Expanding sustainability assessments?
From 3 pillars to 4 pillars of global sustainability? - Supported by DALL·E 3 / © M. Semadeni
Evaluate sustainability
The concept of sustainability is intended to support the transformation of the economy towards a “green economy”. A prerequisite to achieve this is that companies can be assessed in their sustainability performance.
Companies report on how profitable their business is and what risks they may be exposed to. More and more companies are now reporting on how environmentally and socially responsible their business is governed, i.e. how sustainably they operate, and which goals the company has set for itself to become more sustainable.
However, it is not the sustainability goals that should be evaluated, but the performance of the company in the achievement of its stated goals and/or can achieve them at all. In terms of sustainability, it is of little use to publish impressive goals that are not achievable. A 'more show than substance' does not help the introduction and establishment of effectively sustainable business processes.
Sustainability goals can be developed as part of a business-specific sustainability strategy and made tangible using appropriately selected sustainability indicators. The indicators are subject to specified metrics to ensure measurability and traceability. On this basis, the improvement of the business towards their goals or the company's sustainability performance can be assessed.
Depending on which business areas of a company are included, the sustainability assessment can become significantly more complex. In addition, the business areas must be differentiated in terms of their different levels of control over defined sustainability indicators. 'Scope 1' refers to a complete controllability of the sustainability elements by the company; 'Scope 2' a partial controllability by the company (such as the type of energy purchased) and 'Scope 3' a limited controllability (e.g. delivery/supply chain, product application).
Building solely on existing monitoring, recording and evaluation procedures can be difficult, meaning that new metrics and procedures must first be introduced. However, the efficient availability of data is always essential. In addition to quantitative key figures, qualitative key figures are often included, which have undergone a 'rating' (assessment based on pre-defined point scales). Basically, sustainability indicators and metrics should focus on what is realistically feasible. Absolute evaluations are often not possible or are far too complex, hence for the sake of simplicity, relative or comparative evaluations are applied, for example using benchmarks.
Yet, the difficulty remains that activities, operations and products in the three different sustainability areas (three-pillar principle) can have different and opposing effects on the environment and society; be these positive and/or negative, differentiable effects that are relevant for the sustainability assessment. Within a first assessment step it is about the company's effects on the environment and society, while in a second step, it is also about the effects of the environment and society on the company ('double materiality'). This is particularly important to take into consideration regarding the materiality assessment in the company's comprehensive risk management.
Expanding the 3-pillar principle of sustainability
New technologies play an essential role in promoting the transformation of the economy towards a “green economy”. On the one hand, it is about technologies for the production and provision of energy for the economy and households, which contribute to security of supply and to independence, while generating the lowest possible CO2 emissions. On the other hand, it is about technologies that generate as little waste as possible from the provision of raw materials and for the production of intermediate and end products. New production technologies should therefore be able to use secondary raw materials (e.g. from recycling processes) if possible, instead of having to continually consume primary raw materials. New product designs should lead to products that are intelligently assembled so that in the event of a defect or end of life, they can simply be dismantled into their components for reuse or further use and fed into a material cycle. Such a material cycle can enrich the production processes within the company itself or serve an external cycle in cooperation with other companies and industries. Since technologies are of great importance for a sustainable economy and for the establishment of a circular economy, it is proposed to add a fourth pillar, called 'technology', to the three-pillar principle of sustainability (cf. circular economy as a strategy of the future, A. Münger, Haufe, July 2021).
Approaches to include a fourth pillar, 'technology', in the sustainability assessment could lie in technology assessment procedures. Aspects of the design of the products, for example according to the principle of 'Cradle-to-Cradle', with regard to material health and circularity must also be evaluated, e.g. through the certification system of the Environmental Protection Encouragement Agency epeaswitzerland (Cradle to Cradle Certified® of Cradle to Cradle Products Innovation Institute) or by evaluating the product’s lifecycle (life cycle analysis). Furthermore, the elements of the production chain would have to be evaluated in terms of product design, e.g. according to ' Circular Design' (Ellen MacArthur Foundation's Circular Design Guide) or using the principles of 'Eco-Design' (Ecological Systems Design of ETH Zurich).
The corresponding aim of these evaluation approaches would be, for example, to achieve the reusability and recyclability of product components. By including a fourth pillar, a technological assessment aspect would be added to the ecological, social and economic assessment aspects of a design, which can be addressed with the help of the so-called 'Design Circular ' concept by A. Münger (cf. Circular Economy as a Strategy for the Future, A. Münger, Haufe, July 2021).
To get an initial overview for a company, the specific purpose of the various technologies or techniques used in the company would have to be assigned and then it would have to be determined to what extent they do not generate waste in the first place and/or whether they use waste as secondary raw materials in material cycles of a circular economy. An integration of the techniques in terms of the '4 Rs' of sustainable operations - repair , reuse, recycle, and reduce (of waste, material/energy consumption) - and including the additional three Rs from the circularity model - refit (revising for reuse), rebuild (reassembling with partly new components) and refurbish (restoring or creating something new from it being a secondary resource) would be a first step, to gain a more detailed overview. From this, a strategy for implementing a company-specific circularity model could be developed (see circular economy as a strategy of the future, A. Münger, Haufe, July 2021).
Of course, it is generally a matter of evaluating the technologies or techniques used in terms of their effect on people and the environment and in terms of efficiency and profitability within the framework of the business model. For example, the process ‘refurbish’ for creating a new product could be economically viable due to the availability of cheap secondary resources, but could lead to the accumulation of harmful ingredients in the new product (for instance when converting deconstruction waste into secondary mineral raw materials for recycled building materials, cf Swiss Federal Office for the Environment FOEN).
Another challenge for the evaluation of technologies and processes used or improved by a company in terms of sustainability (Scope 1) is ensuring that underlying data and information, technological know-how or patents and intellectual property must remain protected. Furthermore, an evaluation of the supply chain and product applications within the framework of a fourth pillar, 'technology', is likely to be difficult to accomplish due to limited information and data availability (Scope 3). Moving forward in solving these challenges lies in driving business behavior through appropriate incentives. To overcome these challenges, business behavior would have to be encouraged through appropriate incentives.
Nevertheless, with all the different standards in sustainability reporting and assessment and their ongoing developments, it is confusing for companies to address sustainability requirements. Before you can report on sustainability or evaluate sustainability performance, the sustainability elements selected in the strategy must first be introduced into the company.
Support from the Global Reporting Initiative (GRI) reinforced through the German Corporate Sustainability Reporting Directive (CSRD), the German Sustainability Code (DNK) and the European Sustainability Reporting Standards (ESRS), as well as support through the UN Sustainable Development Goals (SDGs) for sustainable development or from the International Organization for Standardization (ISO) with its standards for environmental management systems ISO 14001 and for the exercise of social responsibility ISO 26000 are all of course important and extremely helpful. However, the implementation of these standards remains very complex. It should be noted that ISO standards (ISO 59000 series) for the circular economy are currently being developed (see the following links: ISO and SNV (Swiss Standards Association) as well Circular Globe), which would have to be coordinated with each other when combining sustainability and the circular economy via the fourth sustainability pillar 'technology'.
Such ESG standards with their environmental, social and governance factors are based on the “three-pillar principle of sustainability” and would have to be expanded accordingly in relation to the fourth pillar “technology”. It should be mentioned that corresponding financial and accounting requirements (e.g. based on industry-based SASB standards of the IFRS or the standards of TCFD, Task Force on Climate- related Financial Disclosures, or TNFD, Task Force on Nature- related Financial Disclosures) would need to be also checked and may need to be expanded.
Many standards provide for simplifications in practicality and transparency for SMEs, which adapt the requirements, for example regarding system boundaries (Scope 1-3) or data acquisition for SMEs. The aim is to limit oneself to what is feasible and to enable an assessment with a reasonable, industry-specific choice of sustainability indicators and to be able to show potential for improvement in comparison to industry benchmarks.
A good example of such more practical and transparent sustainability rating systems is the 'esg2go' Rating & Reporting System, which helps to meet legal environmental/sustainability requirements and also creates additional benefits for the environment, society and future generations as well as for business and the economy. The Rating & Reporting System can also be used for larger customers (see https://esg2go.org/enterprise) or associations (see https://esg2go.org/association), for example to include supply chains in sustainability reporting and assessment.
Including technologies as essential elements for implementing a global circular economy and being part of sustainability assessments would be an important step. The corresponding identification of technological improvement potential for closing cycles between different industries offers an interesting approach to being able to exchange information between companies in the spirit of the circular economy. The collaboration between companies from different industries makes it possible to identify optimization potential and to address it together (systematic approach to a circular economy or the 'ecology' of doing business). However, success would have to result in mutual financial benefits. If this is (currently) too low, the implementation of circularity would have to be guided with the help of financial incentive systems and clearly defined regulatory conditions (e.g. on the waste generating side).
The goal would be to implement a circular economy that can generate economic growth without the need to constantly increase the use or extraction of natural resources to boost the value chain.
Marco Semadeni, Dr. sc. nat. ETH
May 16, 2024