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March 30, 2006
Social Footprint Introduces Simple Elegance in Measuring Corporate Sustainability Performance
    by Bill Baue

The method conceived by the Center for Sustainable Innovation for quantifying corporate social and environmental impacts uses quotients to compare company action to sustainability goals.

There is no dearth of metrics to measure corporate social and environmental performance--greenhouse gas (GHG) emissions reductions, or percentage of women and people of color in the workforce and on the board of directors, for example. What is lacking, however, is a means to assess the actual social and environmental impacts of corporate action--in other words, the degree to which corporate social responsibility (CSR) initiatives actually advance toward true sustainability. Last week, the Vermont-based Center for Sustainable Innovation (CSI) redressed this deficiency by launching a new corporate sustainability measurement and reporting method called the "Social Footprint."

"The Social Footprint is the first non-financial reporting method capable of mathematically calculating the true bottom-line impact of an organization on society," says Mark McElroy, executive director and chief sustainability officer of CSI, in a report on the protocol. "While other methods, like the Global Reporting Initiative, do an adequate job of expressing top-line impacts, only the Social Footprint makes it possible to compare top-line impacts with actual human conditions in society, and thereby compute the social bottom-line of an organization."

The basic concept behind the Social Footprint, developed in collaboration with the University of Groningen in the Netherlands, is elegant in its simplicity: it hinges on comparisons, expressed quantitatively in fractions, or quotients. For example, if a certain geographical region produces 10 million gallons of freshwater yearly (denominator) and humans in the region use 15 million gallons per year (numerator), then the quotient is 15/10, or 1.5.

Ecological sustainability requires the wise conservation of scarce resources for future use, so this example clearly exposes a gap between available resources and their use, illustrating how a quotient over 1.0 is unsustainable. The equation turns on its head when assessing social sustainability.

"Unlike ecological capital which humans do not create, social capital is created by people and can be grown virtually at will; we can always adjust its supply in order to meet our needs," explains Mr. McElroy. "Thus, the gaps that must be closed in the case of social capital are not gaps between what we are stuck with and what we use; they are gaps between what we need and what we have decided to produce or make available."

"For social bottom lines (or quotients), then, the rule of thumb reverses: anything less than 1.0 is unsustainable," he continues.

Another simple example: if a community needs $10 million a year to educate its children but spends only $2 million, the quotient is 0.2 (with anything under 1.0 representing social unsustainability.)

Jumping from simple illustrations to a real-world corporate example, compare freshwater consumption data published by DuPont (ticker: DD) for 2001 to 2003 as the numerator to freshwater availability data published by the Pacific Institute for the same period as the denominator. The resulting ecological quotients are 1.37 for 2001, 1.17 for 2002, and 1.13 for 2003.

"The quotients showed that DuPont's use of freshwater was unsustainable, although improving year over year," Mr. McElroy points out, since ecological sustainability requires quotients under 1.0.

Interestingly, human input factors integrally into the Social Footprint's calculations. To minimize abstraction and maximize human relevance (and perhaps to maintain metaphorical consistency), the Social Footprint's yardstick is "people feet" (PF), which compare the number of people involved to the social and environmental impacts they create.

"An overriding goal of the Social Footprint is to personalize sustainability reports--that is, to render results that are not just expressed at organizational or collective levels of analysis, but which are also expressed in terms of per capita shares, stakes, or contributions to related outcomes," says Mr. McElroy. "Thus, for a company whose operations are socially unsustainable, we should be able to express the degree of unsustainability per employee [so] each employee can thereby see what his or her personal contribution is to the organization's sustainability performance."

For a real-world example of comparing a company’s performance to a specific sustainability target, look at how Wal-Mart (WMT) contributes to the advancement of the UN Millennium Development Goals (MDGs), a set of eight aspirations to reach by 2015. CSI calculates Wal-Mart's performance as 0.36 for 2002, 0.43 for 2003, and 0.52 for 2004, far below the goal of scores above 1.0 for social quotients.

CSI applies the same comparative method to the Social Footprint vis--vis other protocols for measuring corporate social and environmental performance such as the Global Reporting Initiative (GRI). The fact that GRI does not take a quotient approach makes it possible for reporters to show year-over-year improvements in social and environmental performance, while their actual bottom-line performance when compared to standards of sustainability may be worsening.

Other strengths of the Social Footprint include its flexibility, as it can be tailored to show performance against various standards for social and environmental performance, such as the UN Global Compact. It can also be computed at any geographic scale of analysis--locally, regionally, nationally, or internationally. Finally, the Social Footprint uses metrics that can readily be integrated into financial reports, enhancing the relevance of the method.


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