What is sustainability? In the charter for the UCLA Sustainability Committee, sustainability is defined as:
The integration of environmental health, social equity and economic vitality in order to create thriving, healthy, diverse and resilient communities for this generation and generations to come. The practice of sustainability recognizes how these issues are interconnected and require a systems approach and an acknowledgment of complexity.
Organizations can determine the success of their sustainability strategy implementation by creating models and analytics against sustainability targets, via numerous means of reporting the results, especially Key Performance Indicators (KPIs). KPIs allow you to monitor sustainability progress and identify areas for future improvement. Here is a list of some of the most important KPIs to monitor when thinking about sustainability.
- Carbon Footprint
- Energy Consumption
- Product Recycling Rate
- Saving Levels Due to Conservation and Improvement Efforts
- Supplier Environmental Sustainability Index
- Supply Chain Miles
- Social Impact
- Water Footprint
- Waste Reduction Rate
How can these be beneficial?
- Scope 1 emissions are direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organization).
- Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling. Although scope 2 emissions physically occur at the facility where they are generated, they are accounted for in an organization’s GHG inventory because they are a result of the organization’s energy use.
- Scope 3 includes all other indirect emissions that occur in a company’s value chain.
Digital tools can measure how much energy is used in various areas and applications, such as the Industrial Internet of Things (IIoT), providing valuable information on production energy consumption. Businesses can investigate how much energy their operations consume and identify areas where they can use less energy, resulting in cost savings for the company and fewer emissions emitted from energy production facilities. Furthermore, measuring the Energy Consumption Rate will provide insight into the amount of energy consumed by the business, which can then be compared to previous months and the best months to establish the company's performance in energy efficiency. . This could result in targets for reduced energy consumption and a lower carbon footprint.
Product recycling rate
Businesses are changing procurement and operations to remain competitive as customers become more aware of the recyclability and sourcing of product materials. Companies will benefit from monitoring their waste management to ensure that the production of products is sustainable and that the products themselves fit into a circular economy.
Businesses must be able to recall information about the treatment of suppliers concerning sourcing and the shift in consumer behavior. Environmental, social, and governance (ESG) reporting can provide valuable insight into the social consequences of operations.
"Supply chain miles," for example, provides a powerful indicator of how far your product travels before arriving at its destination. Measuring this KPI makes it possible to determine whether goods are traveling long distances before arriving at their destination, incurring high costs. This KPI may then impact your supplier selection to reduce your carbon footprint - and possibly your costs. Organizations offer suitable solutions for reducing emissions and waste in the logistics sector with alternatively-powered vehicles and transportation solutions. While a company's products may be the primary source of emissions, it should also consider its supply chain miles, providing additional growth opportunities. Still, to gain complete insights, companies will need access to data surrounding their overall supply chain mileage, and the impact of their transportation method.
Measuring sustainability KPIs is a crucial business practice that will allow tracking, managing, and controlling your company's sustainability level. The degree and number of KPIs you measure depend entirely on your specific business and the goals you are attempting to achieve.
But it won't be easy...
Data is critical for businesses looking to become more sustainable, but how do companies use data effectively and gain accurate insights into their sustainability performance when it is such a broad topic of discussion and analysis? It is unlikely that companies will collect the needed data for sustainability reporting forecasting and analytics. That is especially true for data that exists outside the organization to calculate social impact and supply chain miles, for example.
Planning for sustainability reporting and analysis should include a healthy dose of risk analysis.
Can you imagine how complex it is to capture this data and how difficult it is to compose accurate representations for disclosure? Data engineers won’t be familiar with this data, its locations, its semantics and its volume. Creating a single KPI can require gathering data from many different sources, leading to semantic dissonance and timing issues that have to be resolved.
Some of the most important data exists in other organizations’ data repositories. One of the most significant barriers to measuring these KPIs is that the list of potential measurable KPIs is lengthy and intimidating; defining precisely what is essential to track can be very difficult
Internally, one can go digging through the ERP system, but it will be an effort in archaeology. Some of the data you seek will be found, but it won’t be in a logical schema that is easily extracted and integrated into a useful form for this new kind of analysis. In addition, creating KPIs can be a complicated process. KPIs are high-level metrics, which implies there is a mountain of detail underneath them, and it doesn’t just tally up; there can be complicated logic in creating the KPI.
In a recent diginomica piece, Brian Sommer observed:
Most ERP systems take decades to flesh out their core ERP functionality. These systems are enormous in scope and often have modules to support manufacturing, accounting, HR, payroll, warehousing, CRM, distribution, transportation and more. Vendors have added MES and other shop floor capabilities recently, too. And, that’s before you drop a wagon load of new sustainability requirements into the mix. In fact, the data model, analytics and reporting functionality in most ERP systems possesses little data of a sustainability nature. You should not expect a fully-baked sustainability solution to be present in your ERP solution today.
An effort to collect data to only meet a reporting requirement is a fool’s errand. In a future piece, I will cover sustainability analytics – what to do with the data and models you create to generate KPIs, which are a retrospective look at your performance, and extend to:
- Root cause analysis
- Portfolio management
- Scenario development
- Sensitivity Analysis