Sustainability ROI: exploring performance standards & metrics

In today’s corporate landscape, sustainability has emerged as a strategic necessity and vital element to promote internal actions that align with SDG goals pertaining to the ONU’s Agenda 2030 and ESG (Environmental, Social, Governance) criteria.

Corporate sustainability initiatives aim to drive meaningful impact that reduce risks associated with resource scarcity, climate change, and social equality while enhancing business’s reputation and brand value. Furthermore, embracing sustainability can foster employee engagement and create stronger relationships with stakeholders.

Considering the growing importance of SDGs and ESGs, how can CRS (Corporate Responsibility and Sustainability) professionals measure effectively the ROI on sustainability initiatives?

In this blog you will learn how you can measure your sustainability efforts and the different standards that are currently being used to help you with your non-financial reporting.

What Is ROI in sustainability?

ROI or S-ROI identifies and measures the tangible and non-tangible benefits of implementing environmental, governance, and social responsibility actions within a business or organization.

As opposed to traditional financial ROI metrics, which focus on monetary benefits, these focus on benefits that can include avoiding emissions, saving resources, or improving the health and productivity of employees.

While some tangible benefits can be measured through financial statements, such as energy savings and water consumption, other metrics of ESG criteria concerning governance standards or social aspects are non-tangible metrics that need to be presented in non-financial reports.

These are equally important as those that are tangible since they have a direct impact on a brand’s reputation and trust.

The non-tangible benefits of sustainability

Non-tangible benefits of sustainability extend further than financial gains; they encompass a wide range of advantages that in the long term will contribute to the value creation of a company and its impact on society.

Some of the non-tangible ESG criteria that can be found in non-financial reports include:

Sustainability Social metrics

Sustainability social metrics play an important role in evaluating the social impact of the company’s practices. These metrics assess the contributions of a business to workers, suppliers, customers, and local communities and are essential to build trust.

Here are just a few examples of social benefits that can be measured within a company:

• Diversity, equity, and inclusion.
• Employee well-being and satisfaction.
• Training and employee development.
• Relations with the community.
• Labor standards.
• Wage equality.

One of the most relevant key metrics within organizations is diversity and inclusion, which measures the representation and participation of diverse groups within the workforce, leadership positions, and decision-making processes. Companies that prioritize diversity and inclusion not only promote a more equitable work environment, but also benefit from a wide range of perspectives and talents that enhance innovation and problem-solving capabilities.

Moreover, metrics related to employee well-being and satisfaction, such as employee retention rates, leave of absence, or job satisfaction surveys, can provide insights into policies and programs that promote work-life balance, mental health support, and professional opportunities.

Governance performance

As important as social responsibility, governance criteria focus on how a company approaches the interests of its stakeholders, including shareholders, suppliers, customers, government, and local communities.

Some of the examples of governance performance can include:

• Corporate governance.
• Codes of business conduct.
• Policy influence.
• Supply chain management.

Taking corporate governance as an example, applying it to the corporate strategy can include a wide variety of advantages—from fostering positive behavior of board members and executive staff through clear policies, enhancing reputation by implementing transparent internal politics, to improving the decision-making process via the clear definition of responsibilities and roles.

Taking these benefits into consideration, we can see the importance they have for companies in all industries. In this regard, it is essential to track and measure the ROI of corporate sustainability initiatives to understand the impact they generate.

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The importance of measuring ROI in corporate sustainability initiatives

Understanding the ROI of sustainability has a direct impact on corporate strategies and investment decisions. Companies are increasingly recognizing that sustainable practices provide tangible financial returns and drive long-term value. This has led to a notable shift in how businesses allocate resources, prioritize projects, and engage with stakeholders.

Incorporating sustainable ROI into decision-making processes allows companies to navigate the complexities of the global market. They can anticipate regulatory changes, respond to new consumer expectations, improve employee retention and recruitment rates, enhance brand reputation, and attract investors and funds.

Moreover, measuring ROI sustainability initiatives is not only important for companies to gain insights into how their efforts toward attaining SDG goals are progressing, but as new government ESG reporting directives appear, non-financial ESG reports will gain importance.

Already in the EU, the Non-Financial Reporting Directive (NFRD) indicates the following KPIs that should be included in non-financial reporting:

• Environmental metrics.
• Social metrics regarding treatment of employees.
• Human rights.
• Anti-corruption and bribery.
• Diversity on company boards (age, gender, educational, and professional background).

Soon to be replaced by the Corporate Sustainability Reporting Directive (CSRD), while the NFRD was not mandatory, the new directive will include mandatory reporting standards.

Although in the US there’s no federal mandate on ESG reporting, there are several initiatives and regulations coming into place.

As of March 2024, the United States Security and Exchange Commission (SEC) will require US-listed companies to disclose climate-related risk information in their annual reports.

Calculating key sustainability project metrics and reporting has become increasingly important.

How to calculate ROI in sustainability projects: effective tools and methods

Choosing the right metrics of sustainable projects involves a strategic approach to ensure the correct assessment of environmental, social, and economic impacts.

Initially, it’s vital to align metrics with the organization’s sustainability goals and specific objectives of the project. Identifying key areas of impact- such as carbon footprint, energy consumption, waste reduction, customer satisfaction, social well-being- helps narrow down relevant metrics.

Additionally, selecting standardized and recognized indicators and frameworks such as the LCA (Life Cycle Assessment), SROI (Social Return Investment), and SASB (Sustainability Accounting Standards Board) facilitate selecting the correct KPIs. Moreover, it’s important to ensure that the selected indicators are measurable, achievable, and relevant to stakeholders.

Currently, software and sustainability accounting standards have emerged as key resources for companies that aim to evaluate their ROI. These types of platforms take into consideration reporting frameworks to track and analyze their sustainability efforts, especially those referring to waste management, energy consumption or emissions.

On the other hand, the social aspect of ESG initiatives is harder to calculate. But there are platforms and apps such as isEazy ESG where you can promote activities that involve employee well-being, inclusivity, gender equality, or quality education and measure employee engagement and participation rates. This data can help you analyze the impact of your actions within the overarching corporate sustainability strategy.

Long-term strategies: building sustainable ROI for the future

Developing long-term strategies for sustainable ROI requires the implementation of sustainability into the core business planning and innovation. This requires companies to set achievable sustainability goals, invest in research and development, and foster a corporate culture that values environmental and social responsibility.

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