The Role of Leading vs. Lagging Indicators in Sustainability Planning

The Role of Leading vs. Lagging Indicators

in Sustainability Planning

Panel discussion document prepared exclusively for:

The New Metrics of Sustainable Business Conference

September 28, 2012

The Wharton School

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http://www.sustainablebrands.com/events/issuesinfocus/businessmetrics

DU Executive MBA Week 2 – Sustainable Value Creation│ 2© 2002 - 2012 MetaVu, Inc.

Panel Discussion Topics

About the Panel Context

Definitions Developments Adoption

Q&A Key Takeaways

Sustainable Development Return on Investment (SDROI) is the result when an enterprise stewards resources and capital efficiently to create value for all stakeholders.

SDROI®

The Case for Leading vs. Lagging Indicators in Sustainability Planning 3

Your Panel Today

Joe Wolfsberger

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Michael Muyot

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Mark A. Serwinowski

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http://www.globalreporting.org/

http://southeasterncorporatesustainabilityrankings.net/


Contributor / Collaborator

Bob Pojasek, phD



Panel Discussion document prepared exclusively for:


September 28, 2012

The Wharton School

Mark A. SerwinowskiMetaVu, Inc.1400 16th Street, Suite 400Denver, Colorado USA 80202+1.303.679.8340www.metavu.com








About MetaVu

Services

MetaVu helps company’s develop their business case for sustainable development; collaborate to drive the innovation process and measure the ROI. From product and service impact analysis, to process innovation, supply chain integration and organizational design and governance structures designed to embed sustainability in the business.

Advisory service segments: Strategy & Impact AnalysisInnovation For Future MarketsResource & Process OptimizationEHS and Sustainability Management SystemsReporting & AssuranceLegacy Liability & RestorationBusiness Analytics and Technology

ProductsMetaVu’s Sustainable Development (SD) Tool Suite TM enables clients to directly link, assess and report operational performance in financial terms, linking metrics set by external frameworks (e.g., GRI, CDP, DJSI, IFC, ISM) with leading indicators to measure SD ROI at enterprise, business and product-level.

“Smart Innovator Award – Top Sustainability Consultant”

“Global Knowledge Sharing Award: EHS Management”

MetaVu was founded in 2002. Visit www.metavu.com for more information.

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How Do Leading & Lagging Indicators Enable Sustainability Planning?

SDROI® Sustainability Framework TM

Sustainable Development: Strategy built from the fundamentals of a business – knowledge of the industry, competition, demand, alternatives, risk drivers and unique value proposition.

SDROI®


Leading vs. Lagging Indicators Definitions / Framing

Leading Indicators Future Oriented Performance Goals Predictive Process Focused (what)

Lagging Indicators Past Oriented Outcome Measures Actuarial Organizational Focused (who, how)

© 2002 – 2012 MetaVu, Inc.


Note: General timeline of reporting frameworks, performance systems and relevance to sustainable development (not inclusive of all UN-chartered institutional / investor initiatives.)

Leading vs. Lagging Indicators Development & Adoption Timeline

SRI / ESG Indicators

ESG

Leading Indicators

1970

Lagging Indicators

‘13‘87 ‘112000‘92 ‘06 ‘12‘03‘84 ‘89 ‘09 ‘10‘99 ‘05

© 2002 – 2012 MetaVu, Inc.

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http://ratesustainability.org/

http://www.ghgprotocol.org/












http://www.epa.gov/


Adoption of Leading IndicatorsLeading Indicator Self Assessment (LISA) Tool

1 2 3 4 5

LEADING INDICATOR SELF ASSESSMENT

Inventory drivers (externa / internal)to establish point-of-view on the industry, competition and customers.

Enterprise ESG Risk profile of Value Chain, Supply Chain& Organizational Capabilities.

Enterprise- and product-level to measure environmental,social, economic impact.

Product, Services, business model innovation; Research & Development.

Capital Stewardship (natural, human,financial) to efficiently create value for all stakeholders.

FRAMEWORK CAPABILITIES MEASUREMENT INNOVATION STRATEGY

Leading Indicator Self Assessment - All Industries

10 years of operations research -- cross-sector development.

2012 Regional Leaders

© 2002 – 2012 MetaVu, Inc.


Leading vs. Lagging IndicatorsFor Sustainability Planning

Sustainable Development

ROI Story

Traditional Business Sustainable Business

Leading Indicators

Lagging Indicators

Leading Indicators

Lagging Indicators

Supply Chain Integration

• Procurement requirements for Safety

• Management System

• TRIR• Process Risk

Review

• License to Operate• Supplier ESG Score• SD Management

System• % CAPEX in Local

Content• Production efficiency

• TRIR• Fluency Trainings• OE / Reliability • ROCE• Cost of Capital

Process Excellence

• Product / Business Line CAPEX / OPEX forecast

• EBITDA• ROCE• Asset yield

• % CAPEX in R&D with SD Principles

• Product Innovation Reformulation

• Cost efficiencies• ROCE• Cost of Capital

Product Innovation

• Revenue• Market Share• EBITDA

• ROCE• Cost

efficiencies

• Resource efficiency (energy, materials, water)

• Reformulation • New Market Share• Revenue growth

• Resource conservation, reduction, recovery

• ROCE• Cost of capital

© 2002 – 2012 MetaVu, Inc.

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TakeawaysLeading & Lagging Indicators in Sustainability Planning

Developments Institutional and Sector developments continue

AdoptionNot Leading vs. Lagging ---- Leading AND LaggingEnables enterprise risk point of viewCreates linkage between Opex and Capex Drives governance and compensation (for long term)Links reporting, operations and financial performanceFrames the narrative for investing and measuring ROI



Panel Discussion document prepared exclusively for:


September 28, 2012

The Wharton SchoolJoe Wolfsberger / 704 877-3992








History of Metrics Tracking and ReportingOne Person’s Perspective

Early Reporting of Company Sustainability Data Mostly environmental data collected for compliance purposes Reporting expanded with implementation of enterprise EHS databases

Reporting of readily accessible data – no inter-company consistency

Second Phase Incorporated EHS Data Third Phase Expanded to Include Social Data Currently a Push to Include Governance Information Current Trends

Standardization of Reporting Format One Report Ranking of Performance by Independent Organizations Integration of Sustainability Metrics into Corporate Strategies and Reporting to Create

Competitive Advantages Leading Indicators and Integration into Operational Excellence


The Case for Leading Indicators

For 40 Years we have convinced our leadership to rely on lagging indicators – why change?

At the enterprise level probably will not change but as you go lower in the organization the metrics need to be more activity oriented and actionable

Measuring lagging indicators is like driving by looking in the rear view mirror Lagging indicators create the sense of being powerless and do not drive universal

ownership Leading indicators drive a culture of Zero Risk Tolerance

Reduced risk saves money and creates a competitive advantage

Leading indicators are antecedents of the desired outcomes Success in driving a culture of operational excellence for sustainability supports

improvements in quality and operations

The concept of Leading Indicators are often not understood Often they require a leap of faith – don’t be afraid to start

small


Examples of Leading Indicators for Sustainability

Enterprise Level Employee Engagement Scores Sales Associated with Green Products Percent of sites meeting minimum energy efficiency standards Percent of operating sites having ISO 14001 Certified Management Systems Percent of suppliers with EHS Management Systems Percent of employee population participating on sustainability projects Percent of employees involved in a community sustainability event Number of employees with a performance goal on sustainability Number of energy conservation projects identified and submitted

Site Level Number of near misses identified and investigated Number of Kaizen (Rapid Improvement Events) containing EHS improvements Score on objective measure of a site’s sustainability culture Percent of employees participating in carpools / high efficiency vehicle programs Number of right behaviors observed


in Sustainability PlanningA Panel Discussion

Discussion Forum document prepared exclusively for:


September 28, 2012

The Wharton SchoolMichael MuyotCRD [email protected]








About CRD Analytics

CRD Analytics is a leading provider of independent sustainability investment analytics. Using its proprietary SmartView® 360 Platform, CRD Analytics empowers its clients with actionable and performance-driven information distilled from large sets of complex data including financial, environmental, social, governance, brand perception and reputational risk. CRD Analytics partners with its clients to construct proprietary index-based products – Exchange-Traded Funds (ETFs), separately-managed accounts, mutual funds and Unit Investment Trusts (UITs).

Product & Services Overview

Financial Indexes powered by SmartView 360

Sustainability Rankings (Global & Regional)

Investment Analysis via Bloomberg BMART

Advisory Services: Sustainable Investing

Algorithm Design for Licensing or Sale

Facilitated Executive Roundtables

Established Indexes & Rankings

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The New Formula for Sustainable Development & Investing

= ƒ(Lagging) + (Leading)+(Industry-Specific)

Environmental Impact

Corporate Governance

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Financial Analysis

SocialResponsibility

Net Positive Impacts

RevenueGrowth Model

OperationalExcellence

Innovation Targets

Performance Measurement

CapabilitiesSustainabilityFramework

Innovation

Strategy


Keys to Success: Mainstreaming for Investors

KEYS TO SUCESS

1. Standardized Scoring

2. Comparable Measurement

3. Reputable Algorithm

4. Linked to Financial Performance

5. Success Stories from Companies

Q&A


Michael MuyotPresident & FounderCRD Analytics

@crdanalytics

In/MichaelMuyot

MetaVuCRD Analytics

Mark A. Serwinowski

President & FounderMetaVu

[email protected]

Youtube.com/user/sdROItv

[email protected]

@metavu

In/Mark-A-Serwinowski

(347) 415-6243 (303) 475-7426

Youtube.com/user/sdROItv

Contact Us

[email protected]

Joe Wolfsberger