Today, businesses and companies alike rely upon financial capital as the main resource for ensuring stability and driving business growth. The primary metrics for evaluating financial performance include measuring cash flow and determining profit on a monthly and yearly basis. Digging a little deeper there are a number of other specific key business performance indicators (KPIs) that companies can select from to monitor and track financial performance. Forbes previously provided a number of financial KPIs for consideration including cash flow from operations, inventory turns, receivables growth vs. sales growth, productivity, on-time deliveries, employee retention, back log, interest rate coverage, and gross margin (1). The Harvard Business Review (HBR) discussed return on assets (ROA), return on equity (ROE), and debt leverage as the leading means to determine business performance (2). Small Business reviewed profitability, liquidity, debt, and activity as the primary measurements for business performance (3). So as can be seen, companies and businesses have a number of financial KPIs available to measure business performance. The key is to determine which metrics work best for your organization.
However, are there other sources of sustainability capital that can benefit and optimize business and organizational performance, and if so what types of KPIs and other metrics can be used to add more sustainability value to the bottom line?
The following sustainability capital sources covering the “triple bottom line” of environmental, economic, and social impact, can be evaluated. Examples of KPIs and metrics that can be used are also provided.
- Natural: Use of renewable energy technologies such as wind, solar, geothermal, etc. as primary energy sources.
- Living: Measurement of carbon, nitrogen, water, and other ecosystem services. Some companies have already determined their greenhouse gas inventory (GHG) as well as established a climate action plan to achieve carbon neutrality.
- Manufactured: Inventory of materials, assets, products, buildings, infrastructure etc. Many companies today have implemented Leading Environmental and Energy Design (LEED) building standards and policies and achieved LEED certification for existing and new building renovations and construction. Organizations have also begun to determine their overall environmental impact through waste minimization, reducing energy and water consumption, and minimizing or eliminating pollution sources.
- Shared: Evaluation of the shared capital resources provided by raw material suppliers, service providers, customers, as well as others in the overall supply chain.
- Human: Collection of the variety and specific skillsets of employees and others connected to the organization.
- Knowledge: Determination of the organization’s know how, ideas, experiences, learning, technical information etc.
- Intellectual: Identification of the specific training, patents, expertise, and investments that can be leveraged.
- Advocacy: Causes that the organization supports or provides assistance to through education and other means.
- Relationship: Collaborations, working relationships, and partnerships that the organization has established and developed.
- Cultural: Age, gender, ethnicity, nationality, etc. of employees and others that embodies the organization, as it serves and assists the communities in which it operates.
The number of triple bottom line sustainability capital sources are varied and opportunistic. The first step is identifying and classifying those sources that can provide the most worth to the company or organization. Selecting the best metric or KPI and then monitoring on a consistent basis will add additional sustainability value to the bottom line.
I wish you the best on your sustainability journey!
Director, Office of Sustainability Practices
Grand Valley State University
Author, Sustainability Demystified
- Nine Enlightening Business Performance Metrics, Forbes, 2008
- The Best Ways to Measure Business Performance, HBR, 2010