Metrics and Targets are an essential part of your ESG strategy as they allow you to track and monitor performance. However, there are important considerations to take into account to ensure that the metrics and targets you are using support and assist you on your ESG journey.
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Alignment with Strategy
It is important that the ESG strategies align with general business strategies, and often any misalignment first comes to light when developing ESG targets. For example, an ESG target might be to purchase 100% environmentally friendly inputs, which inherently are likely to be more expensive, yet the broader business strategy might be to reduce the costs of inputs by 30%. Where this occurs, it is a clear indicator that the strategy needs to be revisited to ensure that there is better alignment and integration of the ESG strategy within the broader business strategy.
In addition, it is important that targets address all elements of the sustainability strategy. Whilst transitional targets, such as obtaining 100% renewable energy might be at the front of mind, it is important to also consider any physical risks that your organisation might face. Targets should also be put in place to ensure that mitigation actions are being taken to address those physical risks such as targets around flood mitigation, or extreme heat etc., depending on your organisations exposure. Ensuring that the targets are in place across the full gamut of your organisations ESG strategy will ensure that all elements of that strategy are focused on and implemented.
Determine the most appropriate type of metric to use
When setting targets, consideration should be given to what metrics you use to measure efforts and ensure that they are the most appropriate for the circumstances. For instance, although absolute targets might be appropriate where there is a regulated limit on the matter being measured, or where the target is zero, in other circumstances, more finesse might be needed when setting targets.
Intensity targets that are set relative to an appropriate activity level, such as kW of electricity per store, may be a more appropriate measure than just kW of electricity used. Such a measure will help you understand how you are reducing electricity consumption at a store level and not distorting the organisational efforts for changes in the number of stores which could otherwise distort the performance.
Targets may also be set as a reduction from performance in a base year, such as ‘reducing water consumption by 75% based on 2023 water consumption levels’. Using targets in this way can be an effective way to demonstrate your progression over time.
Finally, when setting targets, as well has having a long-term target such as net zero by 2050, it is important to also have short term targets to support this and ensure that you are on track to the meet that longer term target. Without the short-term targets, it is very easy not to make sufficient progress on targets such that achieving the ultimate long-term goal becomes unachievable.
Common issues in practice
Issues that we have seen from organisations implementing ESG targets include not setting clearly defined targets. For example, our products are 80% sustainable. In this instance it is not clear what ‘sustainable’ means.
Carefully consider the targets that are being set to ensure that they are measurable and meaningful. To be measurable it is also important that the data be available to support the metric.
Accordingly, consider what information is already available from your systems or what data is easy to commence collecting, prior to setting a target. In addition, if setting an ESG target is new to your organisation, it may be more valid in the first year, to just collect the data and understand what you performance level is at, prior to setting any targets, without any context of you performance or scope for improvement. Once you have the data it is important that you set reasonable targets. Whilst it is admirable to have ambitious targets, if they are not targets that are realistically feasible they can put you at risk of failure and possibly of greenwashing.
Greenwashing
Well-structured metrics and targets can assist with mitigating the risks of greenwashing. Where the targets and metrics are clearly defined and supported by auditable data, they become factual statements that you can make with confidence without the fear of greenwashing.
The main issue around targets that have been called out as greenwashing is where companies are setting ambitious targets i.e. net zero by 2050, without any credible strategy to get them there, or measure of progress along the way. Accordingly, this will be mitigated if the principles of this guidance are followed.
Next Steps
Moore Australia is here to help you with your ESG journey. We can assist you in establishing your metrics and targets, to ensure that they are fit for purpose and align with the above principles. For further information, please download a copy of our presentation. If you would like to discuss further please contact your local Moore Australia representatives.