What metrics should we use to track progress in delivering sustainability in public utilities?

Sustainability First's Fair for the Future Project is helping energy, telecoms and water companies, policy makers and regulators better address the politics, ethics and practical application of fairness and the environment in the utility sectors.


It became clear to us as we were talking to utilities about this that there was a wide audience for a guide to environmental, social, and governance/cultural metrics (ESG in the current jargon) as they apply to utilities. (Of course, sustainability is also about economic and financial issues, but measurement of these is pretty much hard wired in companies already.)

There is currently an international industry in metrics, particularly designed for the investor community and for annual reporting. These often take the UN Sustainable Development Goals (UNSDGs) as a starting point and/or are heavily focused on climate emissions. A number of companies have told us they are struggling to navigate their way through the offers and relate them to the other metrics required, for example by regulators and stakeholders, and within the company.
The Economist and others have criticised unthinking adoption of a number of commercial ESG metrics – although some at least of these appear to us well founded, there is some variability (to be polite).

The need for greater clarity on sustainability metrics also reflects the fact that we and others (e.g. recently the CEO of Ofwat) have argued consistently that essential utilities have a fundamental requirement to serve the public interest. Measurement and metrics play an essential role: to judge
within a company their own progress and performance; to benchmark between companies; and to explain and demonstrate to stakeholders (with whom some metrics really ought to be coinvented) what is being done in terms of sustainability and to thereby retain and gain legitimacy. This also reflects the growing realisation that Governments alone cannot deliver on sustainability, and that where they are making decisions, governments' need the front-line data which only company and sector metrics can give.

Our new Discussion Paper therefore seeks to offer a systematic approach to sustainability metrics in the round as they apply to public utilities. We hope this will help people navigate through the various issues and 'offers'.
No company is of course starting from scratch, and all companies and sectors/industries are different, as are regulatory models. We don't therefore suggest there is a 'right answer'. But we do offer a checklist against which companies can judge their current practice. We have also drawn out a number of issues which we argue are underrepresented in much current practice and focus.

First, there is a lack of a consistent understanding of what might be covered by social/'fairness' metrics. This has been thrown into focus by the rise in requirements for Environmental, Social and Governance reporting by investors (deficiencies on the S part of this have been consistently reported to us from the investor community). And it is despite Moody's reportedly saying that £8tr of debt it rates is exposed to social risks: four times that exposed to environmental ones. It is probably not simply a reflection of a lack of agreement about utilities' role in social issues, although that is a factor. And it is likely to gain further in prominence as a post-Covid recession and the fourth industrial revolution lead to increasing deprivation/ changing patterns of exclusion.

Second, while greater agreement and focus on climate and carbon metrics is vital to deliver net zero by 2050, attention is also needed on wider environmental metrics including supply chain sustainability, biodiversity, product lifecycles, waste, and climate adaptation.

Third, more focus is needed on governance and in particular cultural metrics as essential tools in helping boards, regulators and wider stakeholders judge how and how far sustainability is genuinely embedded within a company, and to avoid 'purpose-wash'.

Fourth, there is a danger of an oversimplified reliance on metrics and what can readily be measured. There is a strong case for metrics to be supplemented with complementary tools such as scenario analysis, commentary, and ad hoc survey evidence.

Finally, many companies issue and compile different metrics for different audiences, without nesting oversight of sustainability – and all related metrics - in one place and ensuring consistency by investing in an overarching repository for data. So regulatory metrics may be held by the regulation team, public communication metrics in PR, environmental metrics in the sustainability team and cultural metrics, if at all, in HR. It can as a result be very hard for an outsider to access relevant data and as a result there can be a lack of transparency and authenticity. Good practice in companies tires to do this already, but a number of companies have told us it is far from easy: it definitely needs conscious thought.

All in all, every board receives KPIs – ideally through some form of balanced scorecard which brings things together holistically - and all companies include figures in annual reports and regulatory returns. But too few really think about metrics in the round. As a result, there can be a lack of informed discussions about the context in which the firm operates and its progress towards purpose; leading to the alienation of the very stakeholders which the company needs to engage with.