What is benchmarking?
Benchmarking is a process where an organisation judges its performance against that of its contemporaries and competitors. Ideally, this is carried out systematically and the organisations studied will be the best at carrying out the activity in question. When the best practices have been identified and studied they can be adopted by your own organisation.
No one company is the best at everything, so any benchmarking exercise should result in the selection of best practices from several benchmarked organisations.
Benchmarking can be regarded as a cyclical process. Circumstances change, organisations adapt and develop, and new ideas can always be found.
Companies’ social and environmental practices can be benchmarked and include key performance indicators as measures of performance in sustainable development and corporate social responsibility. The stages of an environmental benchmarking process can be described as:
- Issues – identify the environmental issues you wish to find out about.
- Targets – identify organisations which might excel in these areas.
- Practices – study these organisations’ practices.
- Implementation – implement those practices yourself.
Benchmarking can be made a lot easier if comparative information on companies’ performance can be found in one place. Fortunately, many companies now publish environmental information as part of their annual reports. For FTSE 100 companies, environmental reporting is a requirement.
Some environmental information can be found in published indices such as Business in the Community’s Corporate Responsibility Index.
Environmental indicators
Any organisation setting out to measure environmental performance needs to decide on the indicators which are accurate, meaningful and easily understood by the target audience.
Published indices of corporate responsibility also rely on indicators which can be measured reliably across many organisations. The following list gives some examples of environmental performance indicators which might be selected:
- quantity of material used;
- percentage of recycled material used (e.g. packaging);
- quantity of energy (e.g. electricity, oil, gas) used;
- quantity of emissions (air, water, land);
- quantity of waste or effluent produced;
- efficiency of material or energy use;
- energy use per unit of finished product;
- waste generated per unit of finished product;
- percentage of waste reused or recycled;
- number of products awarded eco-labels;
- fuel consumption per unit dispatched;
- number of incidents/accidents;
- number of complaints;
- number of legal breaches;
- amount of investment in environmental protection;
- amount of environmental training time; and
- area of land set aside for wildlife habitat.
Measurement of environmental performance
For a typical light engineering company involved in assembly, welding, grinding and testing of the product, the most significant environmental indicators are likely to be:
- the design and operation of the product;
- the use of energy with associated emissions of carbon dioxide;
- the use of other resources including paper, welding gases and wire;
- environmental noise;
- particulate emissions from grinding; and
- waste generation and disposal.
Performance indicators
The company’s environmental performance in relation to the above can be simply assessed in absolute terms by analysis of overall resource use/waste generation. The nature of targets may vary. For example, there may be targets to reduce emissions of CO2 to 1990 levels; to reduce the amount of waste generated in production by 10 percent of 2004 levels; or to improve the efficiency of the product during its use by 10 percent. Such an approach can work well where production levels are fairly constant and the type of product does not change.
Environmental impact index (EII)
Where a company is growing, the above examples of absolute targets may not be attainable and will, therefore, fail to encourage the use of good environmental practices. Since most companies aim to increase production, targets should be set relative to the activity of the company by establishing an index of industrial activity. The performance of the company can then be gauged relative to the industrial activity to derive an environmental impact index (EII).
The industrial activity can be derived from the monetary value of the product or sales of product accounting for inflation, but such figures are influenced by changes in the cost of raw materials, labour, waste disposal and market forces. A preferred approach is to adopt a unit of production based on the quantity of product manufactured. Where a range of product sizes are manufactured, the sum of the product of the number of articles and the article size may give an indication of industrial activity.
For each environmental parameter such as electricity use or waste generated, an environmental impact index (EII) can be derived by dividing the magnitude of the environmental parameter by the index of industrial activity. This index can be set at an arbitrary value of 100 for the first period by applying a standard correction factor which is also applied in subsequent years:
In subsequent years, decreasing EIIs represent a relative improvement in environmental performance over a period of time, either because the environmental impact was lowered with a constant level of industrial activity, or because, on the other hand, the activity has increased without a proportional increase in environmental impact.
Increasing EII curves generally express a relative deterioration in performance, either because the environmental impact has increased without an increase in industrial activity, or because the level of activity has gone down without a similar diminishing of the production of waste and other emissions, or consumption of resource.