How to Measure Sustainability Efforts

Four Frameworks-IC-ESG-Accounting-IIRC

If you have the challenging job of explaining how to explain the intersection of business and sustainability efforts, you’ll want to learn what we’ve been doing in the field of knowledge intangibles.  The intangible capital world sees knowledge as the new oil, in all the best ways.

Why is knowledge the new oil and what does that have to do with sustainability measures? 

The answer is sustainable value creation. And how integrated reporting helps unite two of the core strategic challenges of every company today: knowledge creation and sustainability.

Oil has been at the center of our economy for over a century. It has fueled our cars and trucks. It generated electricity to power our factories and homes. It served as a raw material for products we use everyday, from plastics to fabrics, fertilizers, and high tech materials. These many uses for oil made this commodity a source of great wealth.

But we now know that oil is a finite resource and that continued use of it carries many risks to our environment and our planet.  As residents of planet Earth, we face two challenges: eliminate this risk to our environment and replace it as a raw material and fuel. Luckily, there’s a new resource that is has the potential to solve this problem and many others. It’s knowledge.

Like oil, knowledge is both a product and a raw material. It is an abundant asset that is a part, directly or indirectly, of everything we use. And it can create great wealth. Ask Bill Gates and Paul Allen, the founders of Microsoft. Or ask Sergey Brin and Larry Page, the founders of Google. These are the modern day wildcatters, striking it rich by finding a new oil field with an essentially infinite supply. These wildcatters are a great illustration of the fact that there is a role for both luck and smarts in the knowledge business, or any business for that matter. But the story goes much deeper than these few success stories.

Knowledge is the way that we will solve the challenges that face our planet. And many of these solutions will come from businesses. Knowledge has already grown to become the fuel and the raw material for over half of the production of our economy today. This trend will only continue. This shift to a knowledge economy means that you are already in the knowledge business whether you know it or not.

How we solve these problems calls for an integrated definition of sustainability. And new measures. Yet, if you go into the average business, there is no inventory of knowledge, no accounting for the investment and return on the organization’s knowledge work.  If you’re in the sustainability field, this dilemma will sound familiar.

The emerging answer is integrated reporting (<IR>). By elevating intangible knowledge and natural resources as “capital,” <IR> is changing the conversation.

Capital is a resource that is used but must also be stewarded. By calling people and partners and planet capital, <IR> is saying that companies benefit from these attracted resources–but they are also responsible for them. It’s simple but it’s revolutionary. You can use this framework to tie value creation to all the capitals and make a business case for your sustainability efforts.

I explored this intersection between sustainability, intangibles and traditional financial measures in a recent article entitled Intangibles and Sustainability: Holistic Approaches to Measuring and Managing Value Creation.

Read integrated measurement article