[Here, slightly edited for clarity, are my opening remarks at the New Metrics for Sustainable Business conference produced by Sustainable Brands last week at University of Pennsylvania.]
As you probably know, Natural Logic is a strategy firm, advising companies on creating and capturing value at the intersection of profit, risk, brand and purpose. One thing that’s been central in our work has been ”
measuring what matters.”
Everybody knows that what gets measured, gets managed. Right? You all know that. Except it’s not true. What gets measured can get managed; what’s not measured isn’t going to get managed well.
But that begs the next question: what should we be measuring? Which are the measures that matter? Which are the kind of measures that make a difference?
With that in mind, I’d like to offer a question for your consideration, taught to me as a pivotal question by my mentor Bob Dunham: “For the sake of what?”
That’s the background question in every human conversation, according to Dunham—certainly in every business conversation. Someone makes a request of you, you promise to fulfill that request. In the background, hopefully, is a shared understanding of why is this important to each of you. “For the sake of what” are we asking and performing these actions? (Sometimes that isn’t clear or isn’t shared, and many problems ensue. But that’s a matter for another time.)
So I hope that over the course of the next couple of days we can get more clear in our conversations—as we look at what’s important to measure—about “for the sake of what?”
One of the things that this is “for the sake of” is developing a common language, a lingua franca, that ties together all of our efforts, so that we can have shared focus, shared commitments and shared agendas.
It is also for the sake of disclosing value, whatever value means to you, whatever value means to your organization. How do we get a handle on what that is and where that is? How do we track toward it and maximize it?
We’ll have conversations about both hard and soft metrics; you know, “hard” metrics like carbon emissions, “soft” metrics like employee engagement. It turns out that the soft metrics, recent research has shown, are as significant as the hard metrics, as a driver of value in organizations. They’re more challenging to get at with precision, but they’re enormously potent in their leverage.
Let me zoom out for a moment. When we look at the state of sustainability today, for all the progress that we’ve seen (and Sustainable Brands) highlights that day after day, for all the enormous innovation around the world, if we’re going to tell the truth we’d have to say we’re not winning. It’s hard for me to say this; I’m usually the optimist in the room. But we’re in a very challenging situation.
I led a strategy session in New York yesterday with Nike and others, looking at the state of the climate crisis in particular, and the sustainability transition in general. There was gloom in the room, real frustration about how well organized the opposition, the extremely well funded climate denial machine, has been; and how ineffective by comparison, or at least un-unified and unfocused we’ve been, at the level of international agreements, national policy certainly in the United States. Coal is beleaguered in the United States but it’s growing in China. The International Energy Administration has told us that we need to keep 80% of all fossil fuels in the ground, to have a prayer of stabilizing the climate, but I guarantee you that the owners of those assets “will not go quietly into that good night.” There’s a big fight ahead.
We see enormous growth, year after year, in the attention that CEOs are giving to the sustainability issue, but it’s inconsistently backed by action. A recent study released by the Global Compact and Accenture said that 78% of CEOs see sustainability initiatives as a route to growth and innovation. Great. 79% see it as a route to competitive advantage for their companies. Great. But only 45% down—from 54% last year—see it as extremely important to their business, even fewer—34%—in Europe (which has long been the leader).
Is this lip service from CEOs or a serious focus toward action? Only 33% say that their company’s actions are sufficient. Only 3% say they strongly agree with that statement. So clearly there’s a wide gap on the ground in what companies are doing.
The insurance industry has a particularly cogent and important view on these issues. A study just released by Swiss Re observed that more than 600 cities around the world are at serious risk for climate related events. Superstorm Sandy alone generated 80 to 100 billion dollars worth of damage. What happens when we get two superstorms in one season? or three? or five? What happens if 100 year events happen every few years? or 1000 year events happen every few decades?
This is a very salient issue to the insurance industry. In our work at the Sustainability Accounting Standards Board [SASB] we’ve been looking very carefully at the challenge of materiality, and what should be reported? There is a risk to companies that don’t report certain risks but also exposure if they do. What is the standard for relevance, materiality and fiduciary duty? This is unsettled territory.
I would note—since the topic of fiduciary duty came up this morning—the widely held notion that the sole responsibility of directors of corporations is to maximize return to shareholders is only about 40 years old. This is not settled, ancient tradition in the business world; it came to us with the work of Milton Friedman in the early 1970s. Those of you who run companies know that there are many ways that value is generated and served, yet we have this cultural lock-in around a very narrow perception of where value comes from.
In fact those of us who have been working in this field, many of you in this room, know that sustainability represents potentially the biggest business opportunity of the century. In our work with clients—major brands that we’ve worked with like Coca Cola and eBay, and HP and Levi’s, and Steelcase and SunPower, and many others—we have found documented, on the ground, massive value. In some cases, as large as the company’s existing global revenue. It’s not easily accessed—it requires profound redesign of the business proposition from top to bottom—but that scale of impact is visible, and possible. Many of the actions that you would take to maximize value and the actions you would take to mitigate climate change are in fact the same.
So the argument that “we can’t afford to do this” presumes that sustainability is at the expense of profit. If that’s the case it’s a rational business strategy to delay those investments as long as possible until you’re compelled by regulation or markets or what have you to make them. If in fact these strategies are profitable, the rational business strategy is to accelerate them and harvest the advantage now—build brand, build profit, reduce risk and, dare I say, serve purpose and build meaning in an organization through the same set of actions.
The question that we are faced with through all that is: Well, what’s good enough? How much is good enough? (This is the kind of question that the GRI, GISR and SASB grapple with. Each offers long laundry lists of potential metrics—which are a good universe for consideration, but in fact the metrics that anyone’s going to manage to will always be a much shorter list.)
When I think lately about “what’s good enough” I think of Tesla, which is currently selling more cars in California than all the other luxury brands combined. One notable metric, announced just a few weeks ago, is that Tesla hit perfect scores on every safety rating for the Transportation Safety Board. Five out of five in every category. People thought that was pretty cool; I thought that what was remarkable not that they did achieved that rating, but that nobody else ever has.
It’s clearly not impossible. Tesla achieved it. I think what the difference was that Elon Musk said to his company, “We will achieve perfect scores on all these. Please create a car that does that.” And I imagine that the other companies said, “We’re going to do as well as we can within the constraints of engineering and financials and the competitive market situation. Maybe four out of five is good enough; maybe three and a half is good enough in our competitive niche in the marketplace.” Well, to hell with that. What if only “perfect “is good enough? What does it take to accomplish that?
One of the things that it takes is design—declaring in your own minds what perfect that is, what the aspiration is, what the goal is and then doing what business does so well—orchestrating resources and know-how and capital, in order to produce the goal that’s been named, and aimed at.
This is a key part of the answer to the question “For the sake of what?” because what we do as human beings is create worlds when we speak. We certainly create worlds when we make promises.
It comes down, then, to the kinds of promises that we make. The question for the metrics conversation is: What kind of metrics will reveal that will reveal what we’re committed to, what we care about, and where we’re going? What kind of metrics are generative—that actually create new possibility that we can step into as individuals, as companies, as nations? That reveal true progress and that generate potent and effective action toward that progress, toward the goals that we share.
For me, “for the sake of what?” comes down to a simple statement and a very tall challenge; our job together in the sustainability movement is not to sustain things as they are, as Bill McDonough and Michael Braugart say. It’s not to keep things at the level they are now. How boring is that?
Our challenge is to reinvent the economy of an entire planet. This planet. And to do that in one generation. In a way that builds wealth inclusively.
The challenge for the metrics conversation is to do that in a way that provides a clear line of sight that connect every single person in your company with the actions that they take and the impacts of those actions, and the contribution of those impacts of the goals that we all share together.
[If you’d like to dive deeper, here are my perspectives from the first New Metrics conference, in 2011, including additional links. Oh, and my tweets from this one. ;-)]