When we work with a company that is just starting its sustainability journey, we try to focus on one central framing question: What does sustainability mean to your organization? Sustainability has evolved much farther than just measuring carbon emissions, which means it requires management of many factors. There are a multitude of impacts to consider: impacts on water use and water supply; impacts on human health; and even social impacts on workers and communities.

What does sustainability mean to you?

Defining and managing a sustainability program is a complex, multi-faceted task that can take vastly different forms, depending on the priorities defined and the choices made by the company. Starting a program by defining what sustainability means to an organization can help reduce confusion and launch stakeholders into a common understanding of the goals, priorities, and opportunities surrounding sustainability efforts.

It is important to not only understand what impacts are relevant to your organization, but it is also important to understand the trade-offs between different decisions. Organizations often define a set of metrics to help manage complex decisions. Managing sustainability decisions should be no different.

1. The basics of a sustainability index

What is a sustainability index?

One tool that is useful for managing these types of complicated decisions is a sustainability index. A sustainability index is meant to simplify the complex decision-making process that will help your company to become more sustainable. Boiling this information down to a manageable set of decision criteria can greatly alleviate this complexity. The idea behind a sustainability index is to aggregate the relative information about the sustainability aspects of various decisions, strategies, and approaches, and then provide an easy-to-understand “scoring” system to quickly determine the most sustainable options.

A customized sustainability index will help to provide a platform for evaluating decisions that will increase the sustainable value of the organization.

Those who have done it before (successfully)

Let’s look at a few examples of sustainability indices that are used to help make decisions in the face of the complexity of sustainability.

GoodGuide is a website that rates products on health, environment, and social impacts. It compiles data from many sources and translates that data into actionable information for consumers. This system provides a ranking system, ranking products from 0 to 10 in each of these three impact areas. The result is a set of metrics that consumers can use to quickly evaluate and identify products that fit their values.

_{GoodGuide’s product rating system is based on an internally-developed index. More at www.goodguide.com}

The Higg Index is a tool that is published by the Sustainable Apparel Coalition. It measures the environmental impact of consumer apparel and footwear using a single-score approach. The tool assesses environmental and social sustainability at the brand, product, and facility level, and looks at several impact categories. Scores from each of the impacts are combined using a weighted average approach, intended to help organizations assess their progress towards sustainability goals. The Higg Index is based on several other existing tools, including the NIKE Material Sustainability Index and the OIA’s EcoIndex.

_{The Nike Materials Sustainability Index is being used by the Sustainable Apparel Coalition to develop the Higg Index. More at www.apparelcoaltion.org}

These are two great examples of organizations developing sustainability indices to help individuals make more sustainable decisions. Each of these indices takes complex sustainability information and translates it into easily-understood metrics. The scoring systems promote sustainable outcomes that are consistent with a clearly defined set of sustainability criteria and help their users make more sustainable decisions.

2. Constructing a sustainability index

Step 1: Determining what’s important

The first step in defining a sustainability index is to determine what factors need to be considered for inclusion in the system. What is important to your company, your customers and your stakeholders?

I recommend starting with a wide range of potential factors, from carbon emissions to water and air quality impacts, efficiency of resource use, and social and community impacts. These factors should be considered in the context of the stakeholders that will be directly and indirectly affected, such as workers within and outside of the organization, customers and clients, and local communities.

Once you’ve gathered all of this information, your company can start to prioritize: What drives your environmental footprint? What are your industry peers doing to address sustainability? What does the scientific literature and NGO community say about your operations and your supply chains? It is important to note that positive contributions to sustainability can also be included: Does your product reduce certain health risks? Are you creating greater access to educational opportunities? Are your employees actively engaged in community support efforts?

Step 2: Determining the scope

The next step of designing the index is to determine the scope and organization of the index. What types of decisions will be evaluated using the index? Properly defining and creating a sustainability index can help individuals at organizations make consistent evaluations of the sustainability implications of product designs, material choices or supplier selection (to name a few examples). It’s also important during this phase to consider where the data will come from.

Step 3: Building the index

After deciding on the relevant factors to be considered for the index, establishing the scope and gathering the data, the next step is to further prioritize the information within the index. Managers should be asking questions about how to fit all of this information together. They can do this by first reviewing the selected impacts: Can you establish categories that make sense based on the factors identified? Are there other systems within the company that could be used to group this data? What is the current decision-making framework? All of these questions can help with grouping the selected factors into the index system.

One approach that I have used in the past and often recommend to companies now is to create stakeholder input groups made up of customers, staff, communities, etc. The groups can be asked to review and discuss the factors selected in step 1, and prioritize the factors by how important they are to them. The end result, once this task has been completed across a number of different stakeholder groups, is a clear view of what value different groups place on different factors. Stakeholder prioritization, coupled with a review of other literature and information, will help to form the initial relative weighting of each of the contributing factors. Once this information has been gathered, the scoring system can be constructed.

Step 4: Reviewing and refining

After the initial index has been fully identified and constructed, is it important to continually test and refine the factors, weightings and scoring systems to ensure that the index remains usable, useful and ultimately accurate in promoting more sustainable decisions.

A sustainability index can be a great help in guiding decisions and should evolve over time. An index creates a common platform that will help to promote consistent sustainability decision-making across teams, divisions and entire organizations. In part III, we will discuss how a sustainability index can be applied and used to help improve decision-making.

3. How a sustainability index can optimize decision-making

After the index has been designed and created, the next task is to deploy it into the decision-making structure. Let’s explore some examples of how other organizations have deployed this approach to make more sustainable products.

Image: BASF

Identifying more sustainable products

A common use of a sustainability index is in evaluating products and product alternatives on their sustainability performance. Many organizations use an index approach to ensure that products they are producing (or in the case of retailers, the products they are selling) are evaluated consistently and that choices are in line with the sustainability goals and strategies of the organization.

BASF is a good example of a company using an index approach to evaluate the sustainability attributes of its individual products. Long before it developed its Sustainable Solution Steering method to evaluate the sustainability aspects of its roughly 50,000 relevant product applications, the company used an approach known as the Eco-Efficiency Analysis (EEA), which allows users to clearly and easily understand the environmental, social, and economic values and trade-offs between different products and decisions. The EEA framework “looks at environmental impact in proportion to a product’s cost-effectiveness,” summarizing the relevant information about a product’s sustainability and economic attributes into an easily understood set of indicators.

Image: BASF

Evaluating supplier performance

When deploying a sustainable supply chain strategy across a very large set of products, it often makes more sense to start by evaluating the performance of companies as a whole instead of evaluating individual products. The index, in this case, would be designed to consider the actions and policies of supplier companies, along with information on the sustainability attributes of its product portfolio.

P&G developed a supplier scorecard that seeks to track improvements in the sustainability performance of its suppliers and supplier chains. The scorecard – built from a number of globally recognized measurement standards – is meant to foster continuous improvement of supplier and supply chain performance by allowing them to share ideas and capabilities for best practices.
Other organizations have also taken a similar approach. 

Walmart, the world’s largest retailer, has been working in conjunction with The Sustainability Consortium to develop the basis for a Supplier Sustainability Index. This index will evaluate the performance of supplier companies as a whole, not on individual products, and will include metrics to measure both environmental and social sustainability performance. Walmart intends to fold the Supplier Sustainability Index into its broader supplier assessment framework, effectively integrating sustainability assessment into the buyer-supplier relationship.

Evaluating facilities and production regions

Another common use of a sustainability index is to evaluate the relative performance of individual production facilities. Manufacturing and production facilities often produce different types of products and have differing capacities, making direct comparisons difficult. Using a sustainability index can help to compare the relative performance of facilities with different characteristics.

This could be as simple as comparing energy use per unit of output, from the approach used by Interface to promote energy efficiency at its factories, to a more complex approach such as the McDonald’s Global Sustainability Scorecard, which measures the performance of its operations, employees, and suppliers across a number of categories such as Nutrition and Wellbeing, Supply Chain, and Employee Experience. The US Army Corps of Engineers has also deployed a scorecard aimed at driving more consistent sustainability decisions.

A rich and robust sustainability index should be designed and deployed carefully and strategically and should evolve over time with the strategies and goals of your organization. Measuring sustainability is a complex task that presents many challenges, but using a carefully crafted index can help to reduce confusion and simplify the decision-making process.

This article was originally published by Sustainable Brands on Monday, November 24th 2014.