Managing For Sustainability Using Performance Systems
1
Managing For Sustainability
Using Performance Management Systems
Burton Hamner, MBA, MMA
Director, Cleaner Production International
[email protected]
Copyright 2005, Seattle, Washington
July 28, 2017
Abstract
A promising new way to define “sustainability” for organizations, and to help them make it real,
is to examine the way investors are defining Corporate Social Responsibility (sustainability).
The very recent and rapid rise of the Socially Responsible Investment (SRI) movement allows
us for the first time to identify a market-based definition of sustainability that organizations can
use to add value and compete globably and sustainably. In this paper I show how investors define sustainability, and how using this definition provides a practical working definition of a sustainable organization. To help firms actually implement sustainability, we integrate sustainability
elements with the Baldrige national quality standards used to promote competitiveness. The
Baldrige framework has great potential as a framework for pursuing sustainability because it is
process-based, performance-driven, recognized by organizations large and small around the
world, and it already incorporates social responsibility and pollution prevention. This paper
shows specifically how to incorporate sustainability into a recognized quality system.
Preface
This paper is derived from research conducted in Peru for the Consortio de Investigacion Economica y Social and the Universidad del Pacifico. The original paper is in review for publication
by CIES as of January 2005. This paper is abstracted and slightly modified from the much more
extensive original.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
2
Managing For Sustainability
Using Performance Management Systems
Socially Responsible Investment (SRI) is the use of specific social and environmental criteria,
in addition to traditional financial criteria, to make investment decisions. Most SRI is done by
mutual funds and institutional investors who buy and sell shares of publicly traded corporations.
In the past, SRI has generally been about avoiding undesirable sectors such as tobacco, nuclear power, gambling, etc. This is called negative screening in SRI. But in the last few years SRI
has changed to a positive approach of looking for the best practices among competitors. SRI
funds that use positive screening have criteria for Sustainability or Corporate Social Responsibility (CSR), a more traditional term) to evaluate companies. These Sustainability / CSR criteria cover a wide range of topics, including health and safety, corporate governance, pollution
prevention, labor relations, indigeneous peoples and more.
The SRI market has become quite developed. There are market indexes that list “responsible”
or “sustainable” companies, and numerous research firms selling information about sustainability of various companies. Their customers include a full range of financial market institutions,
and they are all supported by information providers and advocacy groups. Figure 1 shows the
structure of the SRI market.
Figure 1
Structure of the SRI Market
Mutual Funds
Private Equity Funds
SRI Indexes
Venture Capital Funds
SRI Advisors
Development Banks
Commercial Banks
SRI Networks
SRI Publications
SRI NGOs
There are now at least 12 “families” of market indexes of sustainable companies, and over 35
individual indexes in at least 7 countries. There are more than 700 SRI mutual funds, and a
about a hundred SRI funds that are specifically focused on sustainable companies and not just
negative screening for undesired sectors. The SRI indexes and funds publish the specific criteria for sustainability that they use to select or recommend companies for investment. Leading
international banks are also publishing the sustainability criteria they will require for financing
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
3
certain projects. In short, the market is clearly stating how it defines sustainability. Another
perspective is that investors are telling us what are the specific types of sustainability that they
believe will lead to more profits.
All of this data about market-based sustainability critera gives us a unique research opportunity.
We can cluster the criteria and identify the core elements of sustainability that are valued by a
relatively large number of investors. Now we can say, “If you want your company to be attractive to investors and buyers, these are the most important sustainability elements you must
have.”
The process of creating these criteria is self-reinforcing. Figure 2 shows the cycle of marketbased sustainability development. Funds and indexes publish their criteria for sustainability.
This causes companies to develop management processes for those sustainability elements
and to make public reports about their performance to potential investors and others. The funds
and indexes study these reports and refine their criteria for sustainability, and so on. This cycle
will continue to increase the market knowledge about what kinds of sustainability lead to higher
market value.
Figure 2: Development Cycle of Investor-based sustainability Criteria
Sustainability Funds
and Indexes
Investor Criteria
for Sustainability
Public Sustainability
Reporting
Management
Processes
for Sustainability
There are thousands of examples of investor criteria for sustainability. We wanted to know,
What are the core criteria for sustainability and CSR that are being used most frequently
by investors now, and how can that information be used to promote sustainable organizations? We believe that managers will be more convinced to improve their sustainability if
they can see clearly what are the specific kinds of sustainability that are valued the most by investors and bankers.
We conducted original research to identify the core criteria for sustainability that are important
for investors. There are over 700 “responsible” investment funds, and about 100 that define
themselves as specifically supporting “sustainable” investment. But it was not possible to learn
from all of them what are their specific definitions of sustainability.
As a proxy for their criteria, we studied 12 of the market indexes of socially responsible companies that now provide information to the SRI funds. These indexes exist to sell data to investment funds, so they must be designed to provide sustainabilty data that investors desire. Table
1 shows all the indexes we identified. We included the criteria from the ones in bold type. We
could not obtain details about the others.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
4
Table 1: Market Indexes of Sustainable / Responsible Corporations
1. Dow Jones Sustainability Index
2. Ethibel Global Index
3. Ethical Global Index
4. FTSE4GOOD Global 100 Index
5. Humanix 200 Global
6. Natur-Aktien-Index
7. ASPI Eurozone Index
8. Ethinvest Environmental Index Australia
9. Westpac-Monash Eco Index Australia
10. Jantzi Social Index Canada
11. UmweltBank-Aktien Index Germany
12. Morningstar Japan Socially Responsible Investment Index
13. Johannesburg Stock Exchange / FTSE 4Good Index South Africa
14. Humanix 50 Index Sweden
15. Calvert CALVIN Social Index USA
16. KLD Domini 400 Index USA
We developed a database of all the criteria (202 elements) used by the 12 indexes with available information. We analyzed them using semantic analysis for common concepts and frequency analysis for popularity. This identified the most common sustainability criteria.
Now we know how investors define sustainability:

Investors consider sustainability very much as being about improving internal operations
rather than prioritizing community welfare or external charity. The most frequently mentioned sustainability element is employee health and safety, which indicates the focus of
investors on internal management that drives sustainability. Of course this is perfectly
sensible; employees can think about doing their work in a more sustainable way only if
they are happy and healthy!

Investors value pollution prevention and resource conservation.

Investors consider the triple bottom line of finance, environment and social issues. On
finance, governance is a very important issue emphasizing that sustainability in any organization requires commitment from the top. It need not be led from the top, but it must
be supported. Pollution prevention is the most important environmental issue to investors, including product design and supply chains. Employee welfare and community welfare top the social concerns.

Investors want recognition of and working towards recognized standards. This indicates
that the organization is paying attention to official definitions of best practices, that it is
looking up and out and around to learn how to do better. But conformance is not critical,
if the organization demonstrates consistent excellence in management processes.

Investors reward innovation. Product and service design are very important as indicators of future growth as well as customer retention.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
5
The first part of our investigation was to find the core sustainability criteria used by the 12 SRI
indexes that publish their methods. With a population of 202 criteria, many of them similar, we
need to cluster them to identify the core concepts that are interesting to investors and also make
sense in an organizational framework. We followed these steps
1. Semantic Analysis and Rewrite: Many of the criteria obviously mean the same
thing but are some are written differently or vaguely in comparison with related criteria.
First we had to study all 202 criteria to determine what each one means. In many cases
where criteria were vague (for example, “social utility” is one criteria – what does this
mean?) we had to read in detail both the primary literature published by the index companies, and also the secondary literature about the SRI industry. A set of common
terms for criteria were established. Of course this introduced judgment by the investigator into the process but this is unavoidable when we have to study concepts rather than
measurable items.
2. Frequency Cluster: We then sorted the criteria alphabetically to count the criteria by
conceptual groups. The results are listed in Table 2. It shows the most popular criteria
used by the SRI indexes.
Table 2 lists the positive criteria used by the 12 indexes according to their frequency. Health
and safety is mentioned the most often, included in 9 indexes. Criteria that are only mentioned
by one index are not included. The frequency is also expressed as a percentage of the 12 index groups.
The most significant observation from this distribution is the strong focus on internal employee
relations for sustainability, such as health and safety, labor relations and pollution prevention. It
is not surprising that investors understand that good performance is created by a good business
culture. It emphasizes that sustainability programs should focus on internal development first,
and external efforts second. It should also be noted that three of the dominant criteria are often
integrated: training and education leads to pollution prevention which improves health and safety.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
6
Table 2: Frequency Analysis of Criteria in Market Indexes of "Sustainable" Corporations
Frequency
9x = 75%
Sustainability Criteria
Frequency
4x = 33%
Health and safety
8x = 67%
3x = 25%
Corporate governance
CSR performance reporting
Labor and union relations
Pollution prevention
6x = 50%
2x = 17%
Training and education
Quality
Compensation
Diversity
5x = 42%
Sustainability Criteria
Communication
Discrimination
Legal compliance
Contracts
Codes of ethics
Animal relations
Risk management
Environmental performance
Relations to customers and
suppliers
Energy sources
Leadership and incentives
Management
Non-executive director remuneration
Conduct of business
Sustainability assessment
Rights Management
Profit sharing
Family support
Product safety
Recycling
Environmental management
system
Innovation
Benefits
Human rights
Perhaps the most striking aspect of this table is its tremendous variety. Sustainability, according to investors, covers a lot. Most of it is internal, and most of it supports the people in the organization. And it is very specific, this is clearly not about values sharing and corporate vision
statements. All of these are elements that could have performance metrics and reporting. And
in fact, the reporting criteria is one of the most important. If you can’t tell anyone about it, are
you doing it?
So now we can show what are the most important criteria for sustainability, according to profitseeking investors. But we still have a problem of implementation. These criteria are all over the
map, so to speak. How can they be organized in a way that supports implementation and adds
value, and does not ask people to learn some brand new theoretical system?
Most importantly, we must show clearly how specific sustainability elements fit into an existing
and respected business management model that adds value. The most important model we
can identify is the Criteria for Performance Excellence from the Baldrige National Quality Program in the USA. This model already includes some concepts of sustainability.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
7
The Baldrige Quality System and Social Responsibility
Quality management (QM) as a skill for companies was pioneered by Edward Deming in the
USA in the 1950s. His ideas were adopted in Japan in the 1960s and are widely credited for the
expansion of Japanese exports from the late 1960s. In fact in Japan the national quality award
is called the Deming award.
In the USA the federal Department of Commerce set out to promote quality as a competitive
force for US industry. In 1987 the National Institute of Standards and Technology (NIST) established the Malcolm Baldrige National Quality Program and a national contest for quality. NIST
created an advisory group of experts in quality and management and produced detailed guidelines for assessing quality in organizations. The program quickly grew and the guidelines are
revised every year and now in 2004 the guidelines are called “Criteria for Performance Excellence.” Organizations, including companies or non profit organizations, follow the criteria to describe in great detail their processes, measurements and results for performance.
The Baldrige performance excellence criteria are a framework that any organization can use to
improve overall performance. There are seven categories of Award criteria:
1. Leadership – Examines how senior executives guide the organization and how the organization addresses its responsibilities to the public and practices good citizenship.
2. Strategic Planning – Examines how the organization sets strategic directions and how it
determines key action plans.
3. Customer and Market Focus – Examines how the organization determines the requirements and expectations of customers and markets.
4. Information and Analysis – Examines the management, effective use, and analysis of
data and information to support key organization processes and the organization’s performance management system.
5. Human Resources Focus – Examines how the organization enables its workforce to develop its full potential and how the workforce is aligned with the organization’s objectives.
6. Process Management – Examines aspects of how key production/delivery and support
processes are designed, managed, and improved.
7. Business Results – Examines the organization’s performance and improvement in its
key business areas: customer satisfaction, financial and marketplace performance, human resources, supplier and partner performance, and operational performance. This
category also examines how the organization performs relative to competitors.
The growth of the quality movement coincided with the development of guidelines for Environmental Management Systems (EMS). The ISO 14000 series of environmental management
standards were launched in the early 1990s. The ISO 14001 standard for EMS was partly
modeled on the ISO 9000 standards for quality management. ISO 14001 uses the same PlanDo-Check-Act cycle for continuous improvement and focuses on the organizational processes
needed for effective environmental management. Various authors developed guidelines for Total Quality Environmental Management to show how the concepts can be integrated. In 1994
the Global Environmental Management Initiative (GEMI), a consortium of major US corporations
focused on Environment, Health and Safety, published “Total Quality Environmental Management – The Primer”. This short manual shows how to use the classic TQM tools, such as pro-
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
8
cess maps, run charts, cause and effect diagrams, and others to improve EHS performance.
Most of the GEMI companies claim to use this approach in EHS.
The potential application of the Baldrige quality criteria to environmental management was recognized quite quickly. In the early 1990s the Council of Great Lakes Industries, an association
of large companies around the Great Lakes region of the USA, developed and experimented
with an EMS model based on the Baldrige system. The model uses the same seven major categories for performance measurement and describes a “ladder” of best practices for each one,
to help companies increase their performance in each category.1 Companies such as Kodak
experimented with the model, in fact the Kodak efforts are described in a business school teaching case study.2
Dr. Robert Pojasek at Harvard University is a leading advocate of the Baldrige model for environmental management. 3, 4 He helped the formation of the first state program for environmental quality improvement based on Baldrige. The New Mexico State Government developed the
Green Zia program. This is a state assistance and recognition program that helps companies
with environmental quality management and uses a similar evaluation process based on
Baldrige to give annual awards to the best performers. The program is oriented to smaller companies, but large organizations such as Lawrence Livermore National Laboratory of the US Department of Energy also report excellent results using the program. Because of the large Latino
population in New Mexico the program has produced most of its publications and guidance in
Spanish as well as English.
All of this activity has been of great interest to the advisors to the Baldrige National Quality Program. They have continually improved the integration of sustainability into the criteria for quality
and performance excellence in the Baldrige program. It is specifically included as one of the
two major sub-categories for Leadership, as shown in Table 3.
1
Wever, 1996. Strategic Environmental Management. G. Wever. John Wiley and Sons, New
York.
2
WRI 1998. Total Quality Environmental Management at Kodak. World Resources Institute,
Washington DC.
3
Pojasek 2000. Lessons Learned and the Baldrige Model for Environmental Excellence.
R.Pojasek, Journal of Environmental Quality Management, Spring 2000. John Wiley and Sons,
New York.
4
Pojasek 2000. Striving for Environmental Excellence with the Baldrige Model. R.Pojasek,
Journal of Environmental Quality Management, Summer 2000. John Wiley and Sons, New
York.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
9
Table 3: Social Responsibility Assessment in the Baldrige Quality Award 5
“(Words in CAPITALS are specifically defined in the Guidelines)
Describe HOW your organization addresses its responsibilities to the public, ensures
ETHICAL BEHAVIOR, and practices good citizenship. Within your response, include answers to the following questions:
a. Responsibilities to the Public
1. HOW do you address the impacts on society of your products, services, and operations?
What are your KEY compliance PROCESSES, MEASURES, and GOALS for achieving and
surpassing regulatory and legal requirements, as appropriate? What are your KEY
PROCESSES, MEASURES, and GOALS for addressing risks associated with your products,
services, and operations?
2. HOW do you anticipate public concerns with current and future products, services, and
operations? HOW do you prepare for these concerns in a proactive manner?
b. ETHICAL BEHAVIOR
HOW do you ensure ETHICAL BEHAVIOR in all STAKEHOLDER transactions and interactions? What are your KEY PROCESSES and MEASURES or INDICATORS for monitoring
ETHICAL BEHAVIOR throughout your organization, with KEY partners, and in your
GOVERNANCE structure?
c. Support of KEY Communities
HOW does your organization actively support and strengthen your KEY communities? HOW
do you identify KEY communities and determine areas of emphasis for organizational involvement and support? What are your KEY communities? HOW do your SENIOR
LEADERS and your employees contribute to improving these communities?”
The Baldrige criteria promote integration of quality elements throughout the system. It is important to include here the guidance for integration of social responsibility into other process areas.

“N1. Societal responsibilities in areas critical to your business also should be addressed in Strategy Development (Item 2.1) and in Process Management (Category
6). Key results, such as results of regulatory and legal compliance or environmental
improvements through use of “green” technology or other means, should be reported
as Governance and Social Responsibility Results (in Item 7.6).
5
NIST 2003. Criteria for Performance Excellence. USA National Institute for Standards and
Technology, Baltimore, Maryland.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems



10
N2. Measures or indicators of ethical behavior (1.2b) might include the percentage of
independent board members, measures of relationships with stockholder and nonstockholder constituencies, and results of ethics reviews and audits.
N3. Areas of community support appropriate for inclusion in 1.2c might include your
efforts to strengthen local community services, education, and health; the environment; and practices of trade, business, or professional associations.
N4. The health and safety of employees are not addressed in Item 1.2; you should
address these employee factors in Item 5.3.
An integral part of performance management and improvement is proactively addressing
(1) the need for ethical behavior, (2) legal and regulatory requirements, and (3) risk factors. Addressing these areas requires establishing appropriate measures or indicators
that senior leaders track in their overall performance review. Your organization should be
sensitive to issues of public concern, whether or not these issues are currently embodied in law. Role model organizations look for opportunities to exceed requirements and
to excel in areas of legal and ethical behavior.”
It is very important to recognize the message being sent by the Baldrige program about social
responsibility. It is something that can and should be measured and managed as an organization process, not as philanthropy. It is tightly integrated into related with other processes, particularly those for governance and for employee management and performance. The point is
that social responsibility is about professional management, not just ethics and charity.
This perspective is being transmitted around the world through national quality programs. At
least 77 countries now have national quality programs. The Baldrige program is the model for
most of them. The Deming Award in Japan and the European regional quality award are also
used as models.6 Of course the three leading programs share their perspectives, and social
responsibility is being firmly integrated into the measurement of organization excellence around
the world.
This is strongly reinforcing the movement in SRI to measure sustainability at the process level in
organizations as a basis for investment decisions. The Baldrige criteria do not let companies
get away with simple codes of conduct or philanthropy as a basis for sustainability. And SRI
fund managers are also not accepting such simplistic gestures. They are looking for results that
indicate the quality of professional management and integration of sustainability into the basics
processes of the organization. It is vital that companies hear this message, otherwise they will
not be competitive in quality or investment.
Integrating Quality and Sustainability
Baldrige gives us a framework that matches the specificity of the investors’ criteria for sustainability. Although we have boiled down the market’s definition of sustainability, we still have a
wide range of important concepts. Baldrige gives us a way to express those criteria in a way
that leads to their implementation.
6
APO 2002. National Quality and Business Excellence Awards: Mapping the Field and Prospects for Asia. In Proceedings, The Quest for Global Competitiveness Through National Quality and Business Excellence Awards. Asian Productivity Organization, Tokyo.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
11
Table 4 presents our argument for arranging the most important market criteria for sustainability
in the Baldrige framework. The concepts were aligned based on our best understanding both of
the desired outcomes and the necessary processes to support them. Of course others could
arrange the concepts differently and we welcome such debate. However we feel this is a very
good step towards practical sustainability for organizations. Baldrige provides the framework
and sustainability provides the desired goals or important themes. This gives users a global
network, already existing and mostly free, to support their performance improvement, and another sustainability network to support their visions of the future.
This approach lends itself well to some more specific approaches. For example, it would be
straight forward to arrange the Balrige criteria against specific themes such as water and energy
conservation and waste prevention. In each row one can think how key organization processes
support desired conservation and prevention goals.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
12
Table 4: Core Market Criteria for Sustainability in a Quality Framework
Baldrige Performance Criteria
1.1 Organizational Leadership
a. Senior Leadership Direction
b. Organizational Governance
Core Market Criteria for Sustainability
Sustainability vision and policy
Good governance
Leadership structure
c. Organizational Performance Review
1.2 Social Responsibility
a. Responsibilities to the Public
b. Ethical Behavior
c. Support of Key Communities
2.1 Strategy Development
a. Strategy Development Process
b. Strategic Objectives
2.2 Strategy Deployment
a. Action Plan Development and Deployment
b. Performance Projection
3.1 Customer and Market Knowledge
3.2 Customer Relationships and Satisfaction
a. Customer Relationship Building
b. Customer Satisfaction Determination
4.1 Measurement and Analysis of Organizational
Performance
a. Performance Measurement
b. Performance Analysis
4.2 Information and Knowledge Management
a. Data Information and Availability
b. Organizational Knowledge
-
continued next page
Hamner and Associates LLC Copyright 2005
Responsiveness
Beyond compliance
Codes of conduct
Philanthropy
Consultation
Sustainability in strategy development
Risk management
Environmental and social strategies
Sustainability programs
Stakeholder knowledge
Customer relationships
Supplier relationships
Customer satisfaction
Sustainability assessment
Public reporting
Labeling and advertising
Networking
Managing For Sustainability Using Performance Systems
13
- Table 4 continued
Baldrige Performance Criteria
5.1 Work Systems
a. Organization and Management of Work
b. Employee Performance Management System
c. Hiring and Career Progression
5.2 Employee Learning and Motivation
a. Employee Education, Training and Development
b. Motivation and Career Development
5.3 Employee Well-Being and Satisfaction
Work Environment
Employee Support and Satisfaction
6.1 Value Creation Processes
6.2 Support Processes
7.1 Customer -Focused Results
7.2 Product and Service Results
7.3 Financial and Market Results
7.4 Human Resource Results
7.5 Organizational Effectiveness Results
7.6 Governance and Social Responsibility Results
Core Market Criteria for sustainability
Labor management and relations
Compensation
Discrimination
Diversity
Training
Profit sharing
Health and safety
Non-mandated benefits
Pollution prevention
Innovation
Supplier sustainability
EHS management systems
Sustainability benefits to customers
Resources use
Waste and emissions
Product certifications
Profit distribution
Taxes and subsidies
Health and safety results
Certifications of processes
Compliance
Awards
Social and environmental impacts
It is important to remember that all the sustainability criteria are derived directly from investor
criteria; this is what people with money are looking for.
The Balanced Scorecard and Sustainability
It is worthwhile to note that a similar approach to performance indicators has been used for sustainability management. The Sustainable Balanced Scorecard is a concept popularized by a
group of European researchers and industrialists. It is based on the Balanced Scorecard concept popularized by Kaplan and Norton in the late 1980s. 7 This proposes four major areas or
perspectives for performance management: Financial, Operational, Customer, and Organization Development. In many ways the Balanced Scorecard is a more simple version of the
Baldrige performance system. It has achieved great popularity, perhaps because of this reason.
7
Kaplan, R & D. Norton. 1996. The Balanced Scorecard. Harvard Business School, Boston.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
14
Zingales et al published an expansive paper about the Sustainable Balanced Scorecard with an
extensive literature review.8 It has been explored by others as well 9. The INSEAD school of
business in France maintains a project on the topic. A Sustainable Balanced Scorecard is used
by some corporations. Figure 2 shows an example from Bristol-Myers Squibb.
Figure 3: Balanced Scorecard for Environment, Health and Safety
at Bristol-Myers Squib 10
This is a very business-like approach to a sustainability scorecard, focused on metrics that can
be captured by the information and accounting systems of the corproration. An alternative concept is shown in Figure 4. This scorecard shows broad areas for management and how they
interact. From the bottom up, the goal of sustainable profit is supported by innovative approaches to performance of elements of sustainability. .
8
Zingales et al 2002. Balanced Scorecard and Sustainability: State of the Art Review. F. Zingales, A O’Rourke and K. Hockerts. INSEAD, Fontainebleu, France.
9
F. Figge, T. Hahn, S. Schaltegger and M. Wagner. 2002. The Sustainability Balanced Scorecard – Theory and Application of A Tool for Value-Based Sustainability Management. Paper
presented at the Greening of Industry Network Conference 2002, Gothenburg.
10
From Zingales et al
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
15
Figure 4: Example Sustainable Balanced Scorecard 11
We can build on this work by showing how the market-based sustainability indicators fit within a
Balanced Scorecard framework. In Figure 5, we have taken the same market-based sustainability criteria that we identified earlier, and arranged them in a Balanced Scorecard framework.
The choice of which perspective best fits which criteria is sometimes challenging, but sometimes it is quite clear. This approach gives a more simple breakdown of the types of sustainability criteria and makes it obvious that operational factors are the most frequently cited by SRI indexes and mutual funds.
11
Website illustration, 02/20/2005. INSEAD Center for Management of Environmental and Social Responsibility, Fontainebleau, France.
http://www.insead.edu/CMER/research/strategy/sbsc.htm
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
16
Figure 5: Market-Based Sustainability Criteria in a Balanced Scorecard Framework
Financial
Perspective
Good governance
Operational
Perspective
Leadership structure
Customer / Stakeholder
Perspective
Responsiveness
Risk management
Beyond compliance
Philanthropy
Profit distribution
Environmental and social
strategies
Consultation
Taxes and subsidies
Sustainability programs
Customer relationships
Profit sharing
Labor relations
Supplier relationships
Compensation
Diversity
Training
Health and safety
Customer satisfaction
Product certifications
Awards
Sustainability benefits to
customers
Social and environmental
impacts
Non-mandated benefits
Development
Perspective
Sustainability
vision and policy
Codes of conduct
Sustainability in
strategy development
Stakeholder
knowledge
Sustainability
assessment
Innovation
Pollution prevention
Supplier sustainability
EHS systems
Resources use
Waste and emissions
Health and safety results
Compliance
Certifications of processes
Discrimination
This can be considered a more simple form of checklist for sustainability accounting: It shows
what to measure, and for what purpose. It is also a simple but effective tool for leading discussions. For example, what are the driving connections between the items in the columns? What
do these terms mean? Why are they in those columns? All these and other questions lead to
good exploration of what it means to be sustainable.
The Baldrige and Balanced Scorecard approaches offer interesting alternatives. Baldrige is
more complex and rigorous, with more objective support from sponsoring institutions. The Balanced Scorecard is simpler to understand and use, so perhaps more likely to succeed in many
situations. Regardless, they both have the same approach of identifying core areas for performance management. Now that we can identify how financial markets define the elements of
sustainable performance, we can fit those elements into either performance management
framework.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
17
Moving Ahead With Sustainable Quality
Socially Responsible Investing is now a major force around the world for promoting Corporate
Social Responsibility. Academic and market evidence show that SRI has competitive performance with investing that does not consider sustainability or sustainable development. SRI
funds and indexes have identified the specific sustainability performance criteria that they believe have a positive correlation with profitability. SRI motivates companies to be more responsible because it gives companies a clear answer to the question, “Why should I try to be more
socially responsible?” The answer now is, “Because you can attract more investors and make
more money.”
Our research identified the core criteria for sustainability used in the SRI market. We clustered
these criteria using a quality management framework that promotes their implementation within
companies so they are integrated with the business processes that add value. We used our
model to develop a new tool for companies to evaluate their capacity or readiness to talk with
investors about their sustainability performance. Any company can use this tool to learn if they
would be accepted or rejected by investors or customers who are concerned about sustainability.
Besides individual companies and organizations seeking their own sustainability systems, there
are several important strategic customers for our research.

Agencies promoting sustainable business should use this model. It overcomes two
problems: “what is sustainability?” and “how do you do it?” By using the market based
definition agencies do not have to get into a debate about what is sustainability. By using the quality framework, they will find a ready alliance with local quality promotion organizations. Also, they can attract customers based on both the sustainability and quality appeal and find alliance with organizations promoting regional competitiveness
through quality.

Organizations promoting Quality should use this model to show how sustainability
concepts can support all elements of a quality program.

Pension funds that invest for the long term should use this model for selecting investments. Firms with good quality and sustainability programs are quite likely to be better
long term investments, according to the market research so far.

Regulatory agencies promoting “beyond compliance” behavior. This model covers
many regulated aspects of business, such as employee welfare and pollution. It shows
how these issues can be managed in a more integrated way, that provides a lot of additional support to customers.
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
18
The market now tells us what is a sustainable organization, and the market is serious enough to
put its money on specific elements of sustainability. A business that wants to attract investors
should be aware of these elements. Figure 6 provides a tool that a company can use to determine how ready it is to talk to investors or others about their sustainability. There are other
guidelines for this, such as the Sustainability Reporting Guidelines of the Global Reporting Initiative,12 but they are not clearly based on market criteria (although they certainly are influenced by
the market). This tools simply lists the things that investors are looking for now. An organization does not need to give great answers to all, or maybe any, of these items, but certainly it will
be helpful to be able to talk intelligently about sustainability. And if current trends continue,
some will be required to talk about it.
Author Information
Burton Hamner
Hamner and Associates LLC / CleanerProduction.Com
5534 30th Ave NE, Seattle, WA 98105
[email protected]
Copyright 2005.
12
http://www.globalreporting.org/
Hamner and Associates LLC Copyright 2005
Managing For Sustainability Using Performance Systems
19
Figure 6: Corporate Sustainability / Responsibility Assessment Tool
Copyright Hamner and Associates LLC, 2005
Answer Guide
Rate each criteria according to these responses
Notice
* All positive answers*
should be supported by
documentation.
0 = No capacity.
We have nothing to say
about this.
1 = A little capacity
We are considering it and
can describe our approach.
2 = Some capacity
We can describe a few
activities and responsibilities.
3 = Good capacity
We can describe about our
program for this in detail.
4 = Excellent capacity
We can describe our full
policy, program and results for this, OR we can
provide our official CSR
reports
Rate your company’s capacity to talk to investors
about Corporate Social Responsibility (CSR)
CSR Criteria Used by Investors
0
CSR and sustainability vision and policy
Good governance
Leadership structure
Responsiveness
Beyond compliance
Codes of conduct
Philanthropy
Consultation
CSR in strategy development
Risk management
Environmental and social strategies
CSR programs
Stakeholder knowledge
Customer relationships
Supplier relationships
Customer satisfaction
Sustainability assessment
Public reporting
Labeling and advertising
Networking
Labor management and relations
Compensation
Discrimination
Diversity
Training
Profit sharing
Health and safety
Non-mandated benefits
Pollution prevention
Innovation
Supplier CSR
EHS management systems
Sustainability benefits to customers
Resources use
Waste and emissions
Product certifications
Profit distribution
Taxes and subsidies
Health and safety results
Certifications of processes
Compliance
Awards
Social and environmental impacts
Hamner and Associates LLC Copyright 2005
1
2
3
4