Day: August 3, 2015

Because of their ultimate relevance to measuring a corporation’s impact on the environment, absolute measures, specifically total quantities of key sustainability aspects (e.g., total liters of water used, total tons of GHG emitted) are the primary metrics recommended for disclosure. However, absolute quantities almost always provide distorted measures of a corporation’s progress in improving its sustainability performance. Moreover, use of absolute quantities can even signal improvement—or the lack thereof—when the opposite is true. For example, it is widely recognized that changes in the level of business activity distort the evaluation of a company’s improvement in sustainability performance when only total quantities are evaluated. As a result, most disclosure guidelines identify intensity ratios as supplemental measures that corporations may want to report. Intensity ratios, which are typically reported as average intensities for business units or for the entire company, normalize total quantities of a sustainability aspect by a rate of activity (e.g., total liters of water used per ton of output produced or per dollar of revenue).

Intensity is an appropriate construct for measuring sustainability performance as it is commonly understood—as how efficiently a company utilizes resources or minimizes waste and negative environmental impacts produced in the delivery of its goods and services. Unfortunately, nearly all companies are calculating average intensity measures in a manner that fails to measure accurately improvements in sustainability performance, just as a change in the total quantity of a sustainability aspect may not reflect actual sustainability performance. In this article, we will explain the fundamental errors with the standard calculation of changes in rates of intensity (e.g., 5% reduction in total liters of water used per ton of product) and demonstrate a solution to avoid these errors.