When it comes to ESG, there’s a phrase we love to use: “You cannot manage what you cannot measure; what gets measured gets done.” These words especially ring true for companies that are determining how to implement sustainability and ESG practices. In order to start measuring ESG effectively, you must be able to identify which sustainability metrics matter most.
By establishing relevant goals and measuring progress through clearly defined metrics, you will be able to demonstrate impact, effectiveness, and value.
Setting SMART ESG Goals
Before you start diving into the data, be sure you have objectives in place that align well with your organization. You’ll need to set SMART goals to ensure that you’re tracking these metrics with purpose.
- Specific: A clear, well-defined goal is the best way to help people understand where the organization needs to go. For example, “Reduce water consumption by 5% each year for the next three years” is preferable to “Help mitigate the impact of the drought by reducing water consumption.”
- Measurable: It’s tough to see your progress if you don’t have a way to objectively assess it. First, establish a baseline with numbers from a reliable source, such as your utility bill, then monitor progress against that baseline.
- Achievable: If the goal seems hopelessly unattainable, people won’t rally around it. Ambition should be applauded, but objectives should be broken down into bite-sized pieces. As interim goals are met, set another (reasonable) stretch goal for the next effort.
- Relevant: Make sure the goals you set matter to people within your organization and your larger business strategy. This will ensure you have an easier time gaining internal support and sponsorship.
- Timely: Create clear timelines to encourage others – and yourself – to stay accountable.
Common Sustainability Metrics for Real Estate
Now that you have some goals in mind, be sure you’re gathering relevant data to track progress. Each industry and organization will have different metrics that are material to their business. To get you started, here are ESG metrics commonly tracked by leading companies:
- Financial: Cost/benefit analysis, simple payback period, Internal Rate of Return (IRR) and Return on Investment (ROI) are examples of financial metrics that are essential to most organizations. Sustainability initiatives that don’t hit the mark in these areas don’t get funded.
- Environmental: Metrics in this category often speak to resource consumption. These include reduction in electricity usage, change in fuel consumption for company vehicles, carbon emissions reductions, gallons of water saved, and increased waste diversion.
- Social: These metrics are meant to answer questions regarding employees and occupants, health & wellbeing, diversity & inclusion, supply chain management, and more. Perhaps the most important are measures of employee engagement with the organization’s initiatives around sustainability. Without behavior and culture change, sustainability initiatives will be limited in scope and impact.
- Governance: Often, governance metrics are determined by the existence of policies on certain issues, but companies can drill down deeper as ESG programs become more sophisticated.
For more details on materiality for your industry, check out the Sustainability Accounting Standards Board (SASB)’s Materiality Map. Keep in mind that these provide a baseline for you to get started. That being said, you will need to determine what areas are most important to your organization.
Using Metrics to Drive Performance
So what do you actually do with ESG metrics? Within your company, you will have huge opportunities to advocate for your own success.
Gain sponsorship from an executive to get the resources and attention required to reach more ambitious goals. Find someone near the top of the corporate “food chain” to elevate your key sustainability initiatives.
Integrate ESG metrics into business plans with the help of a well-defined ESG program. Make sure your sustainability goals get built into these documents so that they align with the organization’s overall direction.
Share your results, whether it be through dashboards, thermometers, or a mention in an executive’s speech. These are all effective ways to communicate progress. Think of how important it is to see the scoreboard at a basketball game. By ensuring your progress is seen by everyone, you will increase employee engagement and commitment to the goals you’ve set. When you’re ready, you can disclose this progress to investors, stakeholders, and benchmarking standards.
By developing and maintaining your material ESG metrics, you will be able to sustain your ESG program’s growth and maturity.
This blog was originally published in 2014 and has been updated to reflect changes in the ESG metrics landscape.