Module 6: Measuring What Matters

Welcome to Module 6

"What gets measured gets managed." This simple principle is profoundly important for sustainability. If we measure economic success solely by GDP growth, we optimize for production and consumption. If we measure wellbeing, equality, and environmental health, we optimize for very different outcomes.

Module 2 explored GDP's limitations. Now we examine the alternatives—metrics that better capture what we actually care about: human wellbeing, environmental health, and genuine progress. By the end, you'll understand why measurement choices matter and what better indicators look like.

Why Measurement Matters

The Power of Metrics

Metrics shape decisions at every level:

Individual Level:

What you measure about yourself influences behavior
Track exercise → exercise more
Track spending → spend more mindfully
Track carbon footprint → make greener choices

Business Level:

Companies optimize for measured KPIs (key performance indicators)
"Shareholder value" metrics → short-term profit focus
Sustainability metrics → broader stakeholder consideration

Government Level:

National success measured by GDP growth
Policies designed to boost GDP
Alternative metrics would drive different policies

Global Level:

International rankings and comparisons shape prestige and policy
Development measured by economic growth
Different metrics would redefine "development" and "success"

What GDP Misses (Revisited)

Recall from Module 2 that GDP:

Counts "bads" as "goods" (pollution cleanup, natural disasters boost GDP)
Ignores unpaid work (childcare, volunteering, household production)
Doesn't account for natural capital depletion
Says nothing about distribution (inequality)
Omits quality of life factors (health, education, leisure, relationships)
Values quantity of production, not quality of life

Robert F. Kennedy's Critique (1968): "GDP measures everything except that which makes life worthwhile. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion. It measures everything, in short, except that which makes life worthwhile."

The Measurement Trap

McNamara Fallacy: Named after Defense Secretary Robert McNamara's over-reliance on body counts in Vietnam War:

Measure what's easily measurable
Disregard what can't be easily measured
Assume what can't be measured isn't important
Conclude that what can't be measured doesn't exist

Application to Economics:

Market transactions are easily measured → GDP
Wellbeing, ecosystem health, social cohesion are harder to measure → ignored
This shapes what we consider "economic success"

The Challenge: Create metrics that:

Capture what actually matters
Are rigorous and reliable
Can be measured consistently
Are politically legitimate
Actually get used in decision-making

Beyond GDP: Alternative Aggregate Indicators

Genuine Progress Indicator (GPI)

The Idea: Start with consumption (like GDP) but adjust for factors that affect genuine wellbeing:

Add:

Value of unpaid work (household, volunteer, childcare)
Value of leisure time
Value of public infrastructure

Subtract:

Cost of crime
Cost of pollution
Cost of resource depletion
Cost of inequality (distributed unequally)
Defensive expenditures (spending to avoid bads, not create goods)
Loss of natural capital

The Formula (Simplified): GPI = Personal Consumption + Public Goods + Value of Unpaid Work - Inequality - Crime - Environmental Degradation - Depletion of Natural Resources

What GPI Shows:

U.S. GDP has grown steadily since 1950
U.S. GPI grew until late 1970s, then plateaued or declined
GDP and GPI diverging suggests growth hasn't translated to genuine progress

Interpretation: Economic growth (GDP) has continued, but genuine progress (GPI) has stagnated because:

Rising inequality
Environmental degradation
Natural capital depletion
Social costs (crime, family breakdown)
More defensive expenditures

Countries Using GPI:

Maryland (U.S. state) produces official GPI
Several states and regions track it
Studies conducted in 20+ countries

Criticisms:

Many components subjective (how to value leisure?)
Methodological debates (how to measure inequality costs?)
Requires extensive data
Not universally standardized
Political challenges to adoption

Despite Limitations: GPI represents serious attempt to measure genuine wellbeing rather than just economic activity.

Index of Sustainable Economic Welfare (ISEW)

Similar to GPI: ISEW is the precursor/variant of GPI with similar methodology:

Adjusts consumption for wellbeing factors
Accounts for environmental and social costs
Shows similar divergence from GDP in many countries

Key Finding Across Studies: In most developed countries, ISEW/GPI and GDP tracked together until 1970s-1980s, then diverged. Economic growth continued but welfare stagnated or declined.

Implication: Beyond a certain level of material prosperity, additional GDP growth doesn't translate to improved wellbeing if accompanied by rising inequality, environmental degradation, and social costs.

Green GDP

The Concept: Adjust GDP to account for environmental degradation and resource depletion:

Standard GDP: Value of all goods and services produced

Green GDP: Standard GDP - Environmental Costs - Natural Capital Depreciation

What It Includes:

Depletion of natural resources (minerals, forests, fisheries)
Degradation of environmental quality (air, water, soil)
Pollution damages
Loss of ecosystem services

Example:

Country produces $1 trillion GDP
But depletes $50 billion in oil reserves
Degrades $30 billion in natural capital (forests, water quality)
Green GDP = $920 billion

Challenges:

Valuing environmental costs (revisit Module 3 valuation challenges)
Comprehensive data on resource depletion
Political resistance (lower numbers)

Real-World Attempts:

China (2004): Piloted Green GDP accounting. Found environmental costs were 3-5% of GDP. Program was quietly discontinued after political pushback from provinces showing poor environmental performance.
Several countries produce environmental-economic accounts but don't integrate into main GDP reporting

Why It Matters: Shows true costs of growth. If green GDP grows slower than standard GDP, we're depleting natural capital to create the appearance of progress.

Happy Planet Index (HPI)

Different Approach: Instead of adjusting economic output, directly measure wellbeing relative to environmental impact:

Formula: HPI = (Wellbeing × Life Expectancy) / Ecological Footprint

Components:

Wellbeing: Self-reported life satisfaction (survey-based)
Life Expectancy: Years people live
Ecological Footprint: Environmental resources consumed per capita

The Logic: Good performance = High wellbeing and long lives achieved with small ecological footprint.

Results:

Costa Rica often ranks #1 (high wellbeing, long life, moderate footprint)
U.S. ranks low (high wellbeing and life expectancy, but enormous footprint)
Many European countries in middle (high wellbeing, large footprints)
Some poor countries score poorly (low wellbeing, short lives, despite small footprints)

What HPI Highlights: Efficient wellbeing. Can we achieve good lives without destroying the planet?

Criticisms:

Wellbeing self-reports culturally variable
Aggregating wellbeing and environmental impact is arbitrary
Doesn't capture many important dimensions
Not suitable for comprehensive policy guidance

Value: Provocative reminder that wellbeing and resource use can be decoupled. Some countries achieve higher wellbeing with lower environmental impact than others.

Wellbeing and Quality of Life Indicators

Human Development Index (HDI)

Developed by: United Nations Development Programme (1990)

Purpose: Shift development focus from economic growth to human wellbeing.

Components:

Long and healthy life: Life expectancy at birth
Knowledge: Mean years of schooling + expected years of schooling
Decent standard of living: Gross national income per capita (log scale to reflect diminishing returns)

Scoring: Each component scored 0-1, then averaged. Score of 0.8+ is "very high human development."

What HDI Shows:

Income matters, but with diminishing returns
Health and education independently important
Countries at similar income levels can differ substantially in human development
Some countries achieve high HDI at moderate income (Cuba, Costa Rica, Sri Lanka)
Some oil-rich countries have high income but lower HDI (weak health/education)

HDI vs. GDP per Capita: Strong correlation but important differences:

Qatar: Very high income, high but not top HDI
Norway: High income, consistently top HDI (excellent health and education)
Cuba: Low income, surprisingly high HDI (strong health and education systems)

Improvements Over Time: Global HDI has risen substantially:

1990: Average HDI = 0.598
2021: Average HDI = 0.732
Progress in health and education, not just income

Limitations:

Still relatively simple (only three dimensions)
Doesn't capture inequality within countries
Says nothing about environmental sustainability
Aggregation masks variation

Extensions:

Inequality-Adjusted HDI (IHDI): Reduces HDI score based on inequality in each dimension
Gender Development Index: Compares male and female HDI
Multidimensional Poverty Index: Identifies acute deprivation in health, education, and living standards

OECD Better Life Index

Approach: Interactive tool allowing users to weight dimensions according to their priorities.

11 Dimensions:

Housing: Rooms per person, basic facilities, housing costs
Income: Household income, financial wealth
Jobs: Employment rate, job security, earnings
Community: Social support networks
Education: Educational attainment, student skills, years in education
Environment: Air pollution, water quality
Civic engagement: Voter turnout, regulatory transparency
Health: Life expectancy, self-reported health
Life satisfaction: Self-reported wellbeing
Safety: Homicide rate, assault rate
Work-life balance: Employees working long hours, leisure time

Interactive Feature: Users adjust importance of each dimension. Rankings change based on priorities.

What It Shows:

Different countries excel in different dimensions
No country is best at everything
Trade-offs exist (U.S. high income, moderate work-life balance)
Wellbeing is multidimensional

Strengths:

Comprehensive
Transparent methodology
Engages public in thinking about what matters
Highlights that no single metric suffices

Limitations:

Weighting arbitrary (whose priorities count?)
Data availability varies by country
Doesn't replace single summary metric for comparisons

Gross National Happiness (GNH)

Origin: Bhutan's King declared in 1972 that "Gross National Happiness is more important than Gross National Product."

Nine Domains:

Psychological wellbeing
Health
Time use
Education
Cultural diversity and resilience
Good governance
Community vitality
Ecological diversity and resilience
Living standards

Measurement: Detailed surveys assess 33 indicators across nine domains. People considered "happy" if they achieve sufficiency in at least 6 of 9 domains.

Policy Application: Bhutan's government uses GNH in policy screening. Projects assessed for impact on GNH, not just economic returns.

Results in Bhutan:

2015: 91% of Bhutanese "happy" (sufficient in 6+ domains)
8% "unhappy" (fewer than 6 domains)
Substantial improvement from earlier surveys

Replication: Other locations experimenting with wellbeing frameworks, though Bhutan's approach is unique in its comprehensive integration into governance.

Criticisms:

Paternalistic (government defines happiness domains)
Methodology complex and resource-intensive
Cultural specificity (can it be generalized?)
Trade-off with economic development?

Inspiration: Bhutan demonstrates that governments can explicitly prioritize wellbeing over GDP. Provides alternative development vision.

Life Satisfaction and Subjective Wellbeing

The Approach: Simply ask people how satisfied they are with their lives.

Typical Question: "All things considered, how satisfied are you with your life as a whole these days?" (0-10 scale)

World Happiness Report: Annual ranking of countries by average life satisfaction.

Top Countries (Consistently):

Nordic countries (Finland, Denmark, Norway, Iceland)
Netherlands, Switzerland, New Zealand

What Predicts Life Satisfaction:

Income (but with diminishing returns)
Social support and relationships
Healthy life expectancy
Freedom to make life choices
Generosity
Trust in institutions and people
Low corruption

The Easterlin Paradox: Within countries, richer people report higher satisfaction. But across countries and over time, rising income doesn't consistently raise average satisfaction beyond a threshold (~$75,000/year).

Interpretation: Absolute income matters for basic needs, but relative income (comparison to others) and non-material factors (relationships, freedom, health) matter more for wellbeing beyond material sufficiency.

Implications for Policy: Focus on factors that improve wellbeing directly: social cohesion, health, freedom, trust, equality—not just GDP growth.

Criticisms:

Cultural differences in response styles
Adaptation (people adjust expectations)
Mood effects (responses vary by temporary factors)
Doesn't capture full range of human flourishing

Despite Limitations: Subjective wellbeing data provides unique insights into what makes life satisfying, complementing objective indicators.

Environmental and Ecological Indicators

Ecological Footprint

The Concept: How much biologically productive land and water area is required to produce the resources consumed and absorb the waste generated?

Measured in: Global hectares (gha) per person—standardized hectares of average productivity.

Components:

Cropland footprint (food, fiber, feed)
Grazing footprint (animal products)
Forest footprint (timber, paper)
Fishing grounds footprint
Built-up land (infrastructure)
Carbon footprint (land needed to absorb CO₂ emissions)

Calculation: Add up resource consumption → Convert to biologically productive area needed → Compare to available biocapacity.

Global Results:

Global biocapacity: ~1.6 gha per person (Earth's productive capacity divided by population)
Global ecological footprint: ~2.8 gha per person (humanity's demand)
Overshoot: We're using 1.75 Earths' worth of resources annually

Country Variations:

Qatar, Luxembourg, U.S., Australia: 8-15 gha per person (would need 5-9 Earths if everyone lived this way)
EU average: ~5 gha per person (would need ~3 Earths)
China: ~3.7 gha per person (above global average, below wealthy countries)
India, Indonesia: ~1.2 gha per person (below global biocapacity)

Earth Overshoot Day: The date when humanity has used a full year's worth of Earth's regenerative capacity. In 2023: August 2nd. Moves earlier most years.

What It Shows:

Humanity in ecological overshoot since 1970s
Overshoot growing
Huge inequality (rich countries' footprints far exceed biocapacity)
Current lifestyles of wealthy countries not generalizable globally

Limitations:

Doesn't capture all environmental impacts (biodiversity loss, pollution, freshwater)
Carbon footprint dominates total (debatable conversion method)
Assumes land is interchangeable (it's not)
Doesn't address distribution or equity directly

Value: Vivid communication tool. Makes overshoot tangible: "We're using 1.75 Earths" is powerful message.

Carbon Footprint

Definition: Total greenhouse gas emissions caused directly and indirectly by an individual, organization, event, or product.

Measured in: Tons of CO₂ equivalent (CO₂e) per year—includes all greenhouse gases converted to equivalent CO₂ impact.

Personal Carbon Footprints (Averages):

U.S.: ~16 tons CO₂e per person per year
EU: ~8 tons per person
China: ~7 tons per person
Global average: ~4.5 tons per person
Sustainable level (for 1.5°C): ~2-3 tons per person by 2030

What Contributes:

Transportation (cars, flights)
Home energy (heating, cooling, electricity)
Food (especially meat and dairy)
Goods and services (embodied emissions)
Waste

Organizational Carbon Footprints: Companies and governments calculate emissions across:

Scope 1: Direct emissions (facilities, vehicles)
Scope 2: Indirect emissions from purchased energy
Scope 3: Value chain emissions (suppliers, product use, disposal)

Limitations:

Individual focus can distract from systemic change needs
Doesn't address historical responsibility
Calculation complex (especially embodied emissions)
Risk of carbon offsetting greenwashing

Value: Makes climate impact concrete and personal. Helps identify reduction opportunities.

Planetary Boundaries

Framework (Stockholm Resilience Centre, 2009): Identifies nine Earth-system processes with planetary-scale boundaries. Staying within boundaries maintains "safe operating space for humanity."

The Nine Boundaries:

Climate change: Atmospheric CO₂ concentration
- Boundary: 350 ppm (we're at 420+ ppm) ❌ EXCEEDED
Biosphere integrity (biodiversity loss): Extinction rate
- Boundary: <10 extinctions per million species-years (current: 100-1000x higher) ❌ EXCEEDED
Land-system change: Forested area
- Boundary: 75% of original forest cover remaining (currently 62%) ❌ EXCEEDED
Freshwater use: Consumptive blue water use
- Boundary: 4,000 km³/year (currently ~2,600 km³/year) ✓ Within boundary (but regional problems)
Biogeochemical flows (nitrogen and phosphorus): Industrial fixation
- Boundary for nitrogen: 62 Tg/year (currently 150 Tg/year) ❌ EXCEEDED
- Phosphorus also exceeded
Ocean acidification: Carbonate ion concentration
- Boundary not yet crossed but approaching ⚠️
Atmospheric aerosol loading: Concentration of aerosols
- Boundary not yet quantified
Stratospheric ozone depletion: Ozone concentration
- Boundary: Loss <5% (recovering after Montreal Protocol) ✓ Mostly within boundary
Novel entities (chemical pollution): Introduction of new substances
- Boundary recently assessed as exceeded ❌ EXCEEDED

Status: At least 6 of 9 boundaries transgressed or at high risk. We've left the "safe operating space."

Implications:

Risk of abrupt, non-linear changes
Some boundaries interconnected (transgressions can cascade)
Need to "bend the curves" back within boundaries
Current economic model incompatible with safe operating space

Policy Application:

Doughnut Economics (Module 10) incorporates planetary boundaries
Some companies and cities using framework for sustainability targets
Growing recognition in environmental policy circles

Criticisms:

Boundaries somewhat arbitrary
Global boundaries miss regional variation
Don't address distribution (who caused transgressions?)
Boundaries static (Earth system evolving)

Value: Science-based framework defining sustainability in absolute terms. Makes clear that we're exceeding Earth's capacity.

Material Footprint and Resource Use

Material Footprint: Total mass of raw materials extracted to produce goods and services consumed, including domestic and imported products.

Measured in: Tons per capita or tons per dollar of GDP.

Global Trends:

1970: 7 billion tons extracted
2020: 100+ billion tons extracted
Per capita: Rising globally (~12 tons per person)
Resource productivity: Slowly improving but not fast enough

Circularity Gap: Only 8.6% of materials are cycled back into the economy. 91.4% are virgin materials.

Decoupling: Relative decoupling: Resource use per unit of GDP declining (efficiency improving) Absolute decoupling: Total resource use declining while economy grows (rare, not achieved globally)

Challenge: Efficiency improvements (relative decoupling) outpaced by consumption growth. Total resource extraction still rising.

Implications:

Circular economy essential (Module 5)
Need absolute reductions in material throughput in wealthy countries
Current trajectory unsustainable

Corporate Sustainability Reporting and Metrics

Why Corporate Metrics Matter

Businesses are major drivers of environmental and social impacts. What they measure influences their behavior.

Traditional Business Metrics:

Revenue and profit
Return on investment (ROI)
Earnings per share
Market share

Problem: These metrics ignore environmental and social impacts. Companies optimizing for traditional metrics can destroy value in other domains.

The Triple Bottom Line (TBL)

Concept (John Elkington, 1994): Companies should measure success across three dimensions:

People: Social impact
Planet: Environmental impact
Profit: Economic impact

The Idea: Long-term business success requires balancing all three. Focusing only on profit is short-sighted and unsustainable.

Implementation Challenges:

How to measure social and environmental impact?
How to compare across dimensions?
How to weight trade-offs?
Risk of "greenwashing" (reporting without real change)

Elkington's Later Reflection (2018): Elkington himself expressed frustration that TBL became an accounting tool rather than driving systemic change. Companies report on three pillars but still optimize primarily for profit.

Value: Shifted conversation. Made environmental and social performance legitimate business concerns.

Environmental, Social, and Governance (ESG)

Evolution of TBL: ESG is the corporate world's current framework for sustainability reporting.

E - Environmental:

Carbon emissions and climate strategy
Energy and water use
Waste and pollution
Biodiversity impact
Circular economy practices
Environmental compliance

S - Social:

Labor practices and working conditions
Diversity, equity, and inclusion
Health and safety
Community relations
Human rights in supply chain
Product safety and customer welfare

G - Governance:

Board composition and independence
Executive compensation
Business ethics and anti-corruption
Shareholder rights
Transparency and disclosure
Risk management

ESG Ratings: Multiple agencies rate companies on ESG performance:

MSCI ESG Ratings
Sustainalytics
S&P Global ESG Scores
Bloomberg ESG Data
CDP (Carbon Disclosure Project)

Growing Investor Interest:

ESG assets exceed $35 trillion globally
Investors increasingly considering ESG in decisions
Evidence that strong ESG correlates with lower risk and sometimes better returns
Debate: Does ESG improve returns or just reflect well-managed companies?

Challenges:

Inconsistent standards: Different frameworks, metrics, and ratings
Greenwashing: Companies claim ESG commitment without meaningful action
Rating disagreement: Different agencies give same company very different scores
Materiality: What issues actually matter for specific industries?
Lack of verification: Self-reported data with limited auditing

Recent Developments:

SEC (U.S.) proposed climate disclosure rules
EU mandatory sustainability reporting (CSRD)
International Sustainability Standards Board (ISSB) creating global standards
Growing regulation moving from voluntary to mandatory

B Corporations

What Are B Corps? Companies certified by B Lab as meeting high standards of social and environmental performance, accountability, and transparency.

Requirements:

B Impact Assessment: Score 80+ out of 200 on comprehensive assessment
Legal Accountability: Amend governing documents to consider stakeholders, not just shareholders
Transparency: Publish impact report
Recertification: Every three years

Assessment Areas:

Governance (mission, ethics, transparency)
Workers (compensation, benefits, training, safety)
Community (suppliers, diversity, civic engagement, job creation)
Environment (facilities, emissions, materials, water)
Customers (product benefit, problem-solving impact)

Size of Movement:

6,000+ certified B Corps in 80+ countries
Includes small businesses and large companies (Patagonia, Ben & Jerry's, Danone North America)

The Idea: Redefine business success. Use business as force for good. Legally protect mission even under ownership changes.

Criticisms:

Certification costly (challenging for small businesses)
Verification imperfect
Some companies game the assessment
Risk of B Corp becoming just another marketing label

Value: Demonstrates viable alternative business model. Legal structure protects stakeholder interests. Growing community of mission-driven businesses.

Science-Based Targets

Approach: Companies set emissions reduction targets aligned with climate science—specifically, what's needed to limit warming to 1.5°C or 2°C.

Science Based Targets initiative (SBTi): Partnership between CDP, UN Global Compact, WRI, and WWF.

Process:

Company commits to set science-based target
Develops target using SBTi methodology
Submits for validation
SBTi approves if aligned with climate science
Company publicly discloses and reports progress

Target Types:

Near-term: 5-10 years, typically 42-50% reduction from base year
Long-term: Net-zero by 2050 or sooner
Scope 1+2: Direct emissions and purchased energy (required)
Scope 3: Value chain emissions (required if >40% of total)

Adoption:

4,000+ companies committed
Includes major corporations across sectors
Growing investor pressure to set SBTs

Advantages:

Credible, science-aligned
Comparable across companies
Goes beyond vague "sustainability" claims
Drives real emissions reduction

Challenges:

Scope 3 difficult to measure and reduce
Offset quality concerns
Enforcement relies on reputation
Some companies set targets then don't meet them

Integrated Frameworks and Dashboards

Doughnut Economics

Preview: We'll explore this fully in Module 10, but it's worth mentioning here as a measurement framework.

Concept (Kate Raworth): Visualize sustainability as a doughnut:

Inner ring: Social foundation (minimum standards for wellbeing)
Outer ring: Ecological ceiling (planetary boundaries)
Safe space: Between rings—meeting human needs within planetary limits

Social Foundation (12 dimensions): Food, water, health, education, income, work, political voice, social equity, gender equality, housing, networks, energy

Ecological Ceiling (9 dimensions): Planetary boundaries (climate change, biodiversity, land conversion, etc.)

Measurement: For any place (city, country, world), assess:

What % of people are below social foundation? (shortfalls)
Which ecological boundaries are transgressed? (overshoot)

Goal: Bring all humanity into the "safe and just space"—everyone has enough while respecting planetary limits.

Applications:

Amsterdam adopted as policy framework
Cities worldwide experimenting (Copenhagen, Brussels, Portland)
Provides intuitive visualization of sustainability

Dashboard Approach

Rather Than Single Metric: Multiple indicators tracked simultaneously, like a car dashboard with multiple gauges.

Advantages:

Captures multidimensional reality
No arbitrary aggregation
Highlights trade-offs
Allows monitoring multiple goals

Challenges:

Harder to communicate than single number
How to weight competing indicators?
Information overload risk
Less useful for rankings

UN Sustainable Development Goals (SDGs): Perhaps the world's most comprehensive dashboard:

17 goals
169 targets
231 unique indicators

Countries track progress across all dimensions simultaneously.

The Politics and Practice of Changing Metrics

Why New Metrics Are Resisted

Political Reasons:

GDP growth is politically popular (everyone understands it)
Leaders judged by GDP performance
Alternative metrics might show less favorable picture
Vested interests in current system

Technical Reasons:

GDP well-established and understood
Alternatives more complex
Data collection challenges
International comparability issues

Conceptual Reasons:

Disagreement about what should be measured
Values embedded in measurement choices
Who decides what matters?

Successful Adoption Strategies

New Zealand's Wellbeing Budget (2019):

First country to base national budget on wellbeing, not GDP
Budget proposals assessed against wellbeing criteria
Five priorities: mental health, child wellbeing, Māori and Pacific peoples' aspirations, circular economy, digital age
Uses wellbeing indicators to guide policy

Scotland's National Performance Framework:

11 outcomes (communities, culture, education, environment, fair work, health, human rights, international, opportunities, poverty, values)
81 indicators tracked
Used across government in policy-making

Bhutan's GNH (mentioned earlier):

Constitutionally mandated
Policy screening tool
Regular surveys
International inspiration

Common Elements:

Political leadership commitment
Transparent methodology
Stakeholder engagement
Integration into policy process
Regular measurement and reporting
Not replacing GDP, but supplementing it

How Metrics Can Change Without Official Adoption

Growing Use by:

Cities and regions (often ahead of national governments)
International organizations (UN, OECD)
Civil society and advocacy groups
Businesses (ESG, B Corp, science-based targets)
Media (coverage shapes public discourse)
Academic research

Informal Influence: Even without official adoption, alternative metrics shape:

Policy debates
Business decisions
Public consciousness
Academic research
Civil society advocacy

The Long Game: GDP wasn't always dominant. It became so through:

Standardization
Regular measurement
Policy usefulness
Ease of communication
International comparability

Alternative metrics following similar path. Takes decades, but possible.

Reflection Questions

Personal Metrics: What metrics do you use to evaluate your own life success? Income? Relationships? Health? Experiences? How do these metrics shape your decisions?
Trade-offs: If you could design a national success indicator, what would you include? How would you balance economic prosperity, environmental health, and social wellbeing? What trade-offs are acceptable?
Business Metrics: If you ran a company, what metrics would you use beyond profit? How would you balance shareholder returns with environmental and social impacts?
Cultural Differences: Different cultures might value different things. Should there be universal wellbeing indicators, or should each society define its own?
Data and Privacy: Many alternative metrics require extensive data collection (surveys, behavioral data). How do you balance better measurement with privacy concerns?
Action Without Measurement: Some things matter but can't be easily measured. Should we only manage what we can measure, or trust in values even when metrics are imperfect?

Key Takeaways

✓ "What gets measured gets managed" — measurement choices fundamentally shape economic priorities and policies

✓ GDP's limitations are severe: it ignores unpaid work, natural capital depletion, inequality, environmental degradation, and quality of life factors

✓ Genuine Progress Indicator (GPI) adjusts consumption for factors affecting wellbeing, showing that GDP and genuine progress have diverged since the 1970s

✓ Human Development Index (HDI) measures health, education, and income, demonstrating that development is about human capabilities, not just economic output

✓ Wellbeing indicators (life satisfaction, Better Life Index, GNH) show that beyond basic material needs, social relationships, freedom, and equality matter more than additional income

✓ Ecological Footprint reveals that humanity is using 1.75 Earths' worth of resources, with huge inequality between rich and poor countries

✓ Planetary Boundaries framework shows that at least 6 of 9 critical Earth-system boundaries have been transgressed, indicating we're outside the "safe operating space"

✓ Corporate ESG metrics are increasingly important for investors and regulators, though inconsistent standards and greenwashing remain challenges

✓ B Corporations and Science-Based Targets demonstrate businesses moving beyond shareholder primacy to stakeholder accountability

✓ Dashboard approaches (like UN SDGs or Doughnut Economics) track multiple dimensions simultaneously, avoiding oversimplification of single metrics

✓ Measurement changes are happening at city, regional, and business levels, gradually shifting consciousness even without full national adoption

✓ Better metrics enable better decisions — measuring wellbeing, environmental health, and genuine progress would drive very different policies than GDP optimization alone

Glossary

Better Life Index: OECD's interactive tool measuring 11 dimensions of wellbeing across countries

B Corporation (B Corp): Company certified as meeting high standards of social and environmental performance, transparency, and accountability

Carbon Footprint: Total greenhouse gas emissions caused directly and indirectly by an individual, organization, or product

Dashboard Approach: Using multiple indicators simultaneously rather than aggregating into single metric

Doughnut Economics: Framework visualizing sustainability as meeting human needs (inner ring) within planetary boundaries (outer ring)

Earth Overshoot Day: Date when humanity has used a full year's worth of Earth's regenerative capacity

Ecological Footprint: Biologically productive land and water area needed to produce resources consumed and absorb wastes generated

ESG (Environmental, Social, Governance): Framework for evaluating corporate sustainability across three dimensions

Genuine Progress Indicator (GPI): Alternative to GDP that adjusts for wellbeing factors, inequality, environmental costs, and resource depletion

Green GDP: GDP adjusted for environmental degradation and natural capital depletion

Gross National Happiness (GNH): Bhutan's holistic development indicator measuring wellbeing across nine domains

Happy Planet Index: Measures wellbeing and life expectancy relative to ecological footprint

Human Development Index (HDI): UN indicator combining life expectancy, education, and income per capita

Inequality-Adjusted HDI (IHDI): HDI reduced based on inequality in each dimension

Material Footprint: Total mass of raw materials extracted to produce goods and services consumed

Planetary Boundaries: Nine Earth-system processes with boundaries defining safe operating space for humanity

Science-Based Targets: Corporate emissions reduction targets aligned with climate science requirements

Subjective Wellbeing: Self-reported life satisfaction and happiness

Triple Bottom Line (TBL): Framework measuring success across People, Planet, and Profit

Looking Ahead to Module 7

You now understand that measurement shapes priorities, and that alternatives to GDP reveal very different pictures of progress and success. In Module 7, we'll explore Green Business and Innovation—how businesses are integrating sustainability into their models, strategies, and innovations.

You'll see that sustainability isn't just a constraint but also an opportunity: it drives innovation, opens new markets, reduces costs, and builds resilience. We'll examine sustainable business models, green finance, impact investing, and companies proving that profit and purpose can align.

Additional Resources

Books:

"Measuring What Counts" by Stiglitz, Sen, and Fitoussi (comprehensive critique of GDP and alternatives)
"Doughnut Economics" by Kate Raworth (we'll return to this in Module 10)
"The Progress Illusion" by Jon Hall (how better metrics can improve policy)
"Beyond GDP" edited by Fleurbaey and Blanchet (academic overview)

Reports:

"For Good Measure" (OECD) - advancing research on wellbeing metrics
"Human Development Reports" (UNDP) - annual updates on global HDI
"World Happiness Report" (annual)
"Global Footprint Network" reports (ecological footprint data)
"Circularity Gap Report" (annual assessment of global circularity)

Organizations and Initiatives:

OECD Better Life Initiative
UN Sustainable Development Solutions Network
Global Footprint Network
B Lab (B Corporation certification)
Science Based Targets initiative
Wellbeing Economy Alliance

Online Tools:

OECD Better Life Index (interactive)
Global Footprint Network calculators
Happy Planet Index data
Our World in Data (visualizations of various indicators)
UN SDG database

Academic Journals:

"Ecological Economics" - alternative metrics research
"Social Indicators Research"
"Sustainability Science"

For Deeper Exploration:

"The Limits to Growth" by Meadows et al. (1972 classic on measuring sustainability)
"Small Is Beautiful" by E.F. Schumacher (questioning growth metrics)
"Prosperity Without Growth" by Tim Jackson (alternative prosperity indicators)

Congratulations on completing Module 6! You now understand that measurement is power—what we measure shapes what we value and pursue. GDP has served as our primary compass, but it's a poor guide to genuine wellbeing and sustainability. Alternative metrics exist and are gradually gaining traction. The challenge is shifting from measurement as interesting analysis to measurement as actual driver of policy and behavior. Take a break to reflect on what you personally consider progress and success, and when you're ready, we'll explore how businesses are innovating for sustainability in Module 7.

Module 6: Measuring What Matters

Welcome to Module 6

Why Measurement Matters

The Power of Metrics

Metrics shape decisions at every level:

Individual Level:

What you measure about yourself influences behavior
Track exercise → exercise more
Track spending → spend more mindfully
Track carbon footprint → make greener choices

Business Level:

Companies optimize for measured KPIs (key performance indicators)
"Shareholder value" metrics → short-term profit focus
Sustainability metrics → broader stakeholder consideration

Government Level:

National success measured by GDP growth
Policies designed to boost GDP
Alternative metrics would drive different policies

Global Level:

International rankings and comparisons shape prestige and policy
Development measured by economic growth
Different metrics would redefine "development" and "success"

What GDP Misses (Revisited)

Recall from Module 2 that GDP:

Counts "bads" as "goods" (pollution cleanup, natural disasters boost GDP)
Ignores unpaid work (childcare, volunteering, household production)
Doesn't account for natural capital depletion
Says nothing about distribution (inequality)
Omits quality of life factors (health, education, leisure, relationships)
Values quantity of production, not quality of life

The Measurement Trap

McNamara Fallacy: Named after Defense Secretary Robert McNamara's over-reliance on body counts in Vietnam War:

Measure what's easily measurable
Disregard what can't be easily measured
Assume what can't be measured isn't important
Conclude that what can't be measured doesn't exist

Application to Economics:

Market transactions are easily measured → GDP
Wellbeing, ecosystem health, social cohesion are harder to measure → ignored
This shapes what we consider "economic success"

The Challenge: Create metrics that:

Capture what actually matters
Are rigorous and reliable
Can be measured consistently
Are politically legitimate
Actually get used in decision-making

Beyond GDP: Alternative Aggregate Indicators

Genuine Progress Indicator (GPI)

The Idea: Start with consumption (like GDP) but adjust for factors that affect genuine wellbeing:

Add:

Value of unpaid work (household, volunteer, childcare)
Value of leisure time
Value of public infrastructure

Subtract:

Cost of crime
Cost of pollution
Cost of resource depletion
Cost of inequality (distributed unequally)
Defensive expenditures (spending to avoid bads, not create goods)
Loss of natural capital

The Formula (Simplified): GPI = Personal Consumption + Public Goods + Value of Unpaid Work - Inequality - Crime - Environmental Degradation - Depletion of Natural Resources

What GPI Shows:

U.S. GDP has grown steadily since 1950
U.S. GPI grew until late 1970s, then plateaued or declined
GDP and GPI diverging suggests growth hasn't translated to genuine progress

Interpretation: Economic growth (GDP) has continued, but genuine progress (GPI) has stagnated because:

Rising inequality
Environmental degradation
Natural capital depletion
Social costs (crime, family breakdown)
More defensive expenditures

Countries Using GPI:

Maryland (U.S. state) produces official GPI
Several states and regions track it
Studies conducted in 20+ countries

Criticisms:

Many components subjective (how to value leisure?)
Methodological debates (how to measure inequality costs?)
Requires extensive data
Not universally standardized
Political challenges to adoption

Despite Limitations: GPI represents serious attempt to measure genuine wellbeing rather than just economic activity.

Index of Sustainable Economic Welfare (ISEW)

Similar to GPI: ISEW is the precursor/variant of GPI with similar methodology:

Adjusts consumption for wellbeing factors
Accounts for environmental and social costs
Shows similar divergence from GDP in many countries

Key Finding Across Studies: In most developed countries, ISEW/GPI and GDP tracked together until 1970s-1980s, then diverged. Economic growth continued but welfare stagnated or declined.

Green GDP

The Concept: Adjust GDP to account for environmental degradation and resource depletion:

Standard GDP: Value of all goods and services produced

Green GDP: Standard GDP - Environmental Costs - Natural Capital Depreciation

What It Includes:

Depletion of natural resources (minerals, forests, fisheries)
Degradation of environmental quality (air, water, soil)
Pollution damages
Loss of ecosystem services

Example:

Country produces $1 trillion GDP
But depletes $50 billion in oil reserves
Degrades $30 billion in natural capital (forests, water quality)
Green GDP = $920 billion

Challenges:

Valuing environmental costs (revisit Module 3 valuation challenges)
Comprehensive data on resource depletion
Political resistance (lower numbers)

Real-World Attempts:

China (2004): Piloted Green GDP accounting. Found environmental costs were 3-5% of GDP. Program was quietly discontinued after political pushback from provinces showing poor environmental performance.
Several countries produce environmental-economic accounts but don't integrate into main GDP reporting

Why It Matters: Shows true costs of growth. If green GDP grows slower than standard GDP, we're depleting natural capital to create the appearance of progress.

Happy Planet Index (HPI)

Different Approach: Instead of adjusting economic output, directly measure wellbeing relative to environmental impact:

Formula: HPI = (Wellbeing × Life Expectancy) / Ecological Footprint

Components:

Wellbeing: Self-reported life satisfaction (survey-based)
Life Expectancy: Years people live
Ecological Footprint: Environmental resources consumed per capita

The Logic: Good performance = High wellbeing and long lives achieved with small ecological footprint.

Results:

Costa Rica often ranks #1 (high wellbeing, long life, moderate footprint)
U.S. ranks low (high wellbeing and life expectancy, but enormous footprint)
Many European countries in middle (high wellbeing, large footprints)
Some poor countries score poorly (low wellbeing, short lives, despite small footprints)

What HPI Highlights: Efficient wellbeing. Can we achieve good lives without destroying the planet?

Criticisms:

Wellbeing self-reports culturally variable
Aggregating wellbeing and environmental impact is arbitrary
Doesn't capture many important dimensions
Not suitable for comprehensive policy guidance

Value: Provocative reminder that wellbeing and resource use can be decoupled. Some countries achieve higher wellbeing with lower environmental impact than others.

Wellbeing and Quality of Life Indicators

Human Development Index (HDI)

Developed by: United Nations Development Programme (1990)

Purpose: Shift development focus from economic growth to human wellbeing.

Components:

Long and healthy life: Life expectancy at birth
Knowledge: Mean years of schooling + expected years of schooling
Decent standard of living: Gross national income per capita (log scale to reflect diminishing returns)

Scoring: Each component scored 0-1, then averaged. Score of 0.8+ is "very high human development."

What HDI Shows:

Income matters, but with diminishing returns
Health and education independently important
Countries at similar income levels can differ substantially in human development
Some countries achieve high HDI at moderate income (Cuba, Costa Rica, Sri Lanka)
Some oil-rich countries have high income but lower HDI (weak health/education)

HDI vs. GDP per Capita: Strong correlation but important differences:

Qatar: Very high income, high but not top HDI
Norway: High income, consistently top HDI (excellent health and education)
Cuba: Low income, surprisingly high HDI (strong health and education systems)

Improvements Over Time: Global HDI has risen substantially:

1990: Average HDI = 0.598
2021: Average HDI = 0.732
Progress in health and education, not just income

Limitations:

Still relatively simple (only three dimensions)
Doesn't capture inequality within countries
Says nothing about environmental sustainability
Aggregation masks variation

Extensions:

Inequality-Adjusted HDI (IHDI): Reduces HDI score based on inequality in each dimension
Gender Development Index: Compares male and female HDI
Multidimensional Poverty Index: Identifies acute deprivation in health, education, and living standards

OECD Better Life Index

Approach: Interactive tool allowing users to weight dimensions according to their priorities.

11 Dimensions:

Housing: Rooms per person, basic facilities, housing costs
Income: Household income, financial wealth
Jobs: Employment rate, job security, earnings
Community: Social support networks
Education: Educational attainment, student skills, years in education
Environment: Air pollution, water quality
Civic engagement: Voter turnout, regulatory transparency
Health: Life expectancy, self-reported health
Life satisfaction: Self-reported wellbeing
Safety: Homicide rate, assault rate
Work-life balance: Employees working long hours, leisure time

Interactive Feature: Users adjust importance of each dimension. Rankings change based on priorities.

What It Shows:

Different countries excel in different dimensions
No country is best at everything
Trade-offs exist (U.S. high income, moderate work-life balance)
Wellbeing is multidimensional

Strengths:

Comprehensive
Transparent methodology
Engages public in thinking about what matters
Highlights that no single metric suffices

Limitations:

Weighting arbitrary (whose priorities count?)
Data availability varies by country
Doesn't replace single summary metric for comparisons

Gross National Happiness (GNH)

Origin: Bhutan's King declared in 1972 that "Gross National Happiness is more important than Gross National Product."

Nine Domains:

Psychological wellbeing
Health
Time use
Education
Cultural diversity and resilience
Good governance
Community vitality
Ecological diversity and resilience
Living standards

Measurement: Detailed surveys assess 33 indicators across nine domains. People considered "happy" if they achieve sufficiency in at least 6 of 9 domains.

Policy Application: Bhutan's government uses GNH in policy screening. Projects assessed for impact on GNH, not just economic returns.

Results in Bhutan:

2015: 91% of Bhutanese "happy" (sufficient in 6+ domains)
8% "unhappy" (fewer than 6 domains)
Substantial improvement from earlier surveys

Replication: Other locations experimenting with wellbeing frameworks, though Bhutan's approach is unique in its comprehensive integration into governance.

Criticisms:

Paternalistic (government defines happiness domains)
Methodology complex and resource-intensive
Cultural specificity (can it be generalized?)
Trade-off with economic development?

Inspiration: Bhutan demonstrates that governments can explicitly prioritize wellbeing over GDP. Provides alternative development vision.

Life Satisfaction and Subjective Wellbeing

The Approach: Simply ask people how satisfied they are with their lives.

Typical Question: "All things considered, how satisfied are you with your life as a whole these days?" (0-10 scale)

World Happiness Report: Annual ranking of countries by average life satisfaction.

Top Countries (Consistently):

Nordic countries (Finland, Denmark, Norway, Iceland)
Netherlands, Switzerland, New Zealand

What Predicts Life Satisfaction:

Income (but with diminishing returns)
Social support and relationships
Healthy life expectancy
Freedom to make life choices
Generosity
Trust in institutions and people
Low corruption

Implications for Policy: Focus on factors that improve wellbeing directly: social cohesion, health, freedom, trust, equality—not just GDP growth.

Criticisms:

Cultural differences in response styles
Adaptation (people adjust expectations)
Mood effects (responses vary by temporary factors)
Doesn't capture full range of human flourishing

Despite Limitations: Subjective wellbeing data provides unique insights into what makes life satisfying, complementing objective indicators.

Environmental and Ecological Indicators

Ecological Footprint

The Concept: How much biologically productive land and water area is required to produce the resources consumed and absorb the waste generated?

Measured in: Global hectares (gha) per person—standardized hectares of average productivity.

Components:

Cropland footprint (food, fiber, feed)
Grazing footprint (animal products)
Forest footprint (timber, paper)
Fishing grounds footprint
Built-up land (infrastructure)
Carbon footprint (land needed to absorb CO₂ emissions)

Calculation: Add up resource consumption → Convert to biologically productive area needed → Compare to available biocapacity.

Global Results:

Global biocapacity: ~1.6 gha per person (Earth's productive capacity divided by population)
Global ecological footprint: ~2.8 gha per person (humanity's demand)
Overshoot: We're using 1.75 Earths' worth of resources annually

Country Variations:

Qatar, Luxembourg, U.S., Australia: 8-15 gha per person (would need 5-9 Earths if everyone lived this way)
EU average: ~5 gha per person (would need ~3 Earths)
China: ~3.7 gha per person (above global average, below wealthy countries)
India, Indonesia: ~1.2 gha per person (below global biocapacity)

Earth Overshoot Day: The date when humanity has used a full year's worth of Earth's regenerative capacity. In 2023: August 2nd. Moves earlier most years.

What It Shows:

Humanity in ecological overshoot since 1970s
Overshoot growing
Huge inequality (rich countries' footprints far exceed biocapacity)
Current lifestyles of wealthy countries not generalizable globally

Limitations:

Doesn't capture all environmental impacts (biodiversity loss, pollution, freshwater)
Carbon footprint dominates total (debatable conversion method)
Assumes land is interchangeable (it's not)
Doesn't address distribution or equity directly

Value: Vivid communication tool. Makes overshoot tangible: "We're using 1.75 Earths" is powerful message.

Carbon Footprint

Definition: Total greenhouse gas emissions caused directly and indirectly by an individual, organization, event, or product.

Measured in: Tons of CO₂ equivalent (CO₂e) per year—includes all greenhouse gases converted to equivalent CO₂ impact.

Personal Carbon Footprints (Averages):

U.S.: ~16 tons CO₂e per person per year
EU: ~8 tons per person
China: ~7 tons per person
Global average: ~4.5 tons per person
Sustainable level (for 1.5°C): ~2-3 tons per person by 2030

What Contributes:

Transportation (cars, flights)
Home energy (heating, cooling, electricity)
Food (especially meat and dairy)
Goods and services (embodied emissions)
Waste

Organizational Carbon Footprints: Companies and governments calculate emissions across:

Scope 1: Direct emissions (facilities, vehicles)
Scope 2: Indirect emissions from purchased energy
Scope 3: Value chain emissions (suppliers, product use, disposal)

Limitations:

Individual focus can distract from systemic change needs
Doesn't address historical responsibility
Calculation complex (especially embodied emissions)
Risk of carbon offsetting greenwashing

Value: Makes climate impact concrete and personal. Helps identify reduction opportunities.

Planetary Boundaries

Framework (Stockholm Resilience Centre, 2009): Identifies nine Earth-system processes with planetary-scale boundaries. Staying within boundaries maintains "safe operating space for humanity."

The Nine Boundaries:

Climate change: Atmospheric CO₂ concentration
- Boundary: 350 ppm (we're at 420+ ppm) ❌ EXCEEDED
Biosphere integrity (biodiversity loss): Extinction rate
- Boundary: <10 extinctions per million species-years (current: 100-1000x higher) ❌ EXCEEDED
Land-system change: Forested area
- Boundary: 75% of original forest cover remaining (currently 62%) ❌ EXCEEDED
Freshwater use: Consumptive blue water use
- Boundary: 4,000 km³/year (currently ~2,600 km³/year) ✓ Within boundary (but regional problems)
Biogeochemical flows (nitrogen and phosphorus): Industrial fixation
- Boundary for nitrogen: 62 Tg/year (currently 150 Tg/year) ❌ EXCEEDED
- Phosphorus also exceeded
Ocean acidification: Carbonate ion concentration
- Boundary not yet crossed but approaching ⚠️
Atmospheric aerosol loading: Concentration of aerosols
- Boundary not yet quantified
Stratospheric ozone depletion: Ozone concentration
- Boundary: Loss <5% (recovering after Montreal Protocol) ✓ Mostly within boundary
Novel entities (chemical pollution): Introduction of new substances
- Boundary recently assessed as exceeded ❌ EXCEEDED

Status: At least 6 of 9 boundaries transgressed or at high risk. We've left the "safe operating space."

Implications:

Risk of abrupt, non-linear changes
Some boundaries interconnected (transgressions can cascade)
Need to "bend the curves" back within boundaries
Current economic model incompatible with safe operating space

Policy Application:

Doughnut Economics (Module 10) incorporates planetary boundaries
Some companies and cities using framework for sustainability targets
Growing recognition in environmental policy circles

Criticisms:

Boundaries somewhat arbitrary
Global boundaries miss regional variation
Don't address distribution (who caused transgressions?)
Boundaries static (Earth system evolving)

Value: Science-based framework defining sustainability in absolute terms. Makes clear that we're exceeding Earth's capacity.

Material Footprint and Resource Use

Material Footprint: Total mass of raw materials extracted to produce goods and services consumed, including domestic and imported products.

Measured in: Tons per capita or tons per dollar of GDP.

Global Trends:

1970: 7 billion tons extracted
2020: 100+ billion tons extracted
Per capita: Rising globally (~12 tons per person)
Resource productivity: Slowly improving but not fast enough

Circularity Gap: Only 8.6% of materials are cycled back into the economy. 91.4% are virgin materials.

Challenge: Efficiency improvements (relative decoupling) outpaced by consumption growth. Total resource extraction still rising.

Implications:

Circular economy essential (Module 5)
Need absolute reductions in material throughput in wealthy countries
Current trajectory unsustainable

Corporate Sustainability Reporting and Metrics

Why Corporate Metrics Matter

Businesses are major drivers of environmental and social impacts. What they measure influences their behavior.

Traditional Business Metrics:

Revenue and profit
Return on investment (ROI)
Earnings per share
Market share

Problem: These metrics ignore environmental and social impacts. Companies optimizing for traditional metrics can destroy value in other domains.

The Triple Bottom Line (TBL)

Concept (John Elkington, 1994): Companies should measure success across three dimensions:

People: Social impact
Planet: Environmental impact
Profit: Economic impact

The Idea: Long-term business success requires balancing all three. Focusing only on profit is short-sighted and unsustainable.

Implementation Challenges:

How to measure social and environmental impact?
How to compare across dimensions?
How to weight trade-offs?
Risk of "greenwashing" (reporting without real change)

Value: Shifted conversation. Made environmental and social performance legitimate business concerns.

Environmental, Social, and Governance (ESG)

Evolution of TBL: ESG is the corporate world's current framework for sustainability reporting.

E - Environmental:

Carbon emissions and climate strategy
Energy and water use
Waste and pollution
Biodiversity impact
Circular economy practices
Environmental compliance

S - Social:

Labor practices and working conditions
Diversity, equity, and inclusion
Health and safety
Community relations
Human rights in supply chain
Product safety and customer welfare

G - Governance:

Board composition and independence
Executive compensation
Business ethics and anti-corruption
Shareholder rights
Transparency and disclosure
Risk management

ESG Ratings: Multiple agencies rate companies on ESG performance:

MSCI ESG Ratings
Sustainalytics
S&P Global ESG Scores
Bloomberg ESG Data
CDP (Carbon Disclosure Project)

Growing Investor Interest:

ESG assets exceed $35 trillion globally
Investors increasingly considering ESG in decisions
Evidence that strong ESG correlates with lower risk and sometimes better returns
Debate: Does ESG improve returns or just reflect well-managed companies?

Challenges:

Inconsistent standards: Different frameworks, metrics, and ratings
Greenwashing: Companies claim ESG commitment without meaningful action
Rating disagreement: Different agencies give same company very different scores
Materiality: What issues actually matter for specific industries?
Lack of verification: Self-reported data with limited auditing

Recent Developments:

SEC (U.S.) proposed climate disclosure rules
EU mandatory sustainability reporting (CSRD)
International Sustainability Standards Board (ISSB) creating global standards
Growing regulation moving from voluntary to mandatory

B Corporations

What Are B Corps? Companies certified by B Lab as meeting high standards of social and environmental performance, accountability, and transparency.

Requirements:

B Impact Assessment: Score 80+ out of 200 on comprehensive assessment
Legal Accountability: Amend governing documents to consider stakeholders, not just shareholders
Transparency: Publish impact report
Recertification: Every three years

Assessment Areas:

Governance (mission, ethics, transparency)
Workers (compensation, benefits, training, safety)
Community (suppliers, diversity, civic engagement, job creation)
Environment (facilities, emissions, materials, water)
Customers (product benefit, problem-solving impact)

Size of Movement:

6,000+ certified B Corps in 80+ countries
Includes small businesses and large companies (Patagonia, Ben & Jerry's, Danone North America)

The Idea: Redefine business success. Use business as force for good. Legally protect mission even under ownership changes.

Criticisms:

Certification costly (challenging for small businesses)
Verification imperfect
Some companies game the assessment
Risk of B Corp becoming just another marketing label

Value: Demonstrates viable alternative business model. Legal structure protects stakeholder interests. Growing community of mission-driven businesses.

Science-Based Targets

Approach: Companies set emissions reduction targets aligned with climate science—specifically, what's needed to limit warming to 1.5°C or 2°C.

Science Based Targets initiative (SBTi): Partnership between CDP, UN Global Compact, WRI, and WWF.

Process:

Company commits to set science-based target
Develops target using SBTi methodology
Submits for validation
SBTi approves if aligned with climate science
Company publicly discloses and reports progress

Target Types:

Near-term: 5-10 years, typically 42-50% reduction from base year
Long-term: Net-zero by 2050 or sooner
Scope 1+2: Direct emissions and purchased energy (required)
Scope 3: Value chain emissions (required if >40% of total)

Adoption:

4,000+ companies committed
Includes major corporations across sectors
Growing investor pressure to set SBTs

Advantages:

Credible, science-aligned
Comparable across companies
Goes beyond vague "sustainability" claims
Drives real emissions reduction

Challenges:

Scope 3 difficult to measure and reduce
Offset quality concerns
Enforcement relies on reputation
Some companies set targets then don't meet them

Integrated Frameworks and Dashboards

Doughnut Economics

Preview: We'll explore this fully in Module 10, but it's worth mentioning here as a measurement framework.

Concept (Kate Raworth): Visualize sustainability as a doughnut:

Inner ring: Social foundation (minimum standards for wellbeing)
Outer ring: Ecological ceiling (planetary boundaries)
Safe space: Between rings—meeting human needs within planetary limits

Social Foundation (12 dimensions): Food, water, health, education, income, work, political voice, social equity, gender equality, housing, networks, energy

Ecological Ceiling (9 dimensions): Planetary boundaries (climate change, biodiversity, land conversion, etc.)

Measurement: For any place (city, country, world), assess:

What % of people are below social foundation? (shortfalls)
Which ecological boundaries are transgressed? (overshoot)

Goal: Bring all humanity into the "safe and just space"—everyone has enough while respecting planetary limits.

Applications:

Amsterdam adopted as policy framework
Cities worldwide experimenting (Copenhagen, Brussels, Portland)
Provides intuitive visualization of sustainability

Dashboard Approach

Rather Than Single Metric: Multiple indicators tracked simultaneously, like a car dashboard with multiple gauges.

Advantages:

Captures multidimensional reality
No arbitrary aggregation
Highlights trade-offs
Allows monitoring multiple goals

Challenges:

Harder to communicate than single number
How to weight competing indicators?
Information overload risk
Less useful for rankings

UN Sustainable Development Goals (SDGs): Perhaps the world's most comprehensive dashboard:

17 goals
169 targets
231 unique indicators

Countries track progress across all dimensions simultaneously.

The Politics and Practice of Changing Metrics

Why New Metrics Are Resisted

Political Reasons:

GDP growth is politically popular (everyone understands it)
Leaders judged by GDP performance
Alternative metrics might show less favorable picture
Vested interests in current system

Technical Reasons:

GDP well-established and understood
Alternatives more complex
Data collection challenges
International comparability issues

Conceptual Reasons:

Disagreement about what should be measured
Values embedded in measurement choices
Who decides what matters?

Successful Adoption Strategies

New Zealand's Wellbeing Budget (2019):

First country to base national budget on wellbeing, not GDP
Budget proposals assessed against wellbeing criteria
Five priorities: mental health, child wellbeing, Māori and Pacific peoples' aspirations, circular economy, digital age
Uses wellbeing indicators to guide policy

Scotland's National Performance Framework:

11 outcomes (communities, culture, education, environment, fair work, health, human rights, international, opportunities, poverty, values)
81 indicators tracked
Used across government in policy-making

Bhutan's GNH (mentioned earlier):

Constitutionally mandated
Policy screening tool
Regular surveys
International inspiration

Common Elements:

Political leadership commitment
Transparent methodology
Stakeholder engagement
Integration into policy process
Regular measurement and reporting
Not replacing GDP, but supplementing it

How Metrics Can Change Without Official Adoption

Growing Use by:

Cities and regions (often ahead of national governments)
International organizations (UN, OECD)
Civil society and advocacy groups
Businesses (ESG, B Corp, science-based targets)
Media (coverage shapes public discourse)
Academic research

Informal Influence: Even without official adoption, alternative metrics shape:

Policy debates
Business decisions
Public consciousness
Academic research
Civil society advocacy

The Long Game: GDP wasn't always dominant. It became so through:

Standardization
Regular measurement
Policy usefulness
Ease of communication
International comparability

Alternative metrics following similar path. Takes decades, but possible.

Reflection Questions

Personal Metrics: What metrics do you use to evaluate your own life success? Income? Relationships? Health? Experiences? How do these metrics shape your decisions?
Trade-offs: If you could design a national success indicator, what would you include? How would you balance economic prosperity, environmental health, and social wellbeing? What trade-offs are acceptable?
Business Metrics: If you ran a company, what metrics would you use beyond profit? How would you balance shareholder returns with environmental and social impacts?
Cultural Differences: Different cultures might value different things. Should there be universal wellbeing indicators, or should each society define its own?
Data and Privacy: Many alternative metrics require extensive data collection (surveys, behavioral data). How do you balance better measurement with privacy concerns?
Action Without Measurement: Some things matter but can't be easily measured. Should we only manage what we can measure, or trust in values even when metrics are imperfect?