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Measure of success

NEWS FEATURE: Sustainability Results season is in full swing, but as companies count their profits, they need to think about becoming environmentally, socially and economically sustainable if they want to keep attracting investment cash, reports Margo Col

THE CONSTRUCTION industry - like all business sectors - is being forced to face its responsibilities to the environment. In the last decade some major progress has taken place. However, just when businesses might be forgiven for patting themselves on the back over the great strides they have made, the goalposts have moved. Environmental awareness is no longer enough: today's successful business has to be sustainable.

There are many definitions of sustainability. The Government's 1999 White Paper A better quality of life defines sustainable development as: Maintenance of high and stable levels of economic growth and employment;

prudent use of natural resources; social progress which recognises the needs of all people; and effective protection of the environment.

Back in 1987 an international conference described it as the process which 'meets the needs of the present without compromising the ability of future generations to meet their own needs'. Or, as Scott Wilson principal sustainability consultant Matt Grace puts it: 'Having a good life without ruining the chances for everyone else now, or in the future, to have a good life too.'

Key to all definitions is the link between economic viability and environmental and social responsibility - the fundamental belief that companies that adopt a positive attitude to the environment and the society in which they trade will outperform those that do not.

Companies are rushing to demonstrate their sustainable credentials, signing up to organisations such as the World Business Council for Sustainable Development and the Institute of Business Ethics. The furore that greeted publication of the FTSE for Good index late last year demonstrates, if nothing else, the desire to be seen as a sustainable business.

'FTSE for Good takes the top 350 companies and rates them according to their environmental and social record, ' explains Paul Monaghan, partnership development manager at the Co-Operative Bank. Lobby groups have criticised it for having limited aspirations, and they caution against using it as a measure of excellence.

'Some people say that the bar's been set too low, ' admits Monaghan. 'But it is only one standard. FTSE for Good is saying 'this is the way we do it - others might do it differently'.'

Monaghan says there is mounting pressure on construction companies to adopt sustainable business practices: 'The financial services sector is now asking them for information on the triple bottom line' - that is, on social and environmental track record, as well as financial performance.

New legal requirements mean companies listed on the Stock Exchange must report on how they are managing a wider range of risks, including ethical issues, environmental impact and public reputation. At the same time the investment community is also putting pressure on businesses by screening investments for social responsibility. According to Monaghan, the social impact of more than £1,000bn of investment is assessed worldwide every year.

And Government is weighing in. The Climate Change Levy which kicks in on 1 April will see energy bills soar, forcing firms across all sectors to look hard at their consumption.

For many firms this major financial 'prod' will galvanise them into looking hard at other areas, making a link between environmental and economic savings, reckons Grace. 'All new construction projects have to have an ecological assessment, and that can be a starting point to think of some of the wider issues as well - to start looking at things a bit more broadly.'

How to measure sustainable performance could prove a sticking point, however.

This is not easy. Environmental consultant ERM conducted a survey at the end of 2001 into the use of social indicators in corporate reporting by FTSE 100 companies. 'For years managers have heard the mantra 'you can't manage what you can't measure', ' says ERM corporate advisory services director Dr Tim Woollard.

'Many advocates of measurement use key performance indicators (KPIs) to manage 'hard' and 'soft' business issues. It's difficult to convince these advocates that social issues are important without talking about performance measures.

'To be at the leading edge of corporate reporting, companies will need to start publishing indicators on health and safety, employment, community affairs and community involvement at the very least, ' he adds.

But the survey demonstrates that, as well as being difficult to collect and quantify, social data is also difficult to interpret.

'Indicators on health and safety are relatively straightforward, ' says the report. 'A change in the number means either a step in the right direction or the need to review performance.

'But take employee related indicators. Does a change for the worse in employee survey data mean that a company's treatment of employees has deteriorated?

Or has that company begun to improve its employee relationships and encourage more open dialogue and reporting of issues?'

It is an issue major contractor Carillion has been grappling with. The firm - described by Monaghan as 'one of the top 20 in the UK at managing its environmental impact in a progressive manner' - is trialling a new social and environmental reporting system, Business in the Community.

Each of the 20 companies involved in the project posts its performance record on the environment, workplace, community, marketplace and human rights on a website.

Carillion is also absorbing the results to set targets, change its methods and improve performance. Carillion director for engineering and environment Quentin Leiper explains: 'We have 59 KPIs, some of which are legal requirements, and others that we have developed to meet our needs. We have picked out what we see as the key social indicators among them, and are mapping them back to the company's objectives.'

In practice, this means playing off objectives to achieve an optimum result. Carillion's aim of employing staff whose ethnic and gender mix reflects the local community has to be reconciled with its desire to employ and retain the best staff. They are not always compatible, Leiper concedes. Sustainability of the company is paramount.

He has some stark figures for companies that want proof of the direct correlation between sustainable practices and the bottom line. Even before they start drawing a salary, 'every employee who comes through the door costs us £4,000', he says. 'With a better understanding of what our business needs are, we can put effort into getting the right people and keeping them. If staff turnover reduces by 50, it's a significant start.'

Socially responsible employment practices have a direct economic benefit.

Anyone looking for further proof that sustainable businesses is good business should look no further than the CoOperative Bank. This year it began offering finance at preferential rates for sustainable construction companies.

'There are certain services that we will always need, like clean water, transport and housing, ' says Monaghan. 'The question for us is how we, as a financial services company, identify those companies in the sector that are still going to be around in 20 or 30 years to pay back our loans. All things being equal, an environmentally and socially sound company is going to be more risk-friendly, so we will be more comfortable about providing them with finance.'

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