Plane Thermoelastic Waves in Infinite Half-Space Caused
FACTA UNIVERSITATIS
Series: Economics and Organization Vol. 14, N
o
4, 2017, pp. 291 - 306
https://doi.org/10.22190/FUEO1704291D
Review Paper
DEVELOPMENT OF SUSTAINABILITY INDICATORS:
APPROACHES, CHALLENGES AND OPPORTUNITIES
1
UDC 502.131.1:339.137.2
Ksenija Denčić-Mihajlov
1
, Stefan Zeranski
2
1
University of Niš, Faculty of Economics, Niš, Serbia
2
Ostfalia University of Applied Sciences, Faculty of Law, Institute for Finance, Tax and
Law, Wolfenbüttel, Germany
Abstract: Rapidly changing and complex business environment requires from enterprises
to cautiously develop their business strategies in order to achieve and maintain
competitive advantage over the long term. With the awareness of importance of
environmental consequences and sustainability, market value is no longer determined by
single financial performance indicators. The sustainability framework which encompasses
economic, environmental and social performances has rather received an international
attention of both corporate and financial sector. Even though it is generally accepted that
the adoption of sustainability ratios is a most adequate and effective way for sustainability
performances’ assessment, both the creation/selection of sustainability ratios and their
implementation and analysis have been still examined at national and corporate levels.
Most companies have adopted the internationally recognized performance evaluation
systems (such as Global Reporting Initiative or United Nations Global Compact). Still,
there is increasing number of companies that apply self-developed sustainable
performance evaluation methodologies. The main purpose of this paper is to investigate
the development and application of the performance indicators of sustainable
management with the aim to offer suggestions for selection of sustainability ratios the
application of which should increase the effectiveness of controlling and decision-making
process and would lead to long term competitive advantage.
Key words: sustainability reporting, economic, environmental and social performance
indicators, GRI Standards, controlling.
JEL Classification: G30, Q56, M14, M48
Received June 22, 2017 / Accepted September 27, 2017
Corresponding author: Ksenija Denĉić-Mihajlov
University of Niš, Faculty of Economics, Trg kralja Aleksandra 11, 18000 Niš, Serbia
E-mail: ksenija.dencic-mihajlov@eknfak.ni.ac.rs
292 K. DENĈIĆ-MIHAJLOV, S. ZERANSKI
INTRODUCTION
Sustainability is an area of growing importance in today‘s business. The concept of
sustainability and sustainability management has attracted a lot of attention during the
last decades. Corporate reporting is influenced by this trend too. Numerous challenges,
such as global warming, climate change and energy regulation, data protection, resource
scarcity, social conflicts and migrations etc., force companies to respect the requirements
for sustainability management. The changes in corporate environment have as a consequence
the reshaping of investor‘s (and other interest groups‘) requirements for information. The
retrospective orientation based exclusively on financial indicators/ performances is no longer
sufficient to provide and sustain long-term business success and competitive advantage. It
alone reflects only conditionally systematic risks and actual costs of applied corporate policies
(Sikora & Downar, 2014). While conventional accounting and financial metrics give an
insight into a company‘s market value, forward-looking voluntary reporting is becoming more
relevant to a business‘s overall value proposition and is regarded as a prerequisite for financial
and overall firm competitiveness (Denĉić-Mihajlov & Spasić, 2015).
Recent years have witnessed an increasing number of companies reporting on
environmental, ethical and social aspects of their business activities through a particular
form of disclosure. Sustainability reporting is a very important part of today`s external
corporate reporting. Adequate inclusion of sustainability issues in company`s reports is one
of the key issues for further development of corporate communications with stakeholders
(Stojanović-Blab et al., 2016). Many companies have made a conscious effort to ―go green‖
and pursue actions that are optimal for a broad class rather than simply one class of
shareholders (Rezaee & Rezaee, 2014), and actions designed to lead to a ―desirable future
state‖ for all stakeholders (Funk, 2003).
Numerous international and European organizations and institutions consider issues
relating to the content and type of reporting on economic, environmental and social aspects
of the business and try to jointly create adequate guidance and guidelines in this area. From
the accounting point of view significant are Directive 2003/51, Directive 2013/34/EU and
especially Directive 2014/95/EU or the so-called CSR Directive. In addition to these
directives, the engagement of the Federation of European Accountants, which worked on
the establishment of a Generally accepted framework for environmental reporting, is also
meaningful in this area (Denĉić-Mihajlov & Stojanović-Blab, forthcoming). At the global
level, the most adopted multi-stakeholder standards which address a wide range of
sustainability issues are the Global Reporting Initiative (GRI) and the UN Global Compact
(UNGC). As pointed out by Rasche (2010), the ‗market‘ for sustainability reporting is
nowadays highly fragmented with numerous standards, certifications, principles etc. which,
on one hand, increases the opportunities for reporting, but, on the other hand, creates
difficulties for corporations and stakeholders in operating and evaluating firm performances.
The Global Reporting Initiative has, over the past decades, made substantial progress in
assembling a list of sustainability indicators relevant to a wide spectrum of stakeholders and
applicable to corporations across all sectors (on the different versions of the GRI sustainability
reporting guidelines see: Blab et al. 2014). In May 2013, the Global Reporting Initiative set up
the fourth generation of its sustainability reporting guidelines, the GRI G4 Sustainability
Guidelines (consisting of two parts - Reporting Principles and Standard Disclosures and
Implementation Manual), which remain valid till 1 July 2018. In comparison to previous G3
and G3.1, G4 Guidelines do not bring changes regarding reporting principles, but offer
Development of Sustainability Indicators: Approaches, Challenges and Opportunities 293
novelty on how to determine material aspects (encourage organizations to provide only
information critical to their business and stakeholders) and the effects they may have. The
G4 Guidelines offer the so-called core option and comprehensive option as two independent
options of how organization‘s sustainability report can comply with the Guidelines. The
core option requires the provision of minimal foundation information and reporting of at
least one indicator for all identified material aspects. Comprehensive option builds on the
core option, by demanding supplementary disclosures about the organization‘s strategy,
governance, ethics and integrity. If deciding on the comprehensive option, an organization
must report all indicators for all identified material aspects (GRI, 2015).
The new GRI Standards issued in October 2016 by the Global Sustainability Standards
Board are created as the first universal set of regulations for sustainability reporting, which
offer companies a universal tool for disclosing non-financial information. Sustainability
reporting based on the GRI Reporting Framework consists of Reporting Principles, Reporting
Guidance, and Standard Disclosures (including company Strategy and Profile, Management
approach and Sustainability performance indicators). With the GRI Standards, ―GRI aims to
maintain the proven principles of sustainability reporting, but to provide users with more
flexibility, clearer instructions, clear terminology and a modular structure of the GRI
standards, to remedy content redundancies and to provide a more logical structure of the GRI
standards compared to GRI G4― (on the comparison between GRI G4 and GRI Standards see:
Stojanovic-Blab & Blab, 2017). Unlike GRI, which is viewed mainly as a reporting standard,
the UNGC is termed as a principle-based standard (Rasche, 2010). The UNGC framework has
a simple and relatively logical structure with criteria related to the four core sustainability
issues (Human Rights, Labor, Environment and Anti-Corruption) and 10 UNGC principles
for responsible and sustainable business behavior that corporations are required to report.
Other relevant and globally-recognized frameworks for sustainability reporting are given by
Sustainability Accounting Standards Board (SASB), International Labor Organization (ILO),
OECD Guidelines for Multinational Enterprises, CDP, World Resources Institute (WRI) and
World Business Council for Sustainable Development (WBCSD) among others (about the
complementarity of these frameworks see: GRI/The complementarity of frameworks (2016)).
As pointed out by Lydenberg et al. (2010), in order to maximize the usefulness of
sustainability reporting, it is essential that reporting regime integrates a means of identifying
key sustainability performance indicators at a sector level. These indicators focus on the
sustainability data material to most stakeholders and enable corporate stakeholders to give
support for the improvements in the most important aspects of a company‘s sustainability
performance; they should align all levels of an organization with clearly defined targets and
benchmarks to create accountability and to track progress (Hrebiĉek et al. (2011). In this
way, the selected sustainability performance indicators would focus on the ‗key‘ measures
as the most important to understanding the business and thus avoid the trend toward
extended reporting on a wide range of less relevant measures.
The aim of the paper is to investigate the development and application of the performance
indicators of sustainable management with the aim to offer suggestions for selection of
sustainability ratios the application of which should increase the effectiveness of controlling
and decision-making process and would lead to long term competitive advantage. The
structure of the paper is as follows. In Section 2 we give an overview of sustainability
indicators types, goals and selection process. Following GRI reporting framework, triple-
bottom principle is adopted to present economic, environmental and social performance
sustainability indicators in Section 3, 4 and 5 respectively. The final Section provides
conclusions and proposes the objectives for future research.
294 K. DENĈIĆ-MIHAJLOV, S. ZERANSKI
1. SUSTAINABILITY INDICATORS: NATURE, PURPOSE AND SELECTION
The advantages of an integrated approach to social, environmental and economic
business goals have been shown in a variety of publications (for a literature review see
Giovannoni & Fabietti, 2014). Sustainability reporting should not be an objective by itself.
Sustainability reporting should be regarded as a key action in implementing corporate
strategy which is aiming at recognizing the impact on company's stakeholders, influencing
stock specific opportunities and mitigating risks and negative impacts on the economy,
society and the environment. Consequently, of central importance is to specify most
suitable performance indicators to support operational decision-making in enterprises.
According to EY& GRI (2014), one of the key drivers behind the increase in sustainability
reporting has been the acknowledgment that, to be meaningful, a sustainability strategy must
be based on reliable, concrete data, which can only be the case once the mechanisms and
systems for reporting the facts are put in place. As shown in Table 1, this selection process
starts with taking into account globally recognized sustainability reporting initiatives and
guidelines. Having recognized and encompassed specific sector issues, the process of
sustainability indicators selection ends up with the consideration of company relevant
characteristics and market position (such as age, size, geographic exposure, complexity,
history, news flow). Such a process enables organizations to recognize and track the results
and, more importantly, to establish a system that properly indicates firms‘ values and
requirements (Searcy et al., 2005).
Table 1 The process of selecting sustainability indicators
Global initiatives and guidelines
UN Global Impact
OECD Guidlines for MNC
Global Reporting Initiative
Other frameworks (SASB, ILO, WRI and WBCSD)
↓
Sector Issues
Internally defined sector key issues
MSCI ESG Resereach
GRI Sectors Disclosures
↓
Company Specific Indiators
Geografic scope; Multinationalty
Age and Size
Ownership Concentration & Structure
Business Complexity
↓
Sustainability indicators
Source: Adapted from Columbia Threadneedle Investments (2016)
The indicators are measurements that show the status of an environmental, economic,
or social system over time (Redefining Progress, Sustainable Seattle, and Tyler Norris
Associates, 1997). These are simple units of measure that are critical when making
decisions in a complex environment. Sustainability indicators can be classified along
various dimensions of measurement, such as sustainability attributes (for example
Development of Sustainability Indicators: Approaches, Challenges and Opportunities 295
economic, social or environmental attributes) or frameworks (for example DPSIR-indicators)
(Singh et al., 2012). Waas et al (2014) classify sustainability indicators into several categories
following their important aspects in practice:
Descriptive (give a description of an actual situation) vs. normative (compare an
actual situation with a desired one);
Quantitative vs. qualitative;
Objective (that are sensed by instruments outside the individual) vs. subjective
(only verifiable through ―subjective‖ explanations);
Community vs. expert (classification depending on who develops the sustainability
indicators—stakeholders ―bottom up‖ and/or experts ―top down‖);
Ex-ante vs. ex-post.
Fiksel et al. (1999) indicate that sustainability indicators can address inputs and
processes (leading indicators) and outcomes (lagging indicators). Since leading indicators
tend to be internally-focused, it is not surprising that the majority of externally-reported
indicators are in the lagging category. According to objectives and purposes, sustainability
indicators can be represented in various forms, such as qualitative or quantitative, general
or specific, and absolute or relative indicators (Bae & Smardon, 2011). Key sustainability
indicators are usually quantitative measures (given for example in terms of mass, volume
or number of environmental pollutants or physical materials), defined with a purpose to
manage sustainability control and to plan qualitative fields of action in the area of
sustainability management. However, some indicators cannot be defined in physical terms
and have to be expressed qualitatively. Indicators which are based only on subjective
estimates (qualitative indicators), usually include social dimensions of a firm‘s activities
and play a decisive role for nonmonetary goals, such as reputation, transparency, compliance
and credibility.
General indicators are used by companies across all sectors (therefore are easily
comparable) and deal with globally discussed issues (for example, climate agreements
such as Montreal Protocol or Kyoto Protocol). On the other hand, specific indicators are
specified for an industry or firm. For instance, in a Report Toward a Sustainable Cement
Industry, Battelle Memorial Institute (2002) proposes key performance indicators for
companies in this industry (such as non-product output, i.e., Waste per ton of cement, or
Net CO2 (kg) per ton of cement).
Absolute indicators are used to measure a firm‘s quantitative environmental and
social impact related to its activities, products, and services (Bae & Smardon, 2011). In
this regard, companies report, for example, on Total amount of energy/water consumed
per year or Total amount of hazardous waste generated. Relative indicators (such as ratio
of waste per unit of input material as an example of eco-efficiency indicator) are given in
terms of a ratio or proportion that compares two absolute indicators, which assures a
process of trend evaluation, comparison and consideration of possibly better sustainable
opportunities and practices.
With regard to sustainability indicators selection process, as Staniškis & Arbaĉiauskas
(2009) point out, ―a particularly important aspect is related to the application of a product
life cycle approach. Frequently, enterprises limit performance analyses to production and
to other internal processes, sales and general economic indicators. Yet, there are cases
when a product use impact on the environment is stronger than that caused by the
production phase‖.
296 K. DENĈIĆ-MIHAJLOV, S. ZERANSKI
Having identified the indicators and metrics (as a specific means of measuring and
tracking a performance indicator), the company should set short and long term targets, as a
determined level of performances it is aiming at. Indicators designate a measurable dimension
of performance, metrics provide a means of quantifying the indicators, and targets provide a
basis for tracking and assessing improvement, they guide decision-making efforts and support
stakeholder communication (Fiksel et al., 1999). The main purpose of sustainability
indicators‘ calculation and application is, thus, to monitor and evaluate effectiveness and
performance of goals and targets in a decision-making strategy for sustainable development
(Parris & Kates, 2003). Key sustainability indicators can be used for strategy implementation
and control, in the realization phase, especially when transferring decisions to be given to
implementing sustainability instances. In this way, they fulfill the information task for the
stakeholders. Some sustainability indicators are suitable for comparison purposes, while some
can also be a subject of benchmarking (Hentze, 2014). In this way, key indicators in the
sustainability planning process can serve as a stimulus for the identification and analysis of
problems, or for comparison actions and performance of firms that may or may not be
implementing sustainable business (Kuhndt et al., 2002).
The majority of published theoretical and empirical studies on sustainable indicators and
performance measurement address the issue of balance in the number of indicators and
stress the need to develop a small set of indicators. According to the European Federation of
Financial Analysts Societies, one of the ―essential criteria‖ for a useable key performance
indicator (KPI) set is that it ―should be manageable in dimension, e.g. a small set of 30 KPIs
max.‖ (EFFAS, 2009). O‘Connor & Spangenberg (2008) address the issue of a proper
number of sustainability indicators, as the question of a ‗balance‘ in the number of
indicators associated with each performance issue, with each stakeholder type, for each site.
According to the GRI Guidelines (2011), each Level application requires minimal number
of reported sustainability indicators (at the C level, the company must only report on 10
GRI indicators, at the B Level on 20, and at the A Level all 50 GRI ―core‖ indicators must
be represented, either with data or a valid explanation as to why the indicator is not reported).
Even though the main impetus for sustainability performance reporting comes externally,
from shareholders and other stakeholders, nowadays companies use sustainability
performance evaluation for both external and internal reasons. If properly selected,
sustainability performance indicators can support the identification of the possibilities for
activities‘ optimization, point out to the inefficiencies that could be resolved by preventive
actions, develop the process of exchanging information (Staniškis & Arbaĉiauskas, 2009),
create more incentives for management to refocus its goals, strategic decisions, and actions
from a short-term to a long-term prospect (Rezaee & Rezaee, 2014), help to identify
risks, as well as the potential for improving efficiency and finding new markets and can
have a significant impact on the overall performance, as well as investors‘ perceptions
and access to capital (EY & GRI, 2014).
Companies use data and facts from the sustainability reports with the aim to conduct
actions of sustainability management as well as for the engagements in the field of global
corporate strategy, products and supply chains management, employees, society and
social commitment (Hentze, 2014). Key figures and facts are presented according to the
thematic areas in sustainability reports, such as economic, environmental, social, eco-
efficiency, social-economic or social-environmental. They are the object of sustainability
controlling, which is a part of sustainability management. In this way, a special ―service
function‖ of sustainability reporting fulfills its purpose. In order to develop an operational
Development of Sustainability Indicators: Approaches, Challenges and Opportunities 297
system to bring value to the enterprise, according to Toth & Arbaĉiauskas (2005),
sustainability performance indicators should be (a) meaningful, (b) comparable, (c) integral,
(d) clear, (e) continuous, and (f) efficient.
With the process of technology and digitalization development and sophistication of
the systems for data gathering, the processes of controlling and improving sustainability
performances will become more closely related to each other, and the sustainability and
market performance indicators performance will be more strategically linked. Following
the GRI reporting framework, the triple-bottom principle is adopted to present economic,
environmental and social performance sustainability indicators in the following text.
2. ECONOMIC PERFORMANCE INDICATORS
Financial performance indicators measure companies‘ profitability and current
financial status and give information necessary to meet primary objectives of companies,
such as maximizing shareholder wealth and growth/survival as well the information on
the shareholder return and profits and the relationship between profits and shareholder
value. As Lin et al. (2014) point out, ―economic performance in sustainability reports is
frequently confused with the financial performance in accounting reports‖. The economic
indicators go one step further than the standard financial disclosure in explaining the
process of value creation, and in reporting its distribution and reinvestment for future
growth. ―They measure a company‘s influences on its stakeholders‘ economic circumstances
and on the economic systems at local, national, and/or international levels‖ (GRI, 2006).
In this way, both human and financial capital is taken into account.
This economic aspect of performance gained in popularity during the 1990s and the
observed changes in demand for sustainability reports by the users. ―It was intended to
measure flows of capital among different stakeholders and the economic impacts of the
organization on the society‖ (GRI, 2006). GRI Guidelines (G3) specifies three economic
performance aspects: (1) Economic performance; (2) Market presence; and (3) Indirect
economic impacts. Each of these categories contains a set of sub-indicators. The 200 series
of the GRI Standards (2016) include topic-specific standards used to report information on
an organization‘s material impacts related to economic issues such as: GRI 201: Economic
Performance , GRI 202: Market Presence, GRI 203: Indirect Economic Impacts , GRI 204:
Procurement Practices, GRI 205: Anti-corruption and GRI 206: Anti-competitive Behavior.
GRI Standards 201: Economic Performance (2016), for example, encompasses topic specific
disclosures such as:
Disclosure 201-1: Direct economic value generated and distributed, that includes
indicators related to (I) direct economic value generated (revenues), (II) economic
value distributed (a) operating costs, such as royalties, payments for contract
workers, training costs or costs for personal protective clothing, (b) employee
wages and benefits, payments to providers of capital, payments to government by
country, and community investments and (III) economic value retained;
Disclosure 201-2: Financial implications and other risks and opportunities due to
climate change, i.e. risks and opportunities resulting from climate change that
could significantly impact operations, revenue, or expenditures;
Disclosure 201-3: Defined benefit plan obligations and other retirement plans;
Disclosure 201-4: Financial assistance received from the government.
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298 K. DENĈIĆ-MIHAJLOV, S. ZERANSKI
According to Bae & Smardon (2011), five most used economic performance
indicators among companies quoted on the New York Stock Exchange in the period
1999-2006 are Annual profits, Annual revenues, Annual Sales, Fines and Donations.
These are general and absolute indicators, relatively easy for calculation and comparison.
As reported by Lin et al (2014), among three economic performance aspects proposed
by the GRI Guidelines (G3), the most disclosed by companies listed in the GRI database
is economic performance, while the lowest rated aspect is indirect economic impact.
They also reveal that ―economic performance indicators are considered less important
compared relatively to the social and environmental indicators, and explain that by the
fact that economic aspect was the most recent addition to sustainability reporting and
therefore it is less familiar to both the preparers and users‖.
Table 2 The most used sustainability indicators
Economic
performance
indicators
Annual profits
Annual revenues
Annual sales
Annual operating costs (based on EHS)
Costs saving (based on EHS)
Capital expenditure (environmental)
Annual productivity
Fines
R & D investment (Based on EHS)
R & D investment (total)
Donations
Annual turnover
Value added
Environmental
performance
indicators
Total amount of water used
Total amount of energy used
Total amount of greenhouse gases generated (CO2)
Total amount of solid waste generated
Total amount of hazardous waste generated
Total amount of waste recycled or reused
Total amount of Volatile Organic Compound (VOC) generated
Total amount of air emissions generated (SOx, NOx)
Total number and volume of significant spills and accidents
Total number of environmental violations
Social
performance
indicators
Female, disabled person‘s
The recruitment of people from ethnic minorities, older workers, women
Empowerment of employees
Average hours of training/ employee
Number of employees
Recordable illness rate
Lost time rate
Whether or not firms implement a broad range of voluntary activities
Whether or not firms provide opportunities to communicate internally
and externally to interested parties
Breakdown of employees in terms of gender, age, and minority group
Source: Adapted from Bae and Smardon (2011)
Development of Sustainability Indicators: Approaches, Challenges and Opportunities 299
3. ENVIRONMENTAL PERFORMANCE INDICATORS
The attention to environmental protection rose after a chain of ecological and
environmental disasters during the 1970s and 1980s. The problem of environmental
protection has grown to such a degree that the issue of resolving this problem has become
the subject of significant international conventions and conferences, such as, the First
United Nations Conference on the Human Environment in 1972 (adopted document:
Stockholm Declaration), the UN Conference on Environment and Development in 1992
(Rio Declaration and Agenda 21), the UN Conference on Sustainable Development in
2012 (final document "The future we want"), etc. (for a chronological review of most
important conventions and conferences see: Stojanović, 2015).
Environmental reporting became a part of many sustainability reports, while
environmental disclosures became mandated in many countries, including both developed and
developing. Environmental performance measurement evaluates interrelatedness between the
business and the environment and could be analyzed at the level of individual environmental
performance indicators, the level of the overall performance measurement system and at the
level of the relationship of this system with the external environment (Olsthoorn et al.,
2001). These indicators are ―numerical measures, financial or nonfinancial, that provide key
information about environmental impact, regulatory compliance, stakeholder relations and
organizational systems‖ (Veleva & Ellenbecker, 2001).
In the context of the GRI Standards (GRI, 2016), the environmental aspect of
sustainability is related to the effects that an organization has on living and non-living
natural systems (on land, air, water and ecosystems). The disclosure standard GRI 301:
Material 2016, can provide information about an organization‘s impacts related to
materials (renewable or non-renewable), and how it manages these impacts (indicated by
its approach to recycling, reusing and reclaiming materials, products, and packaging).
GRI 302: Energy 2016 sets out reporting requirements on the topic of energy (energy
consumption within and outside the organization, energy intensity, reduction of energy
consumption and reduction in energy requirements of products and services). Energy
intensity ratios, for example, can be specified on the product, services or sales level (such
as Energy consumed per unit produced, per service, or per monetary unit of sales). GRI 303:
Water 2016 designs reporting requirements on the topic of water (like water withdrawal by
source, water recycled and reuse, etc.). In this regard, the indicator of water reuse and
recycling (Total volume of water recycled and reused as a percentage of the total water
withdrawal) is a measure of efficiency and demonstrates the success of an organization in
reducing total water withdrawals and discharges.
GRI 304 addresses the topic of biodiversity, with the indicators related to significant
impacts of activities, products and services on biodiversity or habitats protected or
restored. GRI 305 focuses on direct and indirect emissions into air (greenhouse gas
(GHG), ozone-depleting substances, etc). GHG emissions intensity expresses the amount
of GHG emissions per unit of activity, output, or any other organization-specific metric.
GRI 306 addresses the topic of effluents and waste, and includes indicators related to
water discharges, generation, treatment and disposal of waste and spills of chemicals, oils,
fuels and other substances. GRI 307 deals with the topic of environmental compliance,
covering an organization‘s compliance with environmental laws and/or regulations. This
includes compliance with international declarations, conventions and treaties, as well as
national, sub-national, regional and local regulations. GRI 308 addresses the topic of
supplier environmental assessment.
300 K. DENĈIĆ-MIHAJLOV, S. ZERANSKI
In a recent study, Bae & Smardon (2011) point out that five most used absolute
environmental performance indicators among NYSE listed companies (Table 2) are Total
amount of water used, Total amount of energy used, Total amount of greenhouse gases
generated, Total amount of solid waste generated, as well as Total amount of hazardous waste
generated. The empirical study realized by Henri & Journeault (2008) suggests that Canadian
manufacturing firms devote moderate importance to the various environmental indicators.
These authors indicate that the most used indicators are those that measure conformity with
inputs of energy, community relations, outputs of solid waste and outputs of air emissions,
while the indicators that are considered least important are those providing information on the
local, regional or national condition of the environment, measuring the inputs of auxiliary
materials or the implementation of environmental policies and programs. A new study done
by Székely and vom Brocke (2017) on 9,500 corporate sustainability reports published
between 1999 and 2015, shows that the most reported indicators on environmental
sustainability are related to energy and emissions, while biodiversity and renewable energy
sources receive little attention in reports by organizations.
The process of selection of environmental indicators should take into account the trade-off
between environmental and corporate performance criteria. As Delmas and Blass (2010) point
out, ―it is advisable to favor environmental indicators that might have a more direct and
immediate impact on firms‘ operations and performance over those that might be less directly
related to a firm‘s operations, but could potentially have a bigger environmental impact‖.
4. SOCIAL PERFORMANCE INDICATORS
The social dimension of sustainability deals with the company's influence on the
social systems within which it operates. Progress in social sustainability at the firm level
requests a simultaneous improvement of social (institutional interaction between individuals
on all levels of a company) and human (knowledge and experience of individuals) capital
(Spangenberg & Bonniot, 1998).
Social reporting, with its assessment of the social impact of corporate operations, is
regarded as the first supplement to traditional financial reporting. According to Ranganathan
(1998), social performance indicators measure the relationship of business with its
stakeholders. Most companies have a long history of applied measures and accountability
mechanisms for shareholders and customers as key stakeholders. A new challenge in this
reporting field is to define performance indicators related to impact on other stakeholders,
such as communities, employees, suppliers, by including topics of business ethics. With this
purpose, Ranganathan selects (a) employment, (b) community relations, (c) ethical sourcing
and (d) social impact of products as crucial components of social performance.
Elkington et al. (1998) suggest that there are social issues and indicators with broad utility
across stakeholders, companies and sectors. They classify social indicators into different
categories concerning four related issues: 1) Employment practices (indicators such as: gender
and ethnic ratios, pay rates, benefits, holidays, training, job satisfaction, a safe working
environment, etc.), 2) Community relations (with indicators like contributions to community
development, job creation, taxes paid/ tax breaks received), 3) Supplier and customer
relations (fair trading practices with suppliers, distributors and partners, number of products
sourced locally, use of child or forced labor), and 4) Social impact of product (indicators such
as contribution of products and services to social welfare and equity, the meeting of basic
human needs, etc.).
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Development of Sustainability Indicators: Approaches, Challenges and Opportunities 301
Warhust (2002) concludes that the current state of development of corporate social
performance and sustainability indicators is running at least a decade behind that of the
development of environmental performance and sustainability indicators. Many of the
organizations working on social performance issues are only just beginning to turn their
attention to the development of measures relating to social performance, and those that
are doing so are typically working in isolation.
GRI Standards (2016) lists 19 indicators for social performance: Employment,
Labor/Management Relations, Occupational health and safety, Training and education,
Diversity and equal opportunity, Non-discrimination, Freedom of Association and
Collective Bargaining, Child labor, Forced or Compulsory Labor, Security practice,
Wrights of indigenous people, Human rights assessment, Local communities, Supplier
social assessment, Public policy, Customer health and safety, Marketing and labeling,
Customer privacy and Socioeconomic compliance. The indicators in this field of reporting
describe the influence organizations have on the society as well as the management of
potential risks occurring from interactions with other social institutions (particularly the
risks linked with bribery and corruption, undue influence in public policy-making and
monopoly practices). For instance, Total number and rate of new employee hires during the
reporting period, by age group, gender and region, Total number and rate of employee
turnover during the reporting period, by age group, gender and region, or Total number of
employees that took parental leave are the indicators belonging to indicators‘ sub-group
Employment, while Average hours of training per year per employee or Percentage of
employees receiving regular performance and career development reviews are social
indicators assigned to category Training and education.
CONCLUSION –
LESSONS LEARNED FROM SUSTAINABILITY INDICATORS APPLICATION IN PRACTICE
The aim of reporting via key economic, social and ecological performance indicators
is improvement of the quality of the sustainability reports and their relevance for stakeholders
(for example, in the field of risks and opportunities), controllability and comparability (at
acceptable costs) across different periods and companies. In order to fill out these functions,
the indicators should be objective, understandable, significant, consistent with the objectives,
responsive to stakeholder expectations. The application of the sustainability indicators in the
praxis has indicated that they should be "workable", i.e. the data required to implement
them should be indeed available in practice. Identifying appropriate set of sustainability
indicators is a complex and time and resource consuming task. However, even incomplete
and imperfect sustainability performance measurement is better than measurement
disconnected from business objectives. On the other hand, previous research has suggested
that many firms engage in sustainability and environmental reporting for symbolic reasons
rather than out of a genuine concern for accountability to a wider set of stakeholders
(Adams, 2004); thus, an increase in reporting is not always a reflection of increased
sustainability (Price, 2008). Firms can choose to report whatever information they want, so
there is obviously an incentive to focus on positive outcomes. These findings suggest that
more objective measures of sustainability performance would be useful.
302 K. DENĈIĆ-MIHAJLOV, S. ZERANSKI
As indicated in Sustainability and Reporting Trends in 2025 (GRI, 2015a), new
indicators, enabled by technology development and digitalization, will in coming years
enable companies to operate and report in a highly-integrated way. In this regard, new
indicators to measure trust as well as the correlated indicators (showing the connection
between different factors in the context in which the decision will be made) and the
integrated indicators (to guide the decision by integrating a company‘s performance
measurement and reporting with that of its supply chain, regional partners or sectorial
peers) will need to be created and monitored constantly.
Another important challenge when developing and applying sustainability indicators,
as illustrated by Latawiec & Agol (2015), refers to the conceptual problems with
interpretations of sustainability and its subjectivity. Subjectivity is closely linked to issues
with values, in the context of sustainability, with the conflicts between human wellbeing,
environmental conservation and economic development. Therefore, it is necessary to
recognize all the multiplicity and ambiguity related with indicators, and understand and
accommodate multiple views on sustainability.
The praxis of sustainability management shows that maintaining the interrelatedness of
sustainability with various corporate aspects such as company strategy, decision on company
growth, risk management, reputation or executive remuneration, is frequently a difficult task.
If a company strategy is related, for instance, to an expanding of worldwide operations, it
would be expected to link sustainability indicators and considerations to its strategic
management of social, political and economic factors. As Funk (2003) points out, some
famous episodes in the public eye, Shell‘s conflict with the Ogoni people of Nigeria and
allegations about Nike‘s labor practices for example, demonstrate that sustainable operations
are an opportunity to avoid or reduce future costs. Early measurement and reporting of leading
indicators of sustainability initiatives also helps build better relationships with stakeholders,
especially at the local level. In the field of risk management, Funk indicates that proactive
investing in environmental measures beyond that required by law can be good for the bottom
line, if for no other reason than to limit the downside risk of damages, hefty litigation fees and
public relations disasters. If pursuing sustainable business strategies can increase a company‘s
expected value, it is sensible to infer that integrating sustainability considerations into other
kinds of risk management will lead to better decision making. However, a study done by
Eumedion (2012), which analyzes the use of key performance indicators in the sustainability
reporting by the largest Dutch publicly listed firms, indicates that in relation to risk
management, only 52% of the companies provide a link between sustainability and the
company‘s risk management in the annual report (while only 33% of the companies apply
sustainability indicators in executive remuneration).
Managers ―myopia‖ and their orientation towards the pressure for immediate results for
this quarter, is often in contradiction with a long-term strategic consideration of sustainability.
However, sustainability reporting practice has shown that the disclosure of both financial and
intangible performance information, and more importantly the ability to act and react on the
basis of its perception, can supply decision makers with a more comprehensive insight into
key issues for successful long-term performances. It should be emphasized that the impact of
indicators on overall sustainability could be evaluated and changes in indicators could be
linked to competitiveness performance measures such as stock price, earnings per share or
market share. As the social, ecological and environmental problems become more tangible,
financial and investment success increasingly depends on the efficiency with which
companies solve them. Traditionally, environmental compliance and social welfare
Development of Sustainability Indicators: Approaches, Challenges and Opportunities 303
expenditures were regarded as extra costs that bring no added value. However, recent studies
suggest that sustainability reporting has a positive impact on competitive advantage and
improves financial performances (see for example Adams et al. 2011, Hussain, 2015), which
implies that firms should devote more attention to improving both their sustainability and
transparency.
Apart from the relevance of sustainability performance indicators to financial
performance, the increase in sustainability reporting practice and the publication of the
reports have been accompanied by growing interest in the accuracy and completeness of
these reports (see Haller et al. 2016, 2016a). Here, one should pay attention to two facts.
First, while the percentage of companies issuing a formal sustainability report has been
increasing in the last few years, the percentage of companies assuring their sustainability
report is stagnate (Mori et al., 2014). Second, the lack of uniformity of sustainability
accounting reporting and assurance might reduce the comparability, effectiveness and
accuracy of sustainability accounting reporting. A growing interest in sustainability
reporting assurance is to be both expected and welcomed in the coming years and will be an
important avenue for future research.
Acknowledgement: This research was realized within the Center for Scientific, Interdisciplinary Risk
Management and Sustainability (ZWIRN), University of Applied Science, Wolfenbüttel, Germany.
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OCENA POKAZATELJA ODRŽIVOG RAZVOJA: PRISTUPI,
IZAZOVI I MOGUĆNOSTI
Dinamično i kompleksno poslovno okruženje zahteva od predu e a da pažljivo razvijaju svoje
poslovne strategije kako bi ostvarila i održala konkurentsku prednost u dugoročnom periodu.
Razvijanje svesti o značaju očuvanja životne sredine i održivog razvoja ima za posledicu da tržišnu
vrednost predu e a više ne određuju pojedinačni pokazatelji finansijskog učinka. Okvir održivog
razvoja, koji obuhvata ekonomske, ekološke i društvene performanse, je duži period predmet
međunarodne pažnje, kako realnog, tako i finansijskog sektora. Iako je opšte prihva eno da je
usvajanje indikatora održivog razvoja najadekvatniji i najefikasniji način procene performansi
održivog razvoja, kreiranje/selekcija ovih pokazatelja i njihova primena i analiza su i dalje predmet
http://www.sristudies.org/Blank+and+Carty+(2002)
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https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5389611/
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306 K. DENĈIĆ-MIHAJLOV, S. ZERANSKI
detaljnih analiza, kako na nacionalnom, tako i na korporativnom nivou. e ina kompanija usvojila je
međunarodno pri natu metodlogiju i metriku evaluacije performansi (na primer Global Reporting
nitiative ili lobal ompact of nited ations eđutim, sve je ve i broj kompanija koje primjenjuju
samostalno razvijenu metodologiju ocenjivanja performansi održivog ra voja Osnovni cilj rada je
istraživanje procesa kreiranja, selekcije i primene indikatora održivog ra voja s ciljem da se daju
predlo i a odabir poka atelja održivosti čija bi primena bila u funkciji pove anja efikasnosti kontrolinga
i procesa donošenja odluka i re ultirala dugoročnoj konkurentskoj prednosti
Kljuĉne reĉi: izvešavanje o održivom razvoju, ekonomski, ekološki i društevni indikatori
performansi, GRI standardi, kontroling.