Key performance indicators: modern approaches and the ESG agenda

The SBS Consulting study analyses current approaches to the development of key performance indicator (KPI) systems and their integration with the ESG agenda. With the growing focus on sustainability and the need to account for non-financial performance, companies are adopting various methods and standards for reporting. The study examines the most common approaches, such as Balanced Scorecard (BSC), Hoshin Kanri and Value Reporting, as well as the use of ESG standards to form KPI systems.

Approaches to building a system of goals and KPIs

Balanced Scorecard (BSC)

Purpose:

• Comprehensive tracking of strategy execution from 4 perspectives: finance, customers, business processes, employees.

Planning horizon:

• A year or more

Features:

• Decomposition of top-level goals into factors
• Increase in employee engagement and awareness of the company's goals
• Use of a strategic map to visualise strategic objectives and the links between them

Companies using this approach:

• AstraZeneca, Abbot, Polymetal, Rosneft, Coca-Cola, Unilever, Philips, Nvidia

Implementation steps:

1. Strategy map design
2. Target KPI values setting
3. Strategic initiatives development
4. KPIs identification for each strategic objective

Hoshin Kanri

Purpose:

• Increasing employee engagement and awareness of the company's goals

Planning horizon:

• Annual and long-term

Features:

• Used at all stages of lean manufacturing as a tool for planning and organising the company's work
• The goal system is accessible and understandable to all employees

Companies using this approach:

• JTI, HP, Uniqlo, Toyota.

Implementation steps:

1. Filling the matrix with long-term goals
2. Development of tactics to achieve the goals
3. Implementation of necessary measures
4. Control and debugging

Value Reporting

Purpose:

• Goal setting based on the needs of business stakeholders

Planning horizon:

• Long-term period

Features:

• Close interaction with stakeholders
• Dashboard creation for stakeholders
• Use of the ‘Catchball’ technique to exchange opinions between management and employees

Companies using this approach:

• GSK, Centrica, HBOS, Telus

Implementation steps:

1. Analysing the competitive environment
2. Determining stakeholder preferences
3. Aligning internal processes
4. Consolidating reports for a better dialogue with investors

Hierarchy of strategic planning documents

Rosneft:

• Corporate strategy
• Long-term development programme
• Consolidated business plan
• Individual plans of business units
• Business plans of subsidiaries

KPI hierarchy:

• Corporate KPIs
• CEO KPIs
• Collective KPIs/li>
• KPIs of top management of each business unit and subsidiary

KPI examples:

• ROACE, Net debt/EBITDA, TSR, accidents, injuries, employee productivity, innovation efficiency

ESG reporting standards

Most common standards:

• GRI: used by 85% of the companies studied
• SASB, CDP, TCFD: less popular but actively used

Target audience:

• All stakeholders, shareholders and creditors, counterparties

Companies using this approach:

• JTI, Roche, Uralkali, Emphase, Uniqlo, WPP, H&M, GSK, AstraZeneca, General Motors, PepsiCo, Danone, Nvidia, Intel, Polymetal

Use of multiple standards:

• 88% of companies use more than two ESG standards when setting KPIs
• 48% of companies use 4 standards

Интеграция ESG-показателей в KPI

Examples of non-financial KPIs:

• Innovation, reputation, employee trust, resource consumption, greenhouse gas emissions, injuries, diversity, equity, and inclusion (DEI) in hiring

Approaches to reporting:

• Universal Standards of the GRI
• Assessing the impact of various sustainability aspects on the company's financial performance
• Managing risks associated with global climate change

Conclusion

Modern approaches to KPI and ESG reporting systems provide companies with flexible tools to assess and manage performance. The implementation of such systems improves transparency and accountability, enhances investment attractiveness and promotes sustainable development. The key success factors are the right choice of approaches and standards, as well as the adaptation of methods to the company's unique features and stakeholders' needs.