Benchmarking sustainability performance: the next step in building sustainable business models

Abstract

Developing sustainable business models incorporating effects on people, profit, and planet is becoming an increasingly important strategic issue. Benchmarking with peer companies can assist a company in setting goals of improving its performance. As such, developing a methodology for effectively benchmarking sustainable business practices is an important step in the evolution of sustainability management. However, a company's sustainability performance is composed of many elements that may involve difficult tradeoffs, and its performance may vary over time. In this paper, we propose a data-driven approach of innovatively adapting statistical process control charts, conventionally used in quality control, to simultaneously compare multiple performance measures and analyze variation in both trend and performance among companies in a given industry. We apply this approach to benchmarking the sustainability performance of companies in the US utility industry and demonstrate it is robust and reliable for benchmarking the performance of companies in virtually all industries.

Proactive versus Reactive Corporate Environmental Practices and Environmental Performance

“…Capital expenditures/sales, unlike Hart and Ahuja's [14] observation, is not significant, implying that spending capital on emissions compliance may not allow companies to take advantage of advanced technologies with improved environmental capabilities. Maltz et al [63] argue that there might be tradeoffs between financial performance such as increase in profitability and environmental performance such as reduction in carbon emissions because performance indicators are measured in different ways or scales. Thus, how capital investment works on environmental performance needs to be further studied by focusing on a single industry, rather than on multiple industries, as in this sample.…”

“…A recent study insists that managers are asked to meet the perceived value of changing social values over time: "If the economy is in recession, then outcomes that lead to higher employment may become more prominent. If an ecological disaster has recently occurred, then perceived societal value of environmental preservation often increases" [63].…”

“…This study sample includes 6 heavy pollution-generating industry sectors to increase the generalization of findings. However, some researchers argue that empirical studies applying single industry sectors are likely to show significantly stronger results than using samples across diverse industry sectors [19,63,69]. Table 3 shows that the R-square values across the concurrent nested models are relatively low, although a slight improvement in the models was apparent for the time-lagged models.…”

“…Investors are also more likely to focus on demonstrably effective and transparent KLD ratings. Given that incorporating environmental sustainability into corporate core business practices is becoming a primary strategic issue [63], the results from Table 4 may provide an easy benchmarking guideline, allowing firms to quickly identify excellent corporations in with respect to environmental performance, and to benchmark appropriate environmental practices. Finally, the results of the lagged models support the argument that firms with good (or bad) environmental performance in the past are likely to continue to perform better (or worse) in later years [64].…”

“…First, this study employs 6 heavy pollution-generating industry sectors to increase the generalization of findings, given the underlying argument that they are more responsible for environmental disasters or hazardous pollution [48]. Given that applying a single industry sector is likely to show significantly stronger results than using samples across diverse industry sectors [19,63,69], this study employed 'Quantile Regression' analysis, a method that is well suited to exploring relationships that may vary with the level of the dependent variable [71], to additionally execute a robustness test for three industries NAICS 31 (i.e., Food/Beverage/Tobacco, Textiles, Apparel, and Leather), NAICS 32 (i.e., Paper, Printing and Publishing, Petroleum, Chemical, Plastics and Rubber, and Stone/Clay/Glass/Cement), and NAICS 33 (i.e., Primary Metals, Fabricated Metals, Machinery, Computers and Electronic Products, Electric Equipment, Transportation Equipment, Furniture, and Miscellaneous), which are commonly regarded as great contributors to environmental pollution; specifically, this study explored how the relationship between environmental performance and disaggregate concern and strength scores varies across different industry groups. The results show that, in industry 32, 'Hazardous Waste' and 'Recycling' are significant across a wide swathe of the environmental performance spectrum, but, in industry 33, 'Substantial Emissions' and 'Pollution Prevention' are compelling.…”