With all the news on Walmart's Product Sustainability Index, I am wondering why there is still so much emphasis on the use of lagging sustainability indicators.
There are a number of widely used performance frameworks that use leading indicators to foster the long-range thinking that is so important in the world of sustainability. Performance frameworks regard results as merely the outcome of performance. However you need to have both for a successful program. Companies that have used these performance frameworks outperform financially those that do not use them, often by a significant margin.
But the sustainability professionals seem to be content with the lagging indicators and discount the benefits of driving best practice with these proven methods.
The Walmart supplier sustainability assessment consists of eight yes/no questions and seven lagging indicators. If suppliers answer any of the yes/no questions with a no (or if they cannot produce a number for the other seven questions), what is their next step?
They could retain a consultant to produce a document that would provide the objective evidence for a "yes" answer while they produce some numbers to satisfy the other questions. However, does this exercise increase the level of sustainability of the supplier?
What if you had the suppliers address some questions that will drive their sustainability performance both now and in the future? Here are some questions that might help them address sustainability:
- Do you coordinate your operational risk management efforts with your sustainability efforts?
- Do you have a business continuity plan that is linked both to your operational risk management program and your sustainability effort?
- Do you have an active engagement program that you use to determine the interests of your key stakeholders?
- Are you making compliance with legal and other requirements (i.e., environment, health & safety, social and financial) part of how EVERY employee does his or her job every day?
- Do you use an integrated management system to make sustainability a key component in how you operate your business rather than having it work as a peripheral activity?
- Are you using "leading indicators" (i.e., from a formal operational excellence program) to drive your sustainability efforts instead of relying on the lagging indicators found in the Global Reporting Initiative and other sustainability indices?
- Are you scoring the performance you are making on the areas covered by your leading indicators and lagging indicators and reporting your performance to your key stakeholders?
- Are you quantifying the continual improvement made within your sustainability program with a single score?
- Are all three responsibilities (i.e., environmental stewardship, social equity and well being and financial prosperity) integrated in your sustainability program?
- Do you require your contractors and suppliers to adhere to a "Code of Conduct" that helps them operationalize sustainability in their businesses?
For each of these questions, the supplier should provide a written "approach" to the performance category. They should then suggest how they are "deploying" that approach. Next they will provide some of the results (lagging indicators, including those in the sustainability index) of their approach and deployment. Finally they will report on the improvements that have been made in their sustainability effort.
As you can see, this
ADRI approach (most national performance frameworks have similar approaches) helps a supplier learn how to fish in the sustainability waters. Continual improvement in these areas will help guide their quest to add sustainable value to the supply chain.
Using this approach, a large customer could "score" itself and various components of its supply chain in a similar manner as we score children taking standardized exams in the K-12 schools: A student gets a verbal and mathematics score. These scores are aggregated to the classroom and further aggregated to the school. If there is more than one school with that grade in a community, the score can be aggregated to the local community. Finally, the scores can be aggregated to the state. Since educational aid is often tied to the scores, there is an incentive to create programs (leading indicators) that help to improve the scores over time.
A multinational company can be measured on how effective it can be in promoting sustainability throughout its value chain. It is likely that this approach and the accountability of the scoring method would effectively drive behaviors to meet the goals of a vibrant supply chain sustainability initiative.
Do we want to use the carrots of the leading indicators or the perceived sticks of the lagging indicators to drive change? In fact, we need both. But which would you prefer to lead with?
Robert B. Pojasek, Ph.D., is the sustainability practice leader at Capaccio Environmental Engineering and an internationally recognized expert on the topic of business sustainability and process improvement.
Image CC licensed by maartmeester.
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