A stimulus for sustainable growth and development: Construing a composite index to measure overall corporate performance

Abstract

Various methods have been developed to measure sustainability. When it comes to measuring whether sustainability issues are integrated in overall corporate performance, companies broaden their reporting from economic performance to ‘sustainability performance’ and there are various frameworks around for benchmarking sustainability outcomes. A major emphasis, however, is on technical data. The main efforts have been consolidated in the Global Reporting Initiative (GRI). Each of the indicators prudently measures a well-determined set of facts. However, one major discussion point is whether the reporting frameworks do really reflect the link between sustainability and economic value, and how they would properly connect to the information used by management for running the business on a day-to-day basis. This article tries to point out that one way out of the disconnected ness might be through expanding the concept of ‘Economic Value Added’ (EVA). EVA measures overall corporate performance by claiming that shareholders gain when the return from the capital employed in a corporation is greater than the cost of that capital. From there it is a short way to proclaiming that all stakeholders gain when the value created by a corporation is greater than the cost of the capital employed in the corporation and the capital employed in whichever commonly available resources outside the corporation are used by its business. The expansion of EVA that is envisaged would be to enlarge the cost of capital by the costs that are caused by that part of ‘Public Goods’ that is available to a corporation. There is one political and one theoretical obstacle in this: the argument is quite radical and complying with it would require some leadership from ‘big corporations’; and valuing public goods is a research field that has not yet reached the stadium of generally accepted applicability, at least with regard to aggregative monetary value. However there are new initiatives under way, by the GRI, which will join forces to reach a breakthrough. The article also reflects on the effects the new indicator would stimulate for businesses, their markets and their stakeholders.