Trucost Blog / 21 Jan 2014

A new era of sustainability metrics?

Trucost believes a new era of sustainability metrics is needed. Sustainability metrics that can be assessed alongside financial metrics. Sustainability metrics that everyone in an organization can understand.

There is an elephant in the room. The elephant’s name is Sustainable Growth. According to the World Bank, we expect global economic growth of 3.3% to 2015; 3.0% from the US and 7.9% from China, a region that uses three times more natural resources than the rest of the world to create each unit of GDP.

But the environmental impacts of business – air pollution, biodiversity loss, ecosystem degradation and water scarcity – are threatening the ability of our finite stock of natural capital to deliver Sustainable Growth.

The challenge for sustainable business is to identify growth models that result in reduced environmental impact. So how do we identify these business models? And how do we measure our progress along the journey? Are our current sustainability metrics up to the job?

The World is Changing

At Trucost we believe a new era of sustainability metrics is needed. Sustainability metrics that can be assessed alongside financial metrics. Sustainability metrics that everyone in an organization, from board members and financial managers to supply chain managers and product decision makers, can understand – and act on.

So this year, in addition to the traditional sustainability metrics we regularly contribute to The State of Green Business report, we present a new series of sustainability metrics The Natural Capital Leaders Index to illustrate how companies can measure their progress in decoupling growth from environmental impact. As the results demonstrate, meeting this challenge is far from easy – we identified just 34 companies within our research universe (representing 93% of global markets by market capitalization) that have successfully ‘decoupled’ over the last 5 years.

We note our thanks to the many companies that responded to our call for collaboration in developing these metrics when we published our initial methodology, along with our partner GreenBiz Group, in October 2013. We’ve adapted our methodology along the way – most significantly by developing an additional performance metric to help companies understand how efficiently they are using natural capital to generate revenue.

We also note that this is the start of a journey towards exploring the right indicators to effectively align business strategies with sustainable development imperatives. Our objective has been to demonstrate the power of financially orientated sustainability metrics. We trust in the innovation of the companies we work with to adapt these metrics to address specific sustainability goals and objectives.

Sustainability issues are already creating winners and losers. Challenges such as commodity price volatility, natural resource shortages, pollution impacts, regulatory costs and extreme weather patterns are already leading to profit reductions, reputational damage and supply chain hiccups. Our challenge is to develop new sustainability metrics that support sustainability winners.

We welcome your continued feedback and collaboration on developing The Natural Capital Leaders Index methodology.

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