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Rebalancing the Balanced Scorecard

Environmental resilience has proven to be an esoteric concept for most businesses. A recent McKinsey study indicates that even though many companies had considered Sustainability to be of prime importance, very few have a sustainability agenda integrated in their daily operations and strategies.

There have been efforts to make organisational performance measurement holistic. The most successful one has been Robert Kaplan and David P Norton's the 'Balanced Scorecard', which achieves its balance by incorporating financial and non-financial parameters, outcomes and inputs, and both short-term and long-term actions across four perspectives — financial, customers, internal process, and learning and growth.

The scorecard was developed when the climate conversation was just starting. It is, therefore, not surprising that climate action and social impact are conspicuous by their absence from parameters used to measure organisational success even in organisations that are renowned practitioners of the balanced scorecard.

The McKinsey study estimates that sustainability actions can impact EBITDA (earnings before interest, taxes, depreciation, and amortisation) by 70%. They could have an even bigger impact on enhancing resilience of an organisation. Energy efficiency and renewable energy projects reduce cost and carbon footprint. Heat recovery is a huge source of savings, natural resource efficiency and process improvement.

Repurposing waste either results in saving cost or adding value, or both. Waste metal sold as scrap to a dealer gets much lower value than waste metal sold as input to a firm using an electric arc furnace. If waste steel is repurposed into another product — such as a transformer core — then the value obtained from it is many times higher compared to selling it as scrap. Food waste and sewage are both sources of natural gas and excellent fertiliser for crops.

Water harnessing not only reduces risk of operation where water resources are scarce but also reduces pumping and sourcing costs in many situations. If done in a manner where water bodies are created inside the campus, it results in enhanced biodiversity and a pleasant work environment. Recycling wastewater has similar advantages. Paying for tanker water and flushing it down the drain or using it to water landscaped areas, is a criminal waste of a scarce resource and money.

Diversification of a product portfolio by adding climate-friendly alternatives — for instance, addition of electric two-wheelers to the regular line-up opens up a new revenue stream — helps access a new breed of consumers and mitigates regulatory and market risk. Most businesses selling electrical equipment have remained relevant by totally revamping their product portfolio in the last five years with new products being incredibly more energy-efficient than the older ones.

This article was first published in The Economic Times. Click here to read the complete story.