific tools through which Danone measures the sustainability of
their suppliers’ practices?
• How are the corporate headquarters and the Country Business Business
Units (CBUs) working together in implementing and monitoring procedures
and practices?
• What are in your view, areas on which Danone’s disclosure on human rights
performance could improve? Please provide specific examples.

39
 Conclusion

 Several approaches to measuring and tracking supply chain performance, but no

one-size fits all solution
 Measuring and communicating allows for increased credibility and trust
amongst all stakeholders (including workers)
 Measuring and monitoring as a systematic process contributes to increased
operational efficiency and hence, overall performance improvement
 Different stakeholders are interested in different metrics. Tailor efforts and
communication accordingly
 The journey has just began. Transparency will become ever more important for
consumers, investors, suppliers as instant connectivity grows and consumers
engage at a deeper level with business

40
Back up Slides

41
 Application Levels
Report C C+ B B+ A A+
Application
Level

Report on
Report on all criteria Same as requirement for
1.1
listed for Level C plus: Level B
2.1 – 2.10
G3 Profile 1.2
3.1 – 3.8; 3.10 – 3.12
Disclosure 3.9; 3.13
4.1 – 4.4; 4.14 – 4.15
4.4 – 4.13, 4-16 – 4.17

Not Required Management Approach Management Approach

G3
Disclosures for each Disclosures for each
Management Report Externally Assured

Report Externally Assured

Report Externally Assured

indicator Category indicator Category
Approach
Disclosures

Report on a minimum Report on a minimum of Report on each core G3

G3
of 10 Performance 20 Performance and Sector Supplement
Performance Indicator with due regard to
Indicators, including at Indicators, including at
Indicators &
lease one each of least one from each the Materiality Principle by
Sector either:
Economic, Social and Economic,
Supplements a) Reporting on the Indicator
Environmental Environmental, Human
Performance
Core Indicators Rights, Labour, Society, or
Indicators b) Explaining the reason for
Product Responsibility
Core + Additional its omission
Indicators
Not applicable is not valid
Indicator Guidelines:
– Must explain i.e. not
1. Depend on what level of report (A, B,
material, no data, no
C) you are aiming for
commitment, proprietary
2. Always core, then additional, then
sector supplements, then others
information 42
(industries, new, other)
 Reporting Principles

Defining Materiality Topics and indicators that reflect social, environmental, economic impacts that would
Content influence stakeholder assessments and decisions
Stakeholder Identify stakeholders and explain how responded to their expectations
Inclusiveness
Sustainability Performance in the wider context of sustainability
Content

Completeness Material topics, indicators and definition of reporting boundary to reflect impacts

Defining Quality Balance Reflect both positive and negative aspects of performance
Comparability Issues and information should be selected, compiled and reported consistently
Accuracy Information sufficiently accurate and detailed for stakeholders to access
performance
Timeliness Reporting occurs on a regular schedule and information is available in time to make
informed decisions
Clarity Information presented in a manner that is understandable and accessible

Reliability Information and processes used to prepare report should be gathered, recorded,
compiled, analysed and disclosed in a way that could be subject to examination

Boundary The Sustainability Report should include the entities over which the reporting
Setting company exercises control or significant influence both in and through its
relationships with various entities upstream (e.g. supply chain) and downstream (e.g.
distribution & customers) 43
Source: GRI G3 Guidelines
 Measuring against what?

 Company’s own
values and stated
Societal Values / Norms mission. This may
Standards/Principles/Instruments explicitly set out
social, economic and
environmental goals
Specific stakeholder  Values and interests
Values / Views that reflect views and
aspirations of key
Firm stakeholders
Core Values  Values
institutionalized in law,
conventions or rooted
social norms

44
Source: Simon Zadek, “The Civil Corporation”, 2006
 Linking Sustainability metrics and
Business Strategy metrics

What is the Vision, What are the Key What are the relevant
Goals, Objectives for Thrusts? metrics and KPIs?
the company?
• Strategic priorities • Economic growth
What is the vision for • Market, financial, • Customer satisfaction
sustainability? business objectives • Employee engagement
• Targets • Stakeholder engagement

What are the specific

How are the What would be
sustainability goals?
sustainability goals specific metrics
woven in our supply related to
How do they fit with
chain activities? sustainability goals?
business strategy?

Source: Latitude
45
 Linking Sustainability Strategy and metrics
Example: Marks and Spencer Plan A

Specific activities Specific metrics

Sustainability related related to related to
Objectives sustainability sustainability
(By 2012) objectives integrated objectives
with other activities

Reduce environmental
Climate Change
impact
• Reducing energy use • Fuel efficiency in
warehouses
• Using green energy
• Energy efficiency in
• Tackling food miles
warehouses
• Helping consumers cut
• Number of “Green factories”
carbon
• Number of “Green Stores”
• Store Energy consumption
46
 Key considerations in setting metrics to
measure progress

1. There is an underlying objective for the measurement.

2. Measurement terminology is defined and used consistently throughout
the organization.
3. Information needed for the measurements is obtainable.
4. The measurement will create behaviour that is in concert with
organizational goals and objectives.
5. While there will likely be a combination of lagging and leading indicators,
leading indicators are more appropriate to help predict how the
organization will perform in the future.
6. The measurements should be used to track performance trends.
7. Appropriate benchmarks and targets are identified.
47
Source: Butler et al, 2008