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Sustainability Indicators and Sustainability Performance Management . Mining, Minerals and Sustainable Development March 2002 No. 43 Sustainability Indicators and Sustainability Performance Management Professor A. Warhurst Mining and Energy Research Network, Warwick Business School, University of Warwick, UK This report was commissioned by the MMSD project of IIED. It remains the sole Copyright © 2002 IIED and WBCSD. All rights reserved responsibility of the author(s) and does not necessarily reflect the views of the Mining, Minerals and MMSD project, Assurance Group or Sponsors Group, or those of IIED or WBCSD. Sustainable Development is a project of the International Institute for Environment and Development (IIED). The project was made possible by the support of the World Business Council for Sustainable Development (WBCSD). IIED is a company limited by guarantee and incorporated in England. Reg. No. 2188452. VAT Reg. No. GB 440 4948 50. Registered Charity No. 800066 Promoting Corporate Citizenship and Sustainable Development Professor Alyson Warhurst Chair of Strategy & International Development Director, Mining and Energy Research Network Director, Corporate Citizenship Unit Corporate Citizenship Unit Warwick Business School University of Warwick Coventry CV4 7AL UNITED KINGDOM Tel: +44 (0)24 7657 3130 Fax: +44 (0)24 Email: [email protected] Website: www.wbs.warwick.ac.uk/ccu/ The author wishes to acknowledge the entire MERN team and associates, past and present, in the development of some of the research ideas and findings presented in this paper. They include: Dr Paul Mitchell, who has made substantive inputs to Chapter 2, Dr Magnus Macfarlane, Nick Dale, Camilla Maclean, Kevin Franklin, Deborah Webb, Cristina Echavarria, Ligia Noronha, Omaira Mindiola and Dr Gavin Bridge. In addition it also builds on work undertaken by the author in collaboration with Richard Jones of Premier Oil & First & 42nd and also EQ Management to develop social performance indicators and management tools for Premier Oil. Much of this paper has been written through a grant from the MMSD programme. The background research has been undertaken principally with funding from the Environment Research Programme of the Department for International Development (UK) and an industry club of sponsors. The author also recognises the importance of a research project entitled: ‘Environmental and Social Performance Indicators and Sustainability Markers in Minerals Development: Reporting Progress Towards Improved Ecosystem Health & Human Wellbeing’ sponsored by the International Development Research Centre, Canada; TERI, India; the University of Antioquia, Colombia and the University of Warwick. Alyson Warhurst is Professor of Strategy and International Development at Warwick Business School. She also Director the Corporate Citizenship Unit at Warwick Business School and is the founding Director of the international Mining and Energy Research Network (MERN). She has been researching and teaching on the subject of the extractive sectors and sustainable development for over two decades. 2 Sustainability Indicators and Sustainability Performance Management Executive Summary This paper is about the development and use of Sustainability Performance Indicators (also referred to as Sustainability Indicators) to communicate to the internal and external stakeholders of mining companies the extent to which their mining activities are contributing to, or detracting from, sustainable development goals. In particular, it highlights the potential of such indicators to promote sustainable sound investment decisions. The paper also places Sustainability Performance Indicators in the wider context of Sustainability Performance Management Systems, and briefly reviews the other tools available for the development of these systems. It emphasises that indicators can assist in the actual assessment, management and monitoring of impacts of mining on sustainable development goals, as well as the reporting of performance, if they are developed within an overall Sustainability Performance Management System. For this reason, the paper argues that tailor made approaches to developing indicators, that address specific stakeholder concerns and that inform mainstream corporate strategy and support companies’ future approaches to managing sustainable development issues, are more likely to contribute to sound investment decision processes than approaches which prioritise reporting against generic ‘off the shelf’ indicators. Notwithstanding, it is suggested that the latter can inform the former; and, that there are merits to developing combined ‘top-down’ - ‘expert derived’ and ‘bottom up’ - ‘stakeholder scoped’ approaches to sustainability performance management. It is argued that those indicator systems that have been developed to date have been mostly about the impact of operations, principally environmental impacts and to a lesser extent about social impacts and rarely economic impacts. Some claim to be Sustainability Indicators but are often little more than combined sets of environmental, economic and social performance indicators, not indicators that are capable of truly describing the extent to which a mining project is contributing or detracting from sustainable development goals over time from an inter-generational equity perspective. Furthermore, few indicator systems have been developed that are capable of describing performance from different stakeholder perspectives, especially the perspectives of local communities that are affected by a project and less still from the perspective of indigenous communities. There are also few indicators systems that are capable of demonstrating changes in performance with respect to two other key areas of sustainable development. First, product use and the extent to which a product is contributing to quality of life, health and well being over time, and second, business practice and the extent to which a project is being managed according to practices that will contribute to sustainable development goals. It is argued, that business practice indicators would be one of the most effective systems for financial investors to use to assist in the evaluation of whether an operation is likely to represent a sound investment from the perspective of sustainability. A business practice indicator system could be quite simple and easy to use. It might involve simply indicators of a proficient Sustainability Performance Management System and indicators pertaining to its verification. Over the past 5 years, MERN has undertaken research on the development of Sustainability Performance Indicators and management systems for the mining, metals and energy sectors, working in partnership with major mining and oil companies, and a wide range of NGOs, government departments and leading academic institutions. The paper draws on this Sustainability Indicators and Sustainability Performance Management 3 research and the results of its application, to give case study examples that illustrate the limitations of different approaches to indicators development and different approaches to both sustainability performance management and reporting. It also draws some conclusions and recommendations for further research. Chapter 1 argues that there is a growing literature relating to sustainable development on the one hand and corporate social, economic and environmental performance, on the other. Few links are made between these two important areas of work. Chapter 1 does not review these individual areas of literature. Rather it suggests a conceptual and practical approach to creating a bridge between them, using the management tool of Sustainability Performance Indicators within an overall Sustainability Performance Management System. Specifically, Chapter 1 explores the drivers behind the development of indicators at the macro and micro level, and categorises the origins of different methodological approaches to indicators and indicator sets themselves as being either ‘off the shelf’ or tailor-made, as they relate to company or sector specific initiatives. An important element of MERN’s work to date has been the generation of a number of subsets of indicators that have greater relevance to specific stakeholder groups and that are informed by those specific stakeholder perspectives. These subsets supplement generic, core or key performance indicators designed to meet the requirements of a broader range of stakeholders. One such subset might relate to financial indicators, or investment-related business practice or managerial performance indicators (as above), developed in collaboration with the financial sector and industry. The vast indicator literature is reviewed in Chapter 2 and information is collated in tabular form to generate fresh perspectives as well as to capture succinctly and analyse different methodological approaches, indicator types and characteristics as well as to describe different indicator ‘use’ possibilities. Based on research to date, Chapter 2 overviews methodologies and different indicator sets, with an assessment of their application and limitations as well as suggestions as to the further work required. Chapter 2 reviews how some approaches can be used to balance the often-disparate requirements of different stakeholder groups. Chapter 2 also attempts to answer the following specific questions, identified within the terms of reference for this study: • What are the characteristics of and similarities and differences between the various systems currently in use to measure or rate environmental and social
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