Great expectations: Effective target setting

Ian Hill outlines his four steps to setting great targets

Effective management and communication of environmental performance relies on its effective measurement. Environmental performance is not simply a matter for corporate narrative.

As with most other aspects of business it depends on reliable metrics to support and measure the impact of management actions as well as to provide colour to the narrative on performance, both for internal and external audiences.

So, how do you go about setting environmental targets and objectives? The process falls into the following four steps:

• understand your business strategy, your key stakeholders and the intersection of environmental impacts with them;
• establish the effect of your organisation on the environment and gather the data;
• select the measures; and
• set targets against the measures and determine objectives associated with them.

Strategy and stakeholders

All well-run businesses have a strategy, and without exception all businesses have stakeholders – including customers, investors, suppliers, employees, NGOs, government and regulators, and the communities within which they operate. If environmental performance management is to move from merely a compliance and measurement activity to one that genuinely adds value to the business and helps guide its strategic direction, then understanding and relating to its strategy and stakeholders is key.

By considering environmental impacts (and hence measures and targets) in the context of strategy, two things are achieved. First, the process becomes forward looking and contextualises the performance measures and targets, meaning there is greater potential to infl uence the strategy. Second, it engages a different level in the organisation.

By incorporating stakeholder considerations, both internal and external, the process can become something that is of relevance to the expectations of both audiences. It therefore has the potential to not only meet, but also to influence, those stakeholder considerations.

Each stakeholder may have its own perspective on environmental priorities, and understanding and mapping these is important to ensure the relevance of the measurement set chosen and the targets established as a consequence.

Environmental effect and data

Establishing the effect of your organisation on the environment and gathering the associated data involves taking a holistic view of your business with the aim of capturing those aspects that should be measured and targeted. This needs to be conducted alongside the business strategy process, such that it enables a view to be formed not just of the effects as they are now, but as they will evolve as the strategy is deployed over time.

The business strategy and business context will determine where to start this review and the areas to focus on, and it should align to the key risks faced by the business. Typically, the following would be topic areas to include within the review:

• energy use;
• water use and discharge;
• raw material production, consumption and end-of-life management – that is, reuse, recycling and waste; and
• emissions to air.

Data may be gathered via a full life-cycle assessment, which itself can be compiled from a number of existing activities or business metrics to ensure consistency with other business processes and to minimise the risk of the data being invalid. These metrics and activities can include invoices (for example, for energy consumed), purchase orders (for raw materials for production), and stock and raw material records.

Selecting measures

From the data collected, you will start to form a picture of what key measures and targets to choose in order to help manage performance over time. Considerations in determining the measures and targets to use include:

• legislative considerations and compliance indicators;
• supporting business efficiency – for example, reduced vehicle-fleet emissions going hand-inhand with reduced ineff ective visits and improved customer satisfaction and lower cost of fuel;
• engaging employees effectively in furthering environmental improvements, or measuring the performance of employee engagement; and
• stakeholder considerations – ranging from the interests of investors and analysts to NGOs, regulators and others, dependent on the nature of the industry concerned.

Measures should relate to the areas of greatest impact in your business – for example, raw material or energy use – and may be absolute, relative or weighted measures and targets. Which of these to use (or rather which combination), will depend on the need to measure simple absolute consumption – for example, KwH electricity per annum; to measure consumption relative to, say, units of production in order to show efficiency of resource use; or to combine measures on a weighted basis where the end product or service whose environmental impacts being measured is a combination of diff erent elements.

It is also important to consider whether broader indicators may be included within the portfolio selected to measure environmental performance. These might, for example, include measures that refl ect employee engagement with environmental impacts, for example staff surveys to measure engagement with energy reduction in the business.

While these measurements are not directly linkable to improved environmental performance, they provide a powerful indicator of the level of employee engagement in making changes and reductions.

Whatever metrics are chosen, the resulting data will need to be presented clearly in order to ensure appropriate impact with key stakeholders, whether they are internal or external. Use of graphical presentation, trending of data and summary analyses are among the techniques that will have maximum impact.

A key decision is also what to publish externally, and what to retain for internal purposes only. Many organisations are also faced with a decision as to what to publish online, and what to put in the traditional hard copy annual report/sustainability report. Again, these decisions will be driven primarily by the needs of the audience.

Setting targets

With a suite of environmental measures established, based on firm data-collection methods and aligned to the priorities of the business and its stakeholders, target setting is possible. The process by which targets and objectives are set should reflect the improvement that the organisation and its stakeholders require over the plan and target period, and the relative significance of issues such as:

• current regulatory and legislative requirements, and the extent to which the business is performing against these;
• the scope for setting measures that allow the business to comply with anticipated or announced future legislation, or to get it on the correct path to do so;
• the role that the environmental performance measure can play in delivering the organisation’s strategic objectives;
• the effect that measures can have on improving costs and efficiency, especially relative to the cost of implementation; and
• the stakeholders’ view of which environmental measures are most critical and/or require most in terms of improved performance, potentially as an enabler for the organisation to achieve a brandenhancing, stand-out leadership position in a particular environmental dimension.

Once the choice of targets is made, the measurement of progress against them, and review of the targets and measures themselves, should be an ongoing process, conducted at least annually for target review, and often more frequently for measurement.