As organizations embark on environmental, social and governance initiatives, they are discovering that financial measures alone do not provide an accurate assessment of their corporate responsibility progress. For example, traditional financial indicators do not fully capture all aspects of a company's relationships with its customers, employees and suppliers, or represent its efforts with respect to sustainability.

"Financial performance measures alone aren't a complete indicator of a company's health," explains Valerie Chort, national leader of Deloitte's Corporate Responsibility & Sustainability practice. "External stakeholders look at a range of non-financial performance measures to assess how well a company is meeting its corporate responsibility objectives. These are seen as a proxy for good management. To communicate this information, companies require relevant non-financial key performance indicators, or KPIs."

KPIs connect corporate responsibility to performance
Key performance indicators provide businesses with a means of measuring progress toward achieving objectives. They provide quantitative or qualitative forms of feedback that reflect performance in the context of their business strategy. The approach is no different when managing environmental, social and governance issues. Increasingly, previously assumed externalities such as environmental, social and governance matters are affecting business performance. For example:

• Poor stewardship and management of natural resources can increase costs and reduce efficiency, impacting operational performance;
• Neglecting to incorporate socio-environmental considerations into decision-making can curtail business opportunities, and jeopardize a company's licence to operate;
• Failing to plan for a future in which socio-environmental issues are likely to be a significant source of risk may undermine the long-term value of a business, for example, the mitigation and adaptation requirements of climate change.

In order to adequately capture the link between economic performance and progress in implementing corporate responsibility strategies, it is necessary to develop and use the appropriate non-financial KPIs.

The non-financial KPIs that a business develops, manages against and ultimately reports — whether internally or externally — will depend on its strategic corporate priorities, and will reflect the unique nature of the organization. Companies can use KPIs developed by international organizations, peers and leading companies, or they can develop their KPIs in-house. "The key is to remember that what is measured is managed," says Chort, "and that it's important to measure what will protect and create value for your company and its stakeholders. Unfortunately, the tendency is to manage what is easy to measure."

A comprehensive view of corporate responsibility performance
KPIs can help companies plan and manage their environmental, social and governance priorities — particularly when KPIs are linked to core business strategies through action plans that include performance targets. Moreover, the actual process of defining, selecting and measuring non-financial KPIs adds value by providing a more informed view of the company's economic performance.

When communicated externally, these KPIs form a critical foundation of a company's corporate responsibility reporting. As leading indicators of business performance, non-financial KPIs can provide deep insight into a company's corporate responsibility performance, while also reflecting effective governance and corporate risk management. As Chort notes, "Appropriate KPIs can help companies track and document performance and progress, identify and prioritize corporate responsibility opportunities, improve credibility and accountability, and ultimately enhance stakeholder trust.