Lies, Damn Lies, and Statistics: Why a Widely Used Sustainability Metric Fails and How to Improve it

8 Pages Posted: 24 Jul 2017

See all articles by Jon W. Bartley

Jon W. Bartley

North Carolina State University

Y. Al Chen

North Carolina State University

Steve Harvey

High Point University

Gilroy J. Zuckerman

North Carolina State University - Department of Accounting

Levi Stewart

Sustainability Accounting Standards Board (SASB)

Date Written: Spring 2017

Abstract

Most of the world's major corporations now publicly report their sustainability performance for a number of key parameters, such as water use, greenhouse gas (GHG) emissions, and waste generated. The metrics most often used to track progress are “total inventory” (for example, the total liters of water used, or the total tons of GHGs emitted) and average intensity (total liters of water used per ton of product or per $1 million revenue). Because average intensity is normalized for the company's level of business activity, it is commonly presented and viewed as a measure of the company's actual year‐to‐year efficiency. But average intensity is often not a reliable measure of a company's true performance in sustainability. An improvement in efficiency requires a company to consume fewer resources or generate less waste in delivering a specified unit measure of goods or services. This article demonstrates that, although efficiency directly contributes to average intensity, the measure is influenced by a number of confounding factors that make the change in average intensity a potentially misleading indicator of improvements in efficiency. The authors present a more reliable measure of changes in efficiency—one that is likely to benefit corporate managements as well as users of sustainability data—that makes use of flexible budgeting techniques. Examples are provided that illustrate Bacardi Limited's application of the sustainability efficiency metric for external sustainability reporting.

Suggested Citation

Bartley, Jon W. and Chen, Y. Al and Harvey, Steve and Zuckerman, Gilroy J. and Stewart, Levi, Lies, Damn Lies, and Statistics: Why a Widely Used Sustainability Metric Fails and How to Improve it (Spring 2017). Journal of Applied Corporate Finance, Vol. 29, Issue 2, pp. 109-114, 2017, Available at SSRN: https://ssrn.com/abstract=3006365 or http://dx.doi.org/10.1111/jacf.12238

Jon W. Bartley (Contact Author)

North Carolina State University ( email )

Raleigh, NC 27695-8110
United States
919-515-2256 (Phone)

Y. Al Chen

North Carolina State University ( email )

Raleigh, NC 27695-8110
United States
919-515-2256 (Phone)

Steve Harvey

High Point University ( email )

833 Montlieu Avenue
High Point, NC 27262
United States

Gilroy J. Zuckerman

North Carolina State University - Department of Accounting ( email )

Raleigh, NC 27695-8113
United States
919-515-4435 (Phone)
919-515-4446 (Fax)

Levi Stewart

Sustainability Accounting Standards Board (SASB) ( email )

1045 Sansome Street
Suite 450
San Francisco, CA 94111
United States

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