To effectively address the necessity of identifying key metrics, or North Star metrics, for Environmental, Social, and Governance (ESG) policies and strategies in large companies, it is essential to understand the foundational principles, strategies for implementation, and the challenges that may arise.
What are North Star Metrics?
North Star metrics serve as a guiding light for organisations, encapsulating their core mission and objectives. In the context of Environmental, Social, and Governance policies (ESG), this metric should reflect the company’s commitment to sustainable practices while driving long-term value for stakeholders.
It must be actionable, measurable, and aligned with the company’s overall strategy, ensuring that all departments contribute to its achievement. It’s important not to confuse a North Star metric with “The One Metric That Matters” (OMTM), a concept from the book Lean Analytics by Croll and Yoskovitz.
North Star metrics in ESG are long-term guides, while the OMTMs are for specific teams and projects over a fixed period of time (two to six months). It also means that every department can set up their own OMTMs while companies should stick to their North Star Metrics in ESG. Every single OMTM can contribute to the overall purpose of the organisation.
What are the key characteristics of effective North Star metrics in ESG?
ESG metrics should align with corporate strategy and be integrated into the overall business strategy, ensuring that sustainability goals are prioritised alongside financial objectives. Revenue is not the ultimate North Star Metric; it’s (too) obvious that private held organisations are meant to be profitable. North Star Metrics contribute to the achievement of the purpose of the company.
While environmental targets are crucial, a comprehensive ESG strategy must have a broad scope and address social and governance factors, such as diversity, equity, and ethical governance practices.
Successful implementation of North Star metrics in ESG requires strong leadership commitment. This includes setting clear expectations and accountability at all organisational levels, particularly from top management and the board of directors.
4 strategies for leveraging North Star metrics in ESG
1. Setting Clear and Measurable Goals
Companies should define Specific, Measurable, Achievable, Relevant, and Time-bound (SMART) goals across all ESG dimensions. For instance, a company might aim to reduce carbon emissions by a certain percentage within a specified timeframe, while also setting targets for workforce diversity and community engagement.
2. Engaging Stakeholders
Involving various stakeholders—including employees, customers, investors, and community members—in the development and refinement of ESG metrics ensures that the metrics are relevant and widely supported. This can foster a culture of transparency and accountability within the organisation.
3. Utilising Technology and Data Analytics
Leveraging advanced data analytics tools can help organisations track progress against their ESG metrics in real-time. This enables timely adjustments to strategies and enhances the ability to report transparently to stakeholders.
4. Continuous Improvement and Adaptation
Organisations should regularly review and update their ESG metrics to reflect changing circumstances, stakeholder expectations, and regulatory requirements. This flexibility allows companies to remain relevant and responsive in a dynamic environment.
12 examples of effective North Star metrics in ESG
Polar Capital and ESG issues
Polar Capital has integrated ESG considerations into its investment processes, emphasising that ESG issues are as critical as financial metrics. Their approach includes regular monitoring of portfolio ESG characteristics and engaging with companies to improve their sustainability practices. This model illustrates how a financial institution can align its investment strategy with ESG goals, benefiting both investors and society.
Unilever and the net-zero emissions
Unilever has established clear sustainability goals, such as achieving net-zero emissions by 2039 and improving the livelihoods of millions through its supply chain. By setting ambitious yet measurable targets across all ESG dimensions, Unilever exemplifies how large corporations can effectively implement North Star metrics in their operations.
Danone and the B Corp certification
Danone, a multinational food company, has adopted a “One Planet. One Health” vision that aims to bring health through food to as many people as possible and regenerate the planet. To achieve this, Danone has set a North Star metric of becoming a certified B Corp by 2025, which requires meeting rigorous standards of social and environmental performance, accountability, and transparency.
Natura &Co and the Natura Index
Natura &Co, a Brazilian cosmetics company, has integrated ESG metrics into its business strategy and executive compensation. Their North Star metric is the Natura Index, which measures the company’s overall sustainability performance across areas such as climate change, water management, and social impact.
This holistic approach has helped Natura &Co drive progress on its sustainability goals and create long-term value for stakeholders.
Netflix and Sustainable Production Hours
Netflix has set a North Star metric focused on sustainable production hours, tracking the number of hours of content produced using environmentally-friendly practices.
This metric incentivizes their production teams to prioritise sustainability in areas like energy use, waste reduction, and carbon emissions. By making sustainable production a key performance indicator, Netflix is driving progress on environmental goals while still delivering high-quality entertainment.
Disney and Diversity in Leadership
The Walt Disney Company has established a North Star metric around diversity in leadership roles. They aim to have 50% of their leadership positions filled by women and underrepresented groups by 2025.
This metric ensures that Disney’s decision-makers reflect the diversity of their audience and storytelling. It also creates accountability for advancing equity and inclusion at the highest levels of the organisation.
Spotify and Emissions Intensity per Stream
Spotify has set a North Star metric to reduce the emissions intensity per stream of music and podcasts. This metric looks at the carbon footprint associated with each stream, taking into account the energy used in data centres, offices, and employee travel.
By focusing on emissions intensity rather than just total emissions, Spotify can continue to grow its user base while still reducing its environmental impact. The company has also invested in renewable energy projects to further reduce its carbon footprint.
Lionsgate and Ethical Supply Chain Practices
Lionsgate, a major film and television studio, has established a North Star metric around ethical supply chain practices. They track the percentage of suppliers that meet their standards for labour rights, environmental protection, and anti-corruption measures.
This metric ensures that Lionsgate’s content is not only entertaining but also produced in a socially responsible manner. It also creates incentives for suppliers to improve their own ESG performance.
Microsoft and the Carbon Emissions Reduction
Microsoft has set a bold North Star metric of becoming carbon negative by 2030. This metric focuses on reducing carbon emissions across its entire supply chain and operations.
Microsoft tracks its progress through various sub-metrics, including the total amount of carbon removed from the atmosphere and the percentage of renewable energy used. This commitment reflects a comprehensive approach to sustainability, integrating environmental impact into the core business strategy.
Salesforce and the Stakeholder Impact Score
Salesforce uses a unique North Star metric called the Stakeholder Impact Score, which evaluates the company’s impact on various stakeholders, including employees, customers, communities, and the environment.
This metric encompasses a range of factors, such as employee engagement, customer satisfaction, and community investment, allowing Salesforce to assess and enhance its overall ESG performance. By focusing on stakeholder impact, Salesforce demonstrates its commitment to a holistic approach to corporate responsibility.
Google and the Sustainable Product Usage
Google has adopted a North Star metric centred around sustainable product usage, specifically measuring the number of users engaging with its sustainability-focused features, such as carbon footprint tracking in Google Maps and energy-efficient search results.
This metric not only encourages users to adopt more sustainable behaviours but also aligns with Google’s broader mission to organise the world’s information and make it universally accessible and useful.
Adobe and the Diversity and Inclusion Index
Adobe tracks its progress on diversity and inclusion through a North Star metric known as the Diversity and Inclusion Index. This metric measures the representation of diverse groups within the company and evaluates employee sentiment regarding inclusivity. By focusing on this metric, Adobe aims to foster a more equitable workplace while also enhancing its overall corporate culture and innovation capacity.
What are the 3 main challenges in setting up North Star metrics in ESG?
Risk of Greenwashing
One significant concern in ESG reporting is the potential for greenwashing, where companies exaggerate or misrepresent their sustainability efforts. To combat this, organisations must ensure that their North Star metrics in ESG are grounded in verifiable data and that they provide transparent reporting to stakeholders.
Balancing Short-term and Long-term Goals
Companies often face pressure to deliver short-term financial results, which can conflict with long-term ESG objectives. Developing a balanced scorecard approach that incorporates both financial and ESG metrics can help mitigate this issue.
Complexity in Measurement
Measuring ESG performance can be complex due to the qualitative nature of some metrics, particularly in social and governance areas. Organisations must invest in developing robust frameworks and methodologies for assessing these metrics accurately.
In Conclusion
Identifying and leveraging North Star metrics for ESG strategies is not just a compliance exercise; it is a strategic imperative that can drive sustainable growth and stakeholder value. By setting clear goals, engaging stakeholders, utilising technology, and remaining adaptable, large companies can successfully navigate the complexities of ESG implementation. Addressing challenges like greenwashing and balancing short-term pressures will further enhance the credibility and effectiveness of their ESG initiatives.
FAQs
What are key characteristics of effective ESG North Star Metrics?
They should be actionable, measurable, aligned with corporate strategy, and encompass environmental, social, and governance factors.
How can companies set effective ESG North Star Metrics?
By defining Specific, Measurable, Achievable, Relevant, and Time-bound (SMART) goals across all ESG dimensions.
Why is stakeholder engagement crucial in ESG metrics?
Involving stakeholders ensures metrics are relevant and widely supported, enhancing the effectiveness of ESG initiatives.
