No matter your situation, objectives, or processes, implementing key performance indicators (KPIs) or key risk indicators (KRIs) is crucial for the continuous improvement of your Quality, EHS, and ESG efforts. It is, therefore, vital to understand how to select the most suitable indicators, analyze them, and effectively leverage their potential.
Selecting the Most Suitable Indicators
KPIs and KRIs play a crucial role in managing and monitoring strategic objectives, which are closely tied to an organization's policy and overall strategy. These indicators enable the governing body to assess the effectiveness, efficiency, relevance, and reliability of operations. Monitoring these indicators makes companies aware of issues as they arise and facilitate prompt decision-making.
However, it is essential to select the most useful and relevant indicators to avoid overwhelming the dashboards.
The ideal strategic indicator should:
- Be directly linked to a strategic objective
- Be easily measurable and attainable, with realistic objectives
- Be implemented for a specific operation or activity
- Be assigned to one or more individuals for analysis and follow-up
- Be clearly and precisely defined, with specific timeframes
- Be monitored regularly
- Be comparable with indicators used by other organizations
(Find out Why EHS Is Vital to Your ESG Program)
KPIs can be selected through a variety of means, including standards, regulations, online platforms, and ESG scoring bodies. These platforms and bodies offer well-defined indicators that aid companies in self-assessment, enhancing performance, and internal scoring.
Naturally, the KPIs will revolve around the three pillars of ESG: Environmental, Social, and Governance. Each platform will provide different types of indicators for each pillar, however.
- Environmental indicators include the CO2 balance sheet, waste management monitoring, and water management. These indicators are essential for evaluating the impact of operations on biodiversity, greenhouse gas (GHG) emissions, and circular economy practices.
- Social indicators include partnerships with associations and community engagement, profit-sharing agreements, employment equality, and gender diversity. This pillar revolves around metrics and indicators related to equal opportunities, respect for human rights, and corporate values.
- Governance indicators involve ESG and CSR certifications, the organization's purpose, and its corporate mission. These indicators demonstrate the company's commitment and interest, acting as strategic drivers.
Internationally recognized standards provide crucial criteria and guidelines for selecting the most appropriate indicators, including ESRS (European Sustainability Reporting Standards) and IFRS S1 & S2 (International Financial Reporting Standards).
For example, both the IFRS S2 standard and the ESRS E1 standard have a strong emphasis on environmental matters. These both require companies to disclose essential information related to their greenhouse gas emissions, energy consumption, and other indicators that have an impact on climate change.
Monitoring Your ESG KPIs
Digital tools can provide you with dynamic dashboards to help monitor KPIs or KRIs. These real-time feeds can present a diversity of information, such as the company's Sustainable Development Goals, risk and strategic concerns, and financial as well as non-financial performance data. These dashboards can also be made accessible to all stakeholders, thereby streamlining the monitoring process and ensuring convenient access to crucial information.
This type of effective monitoring also simplifies ESG reporting. This involves disclosing all the collected data from the various ESG criteria, along with their corresponding key performance indicators and essential information, in the form of an ESG report or non-financial report. This comprehensive report includes details on objectives, targets, actions, and more.
By making a company's related activities transparent to the public and stakeholders, ESG reporting plays a crucial role in fostering trust and accountability. It is also instrumental in attracting interest from investors and gaining more funding from government bodies.
Choose Your KPIs Carefully
Careful consideration when selecting which KPIs to monitor will facilitate the continuous improvement of your policies and ongoing compliance with ESG standards. These indicators hold critical importance as they provide valuable insights for the ESG report, shedding light on the company's performance. Embracing digital technology will play a significant role in advancing the ESG strategy. By utilizing digital tools, management committees, and governance bodies can extract and analyze essential data, enabling well-informed decisions that steer the company in the right direction.