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Green or Greedy? Environmental Performance Management

Performance Management - From Managing to Improving

The new focus on environmental management is real - no longer just hollow words in an annual report or a public relations “me too” message. Terms like “sustainability” and “going green” are surfacing throughout the business media. In the past century, free market capitalism has done a lot to raise the economic prosperity of citizens in developed nations. Now, capitalism appears to be accepting an advanced mission to save our planet. With escalating CO2 emissions globally, we have been running an uncontrolled experiment on the only home we have. Can we fix it? Only our unborn great-grandchildren and their offspring will be able to judge whether capitalism succeeded.

 

In the April 15, 2007 issue of The New York Times Magazine, journalist Thomas L. Friedman, author of the popular book The World is Flat, discussed U.S. politics.

We don’t just need the first black president. We need the first green president. We don’t just need the first woman president. We need the first environmental president…We need a president who is tough enough to level with the American people about the profound economic, geopolitical and climate threats posed by our addiction to oil - and to offer a real plan to reduce our dependence on fossil fuels.1

Sustainability is a way of thinking and acting when making decisions, not a way of reacting after wrong decisions have been made.

 

How Can We Help?

 

When I advise organizations, I almost exclusively restrict discussions to focus on business topics such as resource capacity management, alignment of processes with the organization’s strategy or product and customer profitability reporting - pure capitalism and pure performance management. But with the realities of global warming, pollution, deforestation and the dwindling of nonrenewable energy sources like oil, I am increasingly paying attention to the term “triple bottom line”(profits, people and planet) for environmental accounting. I respect organizations who are accepting this responsibility. This article focuses mainly on environmental responsibility In a future article, I will discuss social responsibility.

 

The appealing aspect is that actions commercial companies take to reduce carbon emissions do not necessarily mean incurring higher costs. They can be both green and greedy - but greedy in a good way. Through innovative thinking they can develop new methods that both increase revenues and reduce costs. Higher profits provide executives discretion to divert the some of the higher retained earnings to more environmental investments.  

 

A leader in promoting sustainability is Wal-Mart’s CEO Lee Scott, who appointed Andrew Ruben as the vice president of sustainability. Wal-Mart recently announced their partnership with the Carbon Disclosure Project to measure the amount of energy used to create products, many of which come from China, throughout its supply chain and reduce costs. For example, Wal-Mart collaborated with Procter & Gamble to sell only higher concentrated liquid detergent that requires not only less storage space and shipping but also less water usage in washing, plastic and cardboard. In another example, materials destined for landfills are being replaced with new materials that disintegrate over time with no environmental impact. 

 

There are now signs that political and business leaders are no longer saying, “It’s not my problem” or “This is their problem.” This is a problem for humanity and, fortunately, there are people of influence stepping forward who appear up to the multifaceted task of lessening the impact of mankind on our environment and mitigating the future risk of depleting our planet’s natural resources.

 

Of course, a nagging concern is the question Al Gore alludes to in his book An Inconvenient Truth: “Are we too late?” And, if we’re not too late, are we sufficiently serious about the costs, effort and scale of change required to shift companies and countries to be substantially emissions-free? Are there scalable technical solutions to blunt the most scary threat, climate change? How do we offset the tidal wave of truck and automobile purchases and dirty coal-burning energy generation in developing countries? It will take a lot more than replacing incandescent light bulbs with low-energy fluorescent ones.   

 

When Do You Realize Environmental Management Is Serious?

 

My own environmental awareness was inspired by a university student, Kristian Livijn, from the University of Arhus in Denmark. Livijn sought my advice regarding his master’s degree thesis on the topic of environmental accounting. Livijn's message is that our environment is changing - and not for the better. Fixing matters will require a new way of life. All societies owe a tribute to our young people, who seem to sense a better quality of life for everyone.

 

Livijn’s belief is that an effective way to aid government policy makers is to develop monetary reporting mechanisms that expand a company’s financial balance sheet to include the planet Earth. His vision is that by introducing quantitative methods that represent all global assets, not just the financial assets worshiped at the altar of the capital markets, humankind can price and trade resource consumption to minimize waste. The joint exchange of carbon-traded credits and debits is one example of creating such a market economy.

 

Livijn pointed me to the book Activity-Based Cost and Environmental Management: A Different Approach to ISO 14000 Compliance, by Jan Emblemsvag and Bert Bras.2  The book expands on cost accounting to monetize an organization’s consumption of energy and creation of waste. I was impressed by these excerpts from the poem in the authors’ dedication:

To those that have a vision; a desire to plan ahead,
toward a better future where we share the bread.

To those that want to see a change in current way
away from fixing problems on a path that leads astray.

Measurements: a Common Problem but Huge Opportunity

 

Assessing the impact of changes that will affect the environment confronts a classic problem: what to measure and how to measure it. Fortunately, there is much progress in identifying what to measure. Emblemsvag and Bras describe two categories of what they term Sustainability Indicators:

 

  • Environmental Performance Indicators (EPIs). These include both managerial measures about management’s efforts to influence environmental performance, such as number of projects and allocated budgets as well as operational measures for results like usage rates of energy and water).

  • Environmental Condition Indicators (ECIs). These report information on the condition of the environment. They are subdivided into two dimensions: natural resource and environment (e.g., acidification, hazardous waste and ozone layer depletion) and social environment (e.g.. housing, health, education and security).

Global standards, such as ISO 14000 certification standards, are evolving and provide suggested measures to make organizations think beyond not only complying with the law, but becoming proactive rather than reactive to environmental concerns. This is where introducing rigorous and robust data measurement comes in. Hopefully, unlike financial regulations for financial reporting (e.g., Generally Accepted Accounting Principals (GAAP) and Fianancial Accounting Standards Board (FASB) rules) that are often of little value for internal decision making, the evolution of environmental standards such as for cap-and-trade programs will be logical and drive the necessary behavior for mankind to get a grip on this sometimes overwhelming problem. One accepted set of standards comes from the Greenhouse Gas Protocol (GHG Protocol), sponsored and developed in collaboration by the World Resources Institute and the World Business Council for Sustainable Development.

 

Hopefully, market-based capitalism can be mobilized to facilitate environmental management. There is a price that can be placed on CO2 and other environmental factors. This needs to be done and put in a market context. Our climate-energy-pollution situation is an opportunity disguised as a problem.

 

Personal Revelations

 

My personal revelation from Livijn, Emblegsvag and Bras is that performance management does not need to be restricted only to enterprises. It can be expanded to serve as global environmental performance management. However, Emblegsvag and Bras noted in their book’s conclusion that technology can’t solely overcome this challenge. Instead, we must overcome ourselves and the imbalance between our need and greed. They quoted Mahatma Gandhi.

 

"There is enough in the world for everyone’s need; There is not enough for everyone’s greed." - Mahatma Gandhi

 

References:

  1. Thomas L. Friedman. "Thomas L. Friedman: The Power of Green." The New York Times Magazine, April 15, 2007.
  2. Bert Bras and Jan Emblemsvag. Activity-Based Cost Environmental Management: A Different Approach to ISO 14000 Compliance. Kluwe Academic Publishers: 2001.

Gary Cokins is the global product marketing manager for Performance Management solutions at SAS, a market leader in data management, business intelligence and analytical software. He is an internationally recognized expert, speaker and author on advanced cost management and performance improvement systems. He is the author of five books, An ABC Manager's Primer, Activity-Based Cost Management: Making It Work, Activity-Based Cost Management: An Executive's Guide (Wiley), Activity-Based Cost Management in Government and his latest work, Performance Management: Finding the Missing Pieces to Close the Intelligence Gap (Wiley). You can contact him at gary.cokins@sas.com. For more of Cokins' unique look at the world, visit his blog at http://blogs.sas.com/cokins/.

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