Key performance indicators (KPIs) refer to measurements used to assess an organization’s overall performance. ESG KPIs, specifically, gauge performance on environmental, social, and governance topics.
What are ESG key performance indicators (KPIs)?
Key performance indicators (KPIs) refer to measurements used to assess an organization’s overall performance. ESG KPIs, specifically, gauge performance on environmental, social, and governance topics such as greenhouse gas emissions, water consumption, waste, diversity and human rights, and executive policy and oversight. These KPIs can be either broad or very specific.
To be effective as a whole, your data tracking systems should span all three areas of ESG. In other words, your program would be best served by tracking environmental KPIs, social KPIs, and governance KPIs. They should also be specific to your organization and will vary based on the industry, geographic location, goals, and values of individual organizations.
Setting holistic, company-specific ESG KPIs will help your organization:
- Define your sustainability strategy;
- Demonstrate a firm commitment to ESG, which can be leveraged in reporting and other ESG communications; and
- Track progress toward both short- and long-term ESG goals.
What are ESG KPIs based on?
ESG KPIs are based on an organization’s sustainability strategy, goals, and material topics. ESG reporting frameworks and standards may also serve as helpful guides.
Disclosure and reporting frameworks often have their own set of standards, which many organizations incorporate into their own ESG data tracking. These standards often vary by sector and industry, giving reporting organizations specific guidelines to meet.
For example, the Sustainability Accounting Standards Board (SASB) is a great place to start for many organizations. The SASB Standards identify ESG issues material to dozens of industries, and SASB’s guidance includes recommended accounting and metrics for each sector. Global disclosure system CDP also incorporates industry-specific questions into its annual questionnaires. Another industry-specific example is the European Public Real Estate Association’s (EPRA) Sustainability Best Practices Recommendations, which provide guidelines for measuring sustainability performance for listed real estate companies.
Examples of ESG KPIs
While the list of potential ESG KPIs is nearly endless, we’ve provided some broad examples below. Keep in mind that the applicability of some metrics may overlap; for instance, having a Supplier Code of Conduct may fall under both Social and Governance realms.
Environmental
- Energy demand and consumption
- Water demand and consumption
- Greenhouse gas emissions (scopes 1, 2, and 3), including metrics on emissions intensity and reduction
- Resource efficiency metrics, including energy, water, and other material resources
Social
- Worker health and safety practices
- Diversity and inclusion metrics
- Metrics related to human rights and labor policies
Governance
- Board and management diversity metrics
- Executive compensation (e.g., approved by shareholders, tied to ESG performance)
- Disclosure and reporting programs (e.g., does the company publish a sustainability report, set targets and report progress, engage with reporting frameworks?)
What makes a good ESG KPI? How can my company set its own KPIs?
Consistency is key. Calculation methods should be consistent from year to year in order to ensure accuracy and clarity in your data tracking. The criteria for a KPI having been met should also be consistent from year to year.
Another key point to keep in mind is “purpose.” Why are you tracking ESG metrics? Ultimately, KPIs should provide context to shareholders and investors. They should help you tell your story and communicate the aims of your organization.
What do your ESG KPIs say about your organization’s due diligence, risk management, and awareness? How do they demonstrate your commitment to ESG, progress towards goals, and overall resilience?
ADEC ESG Solutions’ subject-matter experts have the technical knowledge to support you across a wide breadth of ESG topics such as carbon, water, waste, air quality, and social and governance metrics. Talk to us today to learn more about how we can help you achieve your sustainability goals.
