For the first time, WERC’s annual DC Measures Study and Report surveyed the current application of Environmental, Social and Governance frameworks in warehousing.
BY MICHAEL MIKITKA, EXECUTIVE VICE PRESIDENT OF MHI’S KNOWLEDGE VALUE CENTER AND WERC
For 20 years, the Warehousing Education and Research Council (WERC) has conducted an annual benchmarking study of the key warehousing and distribution metrics operations professionals use day-to-day. Our purpose for producing the annual DC Measures Study and Report? To help improve warehousing practices by giving operators a tool to benchmark their own performance against others in the field—and to chart their own course of improvement.
Over those two decades, the report’s research team periodically focused on other topics likely to be of increasing interest to distribution center (DC) managers. The newest edition of DC Measures is no exception. This year, the team explored the application of Environmental, Social and Governance frameworks in warehousing. Conducting and reporting on the study are:
- Joe Tillman, WERC researcher and manager of education programs at SMC3
- Karl Manrodt, PhD, professor of logistics at Georgia College & State University
- Donnie Williams, PhD, associate professor and executive director of the Supply Chain Management Research Center at the University of Arkansas
“As companies evolve away from a focus on shareholders to stakeholders, there’s an increasing need to measure performance on more than just investor returns,” Manrodt explained. “Even the World Economic Forum noted that today’s companies need to be more than an economic unit that generates wealth. Rather, they must also measure how well they achieve their ESG objectives.”
ESG metrics new to warehousing
While ESG is gaining ground at the corporate levels of many organizations, it has only made very small inroads into the warehouse. So small, in fact, that only 10% of the survey’s participants answered the ESG-focused questions, making the data directional but not definitive, said Manrodt.
“Aside from making time away from the day-to-day challenges associated with operating a warehouse, operations managers must choose among a plethora of ESG standards against which to measure their progress,” he noted. “Simply wading through the dozen or so different options can be overwhelming.”
These include frameworks created by organizations such as the Sustainability Accounting Standards Board (SASB), the United Nations, the CDP and the Social Progress Imperative. Corporate finance and management consulting firms McKinsey & Company, Ernst & Young and Bain & Company—as well as investment indices Dow Jones and Bloomberg—also publish ESG frameworks.
“One study found that not only are there a lot of different ESG frameworks and platforms, but there’s only about 30% correlation between the ratings. This is a bit odd if the ESG ratings are measuring the same construct,” added Manrodt. “In comparison, the S&P 500 and Moody’s stock ratings have 95% of correlation.”
That lack of standardization may explain why 49.3% of respondents have not begun the process of implementing ESG frameworks or measurements within their warehouses, while 28.4% are developing their own internal ESG metrics. Another 22.5% are either working with their suppliers or with outside consultants to develop or select an ESG platform.
Then there’s the question of what to measure, added Manrodt. “Of those who have implemented an ESG framework, environmentally focused metrics are the most used.”
Manrodt suspects that’s because measuring carbon emissions, the carbon footprint of individual products, packaging materials, renewable energy usage and deployment of clean technologies are low hanging fruit. “These are not only easy to measure, they’re also easier to confirm a quantitative impact through cost savings compared to social and governance metrics,” he explained.
That said, many operations already have social metrics in place, such as labor management, health and safety, human capital development and labor standards, he added. Likewise, there are many warehousing metrics associated with governance, including compensation, labor standards, accounting and risk management.
“These metrics haven’t yet been applied as part of ESG reporting,” Manrodt said.