Mathias Pianowski, Director of Sustainability and Innovation at BCC, met Dr Mark McElroy, founder of the Center for Sustainable Organizations and developer of the Context-based Sustainability method. They talked about how to measure Corporate Sustainability in a pragmatic and suitable way. Here is the interview:
Dr McElroy, you developed a new performance accounting method called the MultiCapital Scorecard (MCS). What is it for and how does it work?
The MultiCapital Scorecard is the word’s first Context-Based Triple Bottom Line performance accounting system. It makes it possible to measure and report the sustainability performance of organizations by assessing their impacts on multiple vital capitals. This is sometimes also referred to as integrated measurement and reporting.
What does Context-based mean and why is it necessary to manage multiple capitals in a sustainability context?
When we say a measurement tool is Context-Based, we mean that it measures performance relative to organization-specific standards for what performance would have to be in order to be sustainable. This is important because sustainability performance is relative to the surrounding circumstances of a firm, such as where it is located, what it does and who its stakeholders are. Two companies using the same amount of water, for example, at two completely different locations could be wildly different in terms of whether or not their use of water is sustainable.
Is it even feasible today to measure non-financial capitals both in a sufficient way and in a sustainability context?
Yes it is. That’s exactly what the MultiCapital Scorecard does. And to measure impacts on vital capitals, we interpret them (the capitals) in terms of what their carrying capacities are. The carrying capacity of a capital is a measure of how many people it can support or what the level of demand for its goods or services is that it can fulfill. In order to be sustainable, an impact on a capital must not put either the sufficiency of the capital itself or the well-being of others who rely on it at risk.
There are already a lot of measures to manage extra-financial indicators like the Sustainability Balanced Scorecard or Sustainability Accounting. What are the specific benefits for companies using the MCS?
In order to measure sustainability performance as such, a method must assess an organization’s impacts on the carrying capacities of vital capitals in a Context-Based way. At present, the MultiCapital Scorecard is the only methodology extant that satisfies this criterion. Indeed, no methodology should make it possible for an organization to score favorably and yet at the same time be putting the sufficiency of vital capitals or the well-being of those who depend on them at risk. The MultiCapital Scorecard ensures that this does not happen and at the same time reveals the true, Triple Bottom Line performance of organizations.
How can companies start implementing the MCS and what are the expenses involved? Do projects already exist?
To use the MultiCapital Scorecard, a company must first determine who its stakeholders are (by group), and what its duties or obligations are to each one of them to have, not have, or manage its impacts in ways that can affect their well-being. This results in the identification of what we call material areas of impact (AOIs). Organization-specific standards of performance for each AOI should then be defined, and actual impacts then measured afterwards. This can all be done in whole or in part at an organization’s own pace, and so unless there are no resources available to follow this process at all, implementation of the MCS is always affordable. It just may take longer to complete for some organizations. At present, we have three pilots of the MCS going on in the U.S., including a subsidiary of Unilever and a large dairy food producer (Agri-Mark, Inc.).
What role does communication play in the implementation process?
Because of the stakeholder-centric orientation of the MultiCapital Scorecard, stakeholder engagement is critical to the process. As noted above, organizations start the process by determining who their stakeholders are and what their duties and obligations are to each of them to manage their impacts on vital capitals. This results in the definition of sustainability standards of performance that can later be communicated to stakeholders and modified if necessary. The MCS is also an integrated reporting system, and so it results in Triple Bottom Line measures of performance that can also be reported to stakeholders at to the public at large. And finally, the MultiCapital Scorecard is an internal management information system that can be used to report performance to managers themselves. How else can they be expected to manage the Triple Bottom Line performance of their organizations without access to such a system?
More information on the web: www.multicapitalscorecard.com
Mark W. McElroy, Ph.D. is the founder and Executive Director of the Center for Sustainable Organizations and the original developer of the Context-Based Sustainability method. He is also co-founder of Thomas & McElroy LLC, creators of the MultiCapital Scorecard.