Sustainability metrics 'don't reflect real world impact'

23 March 2017

Metrics used by leading companies to measure their performance in corporate sustainability areas like labour and human rights are failing to provide a full picture of how they are really affecting society.

A report said methods for assessing firms were “overly deferential” and standards were inconsistent.

The report, by the NYU Stern Center for Business and Human Rights, examined 12 leading frameworks for assessing companies’ social practices and impacts.

It said such frameworks were “overly deferential” to companies’ efforts and measured a wide range of poorly-defined “social” activities, rather than companies’ impact on the real world.

“Social measurement must evaluate what is most meaningful, not what is most convenient,” said Casey O’Connor, Sani Fellow at the Center.

Current disclosure methods are unlikely to lead to the identification of social leaders among business, the report found.

And it identified a lack of consistent standards underpinning social measurements, which increase costs and create “noise”.

The report called for measurements to be shifted from companies’ social policies and practices to the effects they are having on workers, communities and the environment.

It also pressing for data sources used in these measurements to be diversified and for the development of clear standards to enable comparisons between industry competitors.

Additionally the report is calling for investors to be targeted as the primary audience.

“Investors must demand accurate data that allows them to assess companies’ social performance,” said Sarah Labowitz, co-director of the Center. “Otherwise sustainable investing will remain a costly check-the-box exercise devoid of meaning and unlikely to satisfy growing demand.”

Contrasting the success of the CDP, an emissions reporting framework used by more than 5,500 companies worldwide, the report urged equivalent measurements for social factors.

Where social considerations are incorporated into sustainability indexes, the issues they examine tend to be loosely defined, ranging from health and safety, to labour standards, customer relations, community engagement, employee volunteering and social investment.

One key problem is that environmental considerations often result in near-term cost savings, whereas social considerations do not, the report found.

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