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Measuring Sustainability MEASURING SUSTAINABILITY – BALANCED SCORECARD APPROACH TO HIGG INDEX Thesis – Master Textile Management Noora Alhainen Janne Järvinen 2015: 2015.16.05 Acknowledgements We would like to express our gratitude to the respondents for taking the time from their busy schedules to help us conduct this research. We would also like to thank our supervisor Jonas Larsson for the ideas and support throughout the process. Last, but not least, we would like to thank Sven Rosenbauer for the endless moral support and positive vibe. June 9, 2015 in Borås, Noora Alhainen Janne Järvinen ii English title: Measuring sustainability - Balanced scorecard approach to Higg Index Year of publication: 2015 Authors: Noora Alhainen and Janne Järvinen Supervisor: Jonas Larsson Abstract Purpose The purpose of this thesis is to investigate the challenges related to measuring sustainability within the textile industry. The study concentrates on the industry- specific self-assessment tool Higg Index and strives to point out the challenges of using the tool. In order to find a solution for the measurement problems, the purpose is to investigate how the current, non-financial Higg Index indicators could be translated into financial ones. Method The nature of the research is qualitative and it comprises of two parts: structured interviews and a desk research. Methodological triangulation is used in order to gain data on different levels – both from the users of the Higg Index and from literature. The data collection has been conducted through four structured interviews with the users of the Higg Index. The second part of the thesis is concerned with converting the non-financial indicators of the Higg Index into financial indicators using the balanced scorecard approach. Conclusion Measuring sustainability has been considered difficult due to the qualitative nature of the measured matters. Higg Index has proven to be a comprehensive self- assessment tool for organizations in the textile industry to use. It is considered to enhance communication, increase information sharing, and facilitate benchmarking. However, in order to develop the tool and make it more attractive to non-users, there are opportunities for improvement. These opportunities include adding verification and making the data collection easier. Transforming non- financial indicators of the Higg Index into financial indicators can simplify the data collection and increase the attractiveness of sustainability performance measurement tools. Keywords: Higg Index, balanced scorecard, sustainability, performance indicators iii Table of contents 1. Introduction .................................................................................................... 1 1.1 Background ................................................................................................ 1 1.2 Problem discussion .................................................................................... 3 1.3 Research gap .............................................................................................. 5 1.4 Purpose of the study and research questions ............................................. 5 1.5 Delimitations.............................................................................................. 6 1.6 Key concepts .............................................................................................. 6 2. Conceptual framework .................................................................................. 8 2.1 The doughnut of social and planetary boundaries ..................................... 8 2.2 Sustainability measurement tools ............................................................ 11 2.3 Performance Indicators ............................................................................ 13 2.3.1 Key performance indicators ................................................................ 14 2.3.2 Environmental performance indicators ............................................... 15 2.3.3 Social performance indicators ............................................................. 17 2.3.4 Financial performance indicators ........................................................ 18 2.4 Balanced Scorecard ................................................................................. 18 3. Methodology ................................................................................................. 21 3.1 Qualitative research ................................................................................. 21 3.1.1 Triangulation ....................................................................................... 23 3.2 Structured interviews ............................................................................... 24 3.3 Desk research ........................................................................................... 25 3.3.1 Research process ................................................................................. 26 3.4 Reliability ................................................................................................ 27 3.5 Validity .................................................................................................... 27 4. Results and analysis ..................................................................................... 29 4.1 Qualitative interviews .............................................................................. 29 4.1.1 SAC membership ................................................................................ 29 4.1.2 Implementing Higg Index ................................................................... 30 4.1.3 Improving Higg Index ......................................................................... 33 4.2 Desk research ........................................................................................... 34 4.2.1 Research process ................................................................................. 34 4.2.2 Customer ............................................................................................. 36 4.2.3 Internal business process ..................................................................... 37 4.2.4 Learning and growth ........................................................................... 38 4.2.5 Financial .............................................................................................. 38 4.2.6 Challenges ........................................................................................... 40 4.3 Validity and reliability ............................................................................. 41 5. Conclusion .................................................................................................... 43 5.1 Discussion ................................................................................................ 43 5.2 Contribution ............................................................................................. 44 5.3 Future research......................................................................................... 44 References ............................................................................................................. 45 Appendix A – Interview form ............................................................................. 51 iv List of figures FIGURE 1. THE PLANETARY BOUNDARIES. THREE BOUNDARIES HAVE BEEN CROSSED BY NOW (STOCKHOLM RESILIENCE CENTER, 2015). .......................................................................................................................... 9 FIGURE 2. THE SOCIAL FOUNDATION OF THE DOUGHNUT MODEL (RAWORTH, 2012). ....................................... 10 FIGURE 3. THE DOUGHNUT OF SOCIAL AND PLANETARY BOUNDARIES (RAWORTH, 2012). ................................. 11 FIGURE 4. THE FOUR ASPECTS OF THE BSC (KAPLAN & NORTON, 1996). ....................................................... 19 FIGURE 5. THE PROCESS OF CONDUCTING QUALITATIVE RESEARCH (BRYMAN, 2012, P.384). ............................. 22 FIGURE 6. CRITERIA FOR DETERMINING THE GOALS AND MEASURES FOR EACH BSC PERSPECTIVE. ........................ 35 FIGURE 7. COMMON THEMES FOUND WITHIN EACH NON-FINANCIAL PERSPECTIVE. ........................................... 36 List of tables TABLE 1. THE DIFFERENCES BETWEEN KPIS AND KRIS (PARMENTER, 2010, P.9). ............................................ 15 TABLE 2. THE BSC OF THE HIGG INDEX BRAND MODULE. ............................................................................. 34 TABLE 3. THE CUSTOMER PERSPECTIVE OF THE HIGG INDEX BSC. .................................................................. 36 TABLE 4. THE INTERNAL BUSINESS PROCESS PERSPECTIVE OF THE HIGG INDEX BSC. .......................................... 37 TABLE 5. THE LEARNING & GROWTH PERSPECTIVE OF THE HIGG INDEX BSC. ................................................... 38 TABLE 6. THE FINANCIAL PERSPECTIVE OF THE HIGG INDEX BSC. ................................................................... 40 List of abbreviations BSC Balanced scorecard CFC Chlorofluorocarbon CO₂ Carbon dioxide EPI Environmental performance indicator GDP Gross domestic product GHG Greenhouse gas GNH Gross national happiness GRI Global Reporting Initiative ISO International Standardization Organization KPI Key performance indicator KRI Key result indicator LCA Life cycle assessment NGO Non-governmental organization RSL Restricted substance list PRSL Packaging restricted substance list RDM Rapid Design Module SAC Sustainable Apparel Coalition TBL Triple bottom line v 1. Introduction Introduction chapter
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