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Towards strategic sustainability performance evaluation: a study of Portuguese
companies
Dias-Sardinha, I.M.
Publication date
2004
Link to publication
Citation for published version (APA):
Dias-Sardinha, I. M. (2004). Towards strategic sustainability performance evaluation: a study
of Portuguese companies.
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Sectionn 1
Generall Introduction
Thiss thesis deals with sustainability performance evaluation of organizations.. The focus is on the environmental and to a lesser extent,, social strategic objectives of companies and on their relation withh company's performance evaluation. The use of sustainability balancedd scorecards will be an important topic. Portuguese companiess will be studied.
Thiss general introduction is intended to shed light on the research backgroundd and to introduce the conceptual research framework.
Chapterr 1.1
Researchh Background
Foundationn of environmental, social and
sustainabilityy performance (evaluation) of
organizations s
Sociall performance of an organization is the result of the interactions off the activities, products or services with the social environment, particularlyy with the relevant direct stakeholders within it (Bennett et at.,at., 1999b). It might be argued that the social performance of organizationss is steered by social management. The environmental performancee of organizations is about the outcomes of the interactionss with the natural environment. This can also be defined in termss of environmental impact (effect) of environmental burden (pressure)) of an activity, product or service resulting from the interactionn with the natural environment.
Environmentall management of an organization consists of instrumentss and actions, which include the process of performance evaluation,, designed to contribute to the improvement of environmentall performance (modified from Mauser, 2001).
Sustainabilityy performance of an organization is the aggregated of thee environmental, social and economic outcomes, which in part reflectss the result of the trade-offs between each domain.
Inn this thesis, environmental, social and sustainability performance aree taken in their broad sense of performance, which includes managementt activities and outcomes.
Performancee evaluation is a process that establishes the performancee status of activities, products or services. It includes dataa collection, measurement, analysis, comparing results with predefinedd goals and revision of the total process (e.g., Bennett et a/.,, 1999b; ISO 14031,1999; Mauser, 2001).
Strategicc performance evaluation includes all the above mentioned operationall elements but includes two more, one at the beginning andd one at the end. The first element is the identification of the strategicc performance goals/ targets. Preferentially a stakeholder andd scenario analysis needs to take place to identify the relevant strategicc objectives, measures, initiatives and targets to be achieved. Thee last element of a strategic performance evaluation refers to the changee of the objectives, measures and/or initiatives initially consideredd to be adequate to meet strategic performance goals, if afterr an implementation evaluation period they prove to be inadequatee to capture the "right" strategic performance.
Regardingg companies environmental, social and sustainability performancee evaluation can take two main forms, dependent on the mainn use of the results.
First,, the performance results might serve for internal company management:: for managerial information, strategy evaluation, operationall control, internal and external reporting, self-assessment andd internal benchmarking, with indicators/ categories and performancee targets customised for each end user. The aim is to improvee directly or indirectly environmental, social and sustainability performance. .
Second,, the disclosed results of performance evaluation (reported achievementss by external reporting or other meaning) of the organizationss may be subject to benchmarking, i.e., to the screening andd rating of the results and the organizations through comparison. Thiss is normally a matter for a sector or stakeholders (e.g., for asset management). .
Forr environmental, social and sustainability performance evaluation off companies, multiple tools have been defined.
Generall Introduction
Thee main characteristics of such performance evaluation tools are usually:: 1) the use of qualitative and/or quantitative indicators/ indexes,, 2) categories or classes and aspects to cluster the indicatorss and 3) structural information that may be organized in frameworks. .
Regardingg indicators, these might be defined as a specific qualitative orr quantitative measurement of an individual aspect that can be used too track and demonstrate performance {adapted from ISO 14031, 1999). .
Thee indicators can be of different types such as pressure, state and responsee indicators (PSR model) (OECD, 1994). These fit environmentall condition (ECI), operational performance (EPI) and managementt performance indicators (MPI) suggested by ISO 14031 (1999).. The Environmental European Agency (Smeets and Weterings,, 1999) applies the DPSIR model or drivers, pressure, state,, impact and response indicators. Bennett and James (1999c) statee that whatever model may be the total environmental performancee can be calculated by applying: physical or descriptive indicators,, environmental condition or effect indicators and managementt performance indicators. The same authors also state thatt the more categories are covered in an environmental scorecard thee more effective an organisation is likely to be at environmental performancee evaluation.
Indicatorss can be clustered under categories and aspects leading to anotherr level of aggregation being subject to evaluation.
Olsthoornn et al. (2001) stated that physical aggregation, impact or environmentall categories are social constructs and that their definitionn and content differ with the contexts within which these havee been identified.
Forr a company, key performance indicators are the ones that measuree performance against key critical success factors. These mightt contribute to achieving the vision and strategy of the company. Thee ultimate objective of a performance indicator is whether it is effectivee in informing the appropriate stakeholder about the distance too the pre-defined target and in generating motivation to respond to thee result (modified from ACBE, 1996).
Duringg the last decade many publications have appeared proposing and/orr developing indicators and frameworks for environmental, sociall and sustainability performance evaluation. Regarding frameworkss for performance evaluation these might be applied for multiplee purposes such as, e.g., reporting of performance
(e.g.,, IRRC, 1996; GRI, 20O2; UNER 1994), product evaluation (e.g., Bennettt et a/. 1999a; BUWAL, 1991; Heijungs et a/., 1992), self-assessmentt (e.g., Eagan and Joeres, 1997) and internal benchmarking,, asset management or sustainable responsible investmentt (e.g., DJSGI, 1999) and internal company performance evaluationn (see examples in table 1).
Thee table 1 summarizes key characteristics of performance evaluationn frameworks for companies that can be considered the mostt relevant to the present research referred to in literature as they havee appeared over last decade. A brief analysis of the table 1 indicatess that over time there was an enlargement of the scope of categoriess applied. Stakeholders' categories increased and there wass an increase in the joint performance evaluation regarding social andd environmental matters.
Regardingg sustainability performance evaluation, some "standardization"" has been achieved within the framework of SRI (Sustainablee Responsible Investment), the Global Reporting Initiative (GRI,, 2002) and projects for CSR (Corporate Social or Sustainability Responsibility)) implementation in companies such as the SIGMA Projectt (BSIefa/., 2000).
Regardingg Sustainable Responsible Investment screening and rating off organizations by investors each practitioner has adopted its own sustainabilityy performance evaluation criteria and levels of achievement.. A relevant example of sustainability screening is the Doww Jones Sustainability Group Index (DJSGI, 1999). It rates large companiess of the Dow Jones Index (DJI) based on their sustainabilityy performance. An analysis of SRI practice revealed that comparisonn between externally disclosed sustainability performancess of organizations are still far from feasible. However, guideliness for standardization of sustainability performance evaluationn have been suggested (Brink van den, 2002).
Thee Global Reporting Initiative (GRI, 2002) guidelines for standardisationn of corporate sustainability reporting are now consideredd the reference framework for corporate measurement and reportingg of sustainability in the next years (Birchard, 2000 in Hussey etet a/., 2001). Regarding sustainability, it offers standardized environmental,, social and financial performance metrics for companiess and rating agencies.
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SS — 3 cc itt .= .£ SGenera)) Introduction
Companiess performance evaluation
classificationss and typologies
Inn addition to the efforts to standardize frameworks of indicators and categoriess for performance evaluation in companies, "evolutionary" frameworkss for performance evaluation have appeared. Most of thesee reflect the adaptation of the evaluation process to an expected orr identified trend as to environmental and social performance in the companies. .
Too illustrate such "evolutionary" frameworks three typologies and/or classificationss are briefly outlined.
I.Jamess (1994) distinguished six frameworks for environmental performancee evaluation. Each differs as to drivers and approachess to measurements. The six frameworks were characterizedd by production, auditing, ecological, accounting, economicc and quality. They reflected differences in environmental measurementss between countries and industries.
2.. Bennett and James (1999d) suggested an environmental performancee measurement classification, based on the findings fromm a study with a sample of 100 companies in England. Three generationss of environmental performance measurement that correspondd with groups of key indicators were found. First generation:: key indicators on business process, regulated emissionss and wastes, costly resources and compliance (aim: performancee tracking). Second generation: key indicators on energyy and materials use/efficiency and significant emissions and wastes,, finance and implementation (aim: decision making). Third generation:: key relative indicators, indicators of eco-efficiency, stakeholders,, environmental condition and products and balancedd scorecard of these indicators (aim: external reporting). 3.. Veleva et al. (2001) suggested a progressive classification of
sustainabilityy performance evaluation with five levels. This integratess a set of 22 indicators. Their classification progresses, throughh developing and implementing indicators that are more sophisticatedd over time from compliance, facility level indicators, environmentall effect, supply chain and sustainable systems indicators.. The classification proposed by Veleva et al. (2001) allowss for ordering existing indicators and for creating new ones
whilee maintaining the indicators that have been used at lower levels. Behindd the last two classifications there is a reasoning similar to that off Hart (1994 in Shrivastava and Hart, 1995) "it would be difficult to imaginee the serious pursuit of sustainability without first having masteredd the skills required for pollution prevention and product stewardship". .
Companiess "performance/ greening"
classificationss and typologies
AA body of research that has contributed to performance evaluation is thee study of the "greening" of companies. It has given rise to multiple environmentall management frameworks (see Mauser, 2001). These cann imply classifications (continuous environmental evolution linear inn time) and typologies/ categorizations (assuming dis- or continuouss evolution in time). A common factor to all these models iss that they all reflect a positive trend, an increase of interest or of the activitiess regarding environmental concerns in organizations (Mauser,, 2001; Kolk and Mauser, 2002). For these authors these modelss are "classifications to describe trends in environmental management,, using a diversity of labels to designate process and outcomes,, such as strategies, responses or performance" (Kolk and Mauserr 2002:14).
Frameworkss have been criticized because most of the companies cannott be unambiguously attributed to one category or type and are difficultt to operationalize (Bakker de, 2001; Hass, 1996; Hemel van, 1998;; Mauser, 2001; Schaefer and Harvey (1998) in Kolk and Mauser,, 2002). There also has been criticism of the subjective and variablee character of the criteria used to define the types or classes off e.g., performance levels, responses, strategies or company's practices.. For Kolk (2000) the difficulty to operationalize these frameworkss is associated with their focus on environmental
Generall Introduction
Still,, categorizations seem useful to describe and analyse the importancee of environmental and social management issues in organizationss (Aragon-Correa, 1998; Bakker de, 2001; Henriques andSadorsky,, 1999).
Ann empirical study of Aragon-Correa (1998) did show the usefulness off the typology of the environmental corporate postures proposed by Roomee (1992) reflecting a classification of firms based on their degreess of pro-activeness in environmental management, contrastingg a study from Schaefer and Harvey, 1998, in Kolk and Mauserr 2002. Usefulness of the RDAP scale (reactive, defensive, accommodativee and proactive) was shown by Henriques and Sadorskyy (1999), who classified 400 firms into these four environmentall profiles and found that firms with more proactive profiless do differ from less environmental committed ones in their perceptionss of the relative importance of stakeholders in influencing theirr environmental practices.
Therefore,, improving environmental classifications and typologies hass continued and social matters have been integrated (e.g., Upham,, 2000; Marrewijk van and Werre, 2002).
Regardingg for instance, The Natural Step (TNS) practice of sustainabilityy in companies Upham (2000:449) has stated, "inevitably,, corporate progression to the end state of sustainability requiress progression through intermediate stages, and that progressionn will involve breaching TNS's systems conditions". The authorr suggests a progressive five level development by which a firm shouldd theoretically progress.
Recently,, to deal with corporate sustainability and corporate responsibilityy (CS-R) Marrewijk van and Werre (2003) developed a sustainabilityy matrix that shows six types of organizations at different developmentt stages, with different forms of corporate sustainability. Thee sustainability matrix structures the different ambition levels in linee with a variety of contexts and value systems in which organizationss operate. According to Marrewijk van and Werre (2003:107)) "Each organization should choose its own specific ambitionn and approach regarding corporate sustainability, matching thee organization's aims and intentions and aligned with the organization'ss strategy, as an appropriate response to the circumstancess in which it operates".
Thee types of organizations that Marrewijk van and Werre (2003) distinguishh are: pre-CS (corporate sustainability), compliance driven CS,, profit-driven CS, caring CS, synergistic CS and holistic CS, with eachh type corresponding to an ambition level, internal and external drivers,, criteria for decision-making, preferred role for the governmentt and relationship with society.
Performancee evaluation that focuses
onn strategic objectives
Fromm the business point of view, strategic objectives are key componentss of the strategy to achieve the vision of the organization. Thosee are specific things to do or to differentiate the company from directt competitors or because they might affect the business.
Thee factors that drive environmental and socio-economic managementt ambitions and activities within organizations have multiplee origins: legislation, environmental accidents and market pressuree are among the most relevant traditional drivers for action (UNCTAD,, 1993). Empirical findings suggest that companies have becomee increasingly aware of the input to their activities to from a rangee of stakeholders beyond their traditional focus on interaction withh regulators (Madsen and Ulhoi, 2001). Individual leadership mightt also help to adopt policies beyond compliance (Prakash, 2001).. Thus, there is at least some evidence that environmental and sociall matters are becoming viewed as strategic for/by companies. Too develop a strategic performance evaluation a strategic analysis throughh stakeholders' analysis and scenarios evaluation is necessaryy in the first phase of the process of evaluation. Internal and externall driving forces for action on environmental and social matters (e.g.,, Ghobadian et a/. 1998) and stakeholder management (Freeman,, 1984; Grafé-Buckens and Hinton, 1998) have been subjectt to research. The results of this research are used in the empiricall part of this thesis but are not extensively discussed here. Strategicc objectives are fit to be integrated in a balanced scorecard (BSC)) performance evaluation (e.g., Kaplan and Norton, 1992a,b), thatt allows for measuring the success of the company.
Generall Introduction
Inn case that environmental matters might be considered strategic for topp management, a business strategy might lead to the development off company's performance evaluation that includes generic environmentall strategic objectives. These might be, e.g., compliance achievement,, country specific site pollution control, and eco-efficiencyy achievement, product or service innovation.
Thee balanced scorecard implementation and therefore the strategic performancee evaluation include a cascading process from corporate too operational organizational levels. The corporate balanced scorecardd reflects corporate values and strategic objectives and identifiess actions that create corporate synergies. The balanced scorecardd for the business units reflects the market and the operationall challenges faced by it. To support functions like environmental,, health and safety, purchasing and human resources aa balanced scorecard for each of these functional departments is indicated,, reflecting each functional department in supporting corporatee and business unit's objectives (Epstein and Wisner, 2001).
Chapterr 1.2
Conceptuall Research Framework
AtAt the time this thesis has began the standardization of sustainability performancee evaluation such as given, e.g., by DJSGI (1999), GRI (2000)) and SIGMA (BSI et at., 2000) was limited. Little existed on metricss that focused on sustainability related goals (Bennett and James,, 1999c; Robert et al., 2002). Cerin and Dobers (2001:132) statedd for instance about DJSGI (1999) that "no quantitative data on thee generation of emissions or consumption of resources by companies,, or their products/ services, appears to have been used inn the sustainability assessment criteria by DJSGI (1999)."
Youngg and Welford (1999) rightly argued that to develop a good environmentall performance tool, in itself, is meaningless unless the companyy establishes a set of specific environmental targets. The samee maybe argued for strategic and social matters. Thus, a strategicc performance evaluation tool needs to have predefined strategicc objectives and targets.
Inn the conceptual performance (evaluation) framework proposed in thiss thesis such strategic objectives and targets refer both to managementt and procedures and to physical outcomes.
Inn line with the evolutionary frameworks discussed in chapter 1.1 the conceptuall framework of this thesis includes a performance evaluationn typology that provides for a link with environmental strategicc objectives. This is extended to include social strategic objectives. .
Strategicc objectives and correlated performance strategic targets or referencess are assumed to guide environmental and social performancee evaluation in companies. The generic strategic objectivess used here have been chosen from previous environmentall classifications and concepts used by practitioners (e.g.,, eco-efficiency, pollution-control, sustainability).
Eachh performance category, without clear border with the other categories'' includes performance references or goals. These correspondd to a broad category of environmental burden reduction
Conceptuall Research Framework
(byy a factor X) and a broad range of procedural and management activitiess related with environmental, social and financial associated thereof. .
Thee following fig 1 shows the structure of the main chapters of thesis andd how the chapters cover the main parts of the content of the conceptuall framework.
Figg 1 - Conceptual research framework
< 4 > >> Environmental and sustainability strategic objectives (1-6) that require (1-6) specificc performance references/targets
^ .. Strategic objectives and associated targets that may have consequences for the formatformat and content of organization's performance evaluation
».. Comparing performance evaluation results with performance targets J^.. Performance status of the organization
44 ^. Internal and external critical factors that influence strategicobjectives and initiatives s
