The challenge
Sustainable finance often depends on clearly defined sustainability KPIs. These KPIs can influence lending terms, support sustainability commitments, and be scrutinised by boards, investors, customers, assurance providers, and the public. Getting them right from the outset helps reduce risk, improve credibility, and avoid costly issues later.
Why KPI design matters
Sustainability KPIs are not just internal measures. They can be written into financing arrangements, used to demonstrate progress, and relied on by stakeholders making decisions about trust, risk, and performance.
When KPIs are poorly designed, the consequences can extend well beyond reporting. Ambiguous definitions, weak data, or measures that cannot be independently verified can create rework, delay assurance, and undermine confidence in the programme as a whole.
What makes a good KPI
Setting on-farm sustainability KPIs can appear straightforward. Farmers often know the areas they need to focus on, and finance providers know their own priorities. In practice, however, KPI design requires careful consideration.
A strong KPI should be:
- Material - relevant to the organisation’s most significant sustainability issues
- Clear - precisely defined and unambiguous
- Measurable - capable of being measured consistently and reliably
- Supported by robust data - based on data that is available, accurate, and fit for purpose
- Aligned - appropriate for lender, investor, customer, or market expectations
- Assurance-ready - capable of standing up to independent verification
Taking the time to design KPIs well at the beginning can prevent significant downstream issues, particularly when assurance is required.
Why early expert input matters
A common issue we see is that KPI frameworks are developed before assurance requirements are fully considered. By the time an assurance provider is engaged, the KPI may already be embedded in a loan agreement or reporting framework.
At that stage, changing a poorly designed KPI can be difficult and expensive. We have seen cases where KPIs were not sufficiently clear to assure, where targets sat below accepted good practice or regulatory expectations, and where data required extensive cleaning before it could be verified.
Example
An organisation engaged AsureQuality to provide assurance for a sustainability-linked loan that included an emissions reduction KPI. During the assurance process, an error was identified in the base-year greenhouse gas calculation.
Because the baseline figure had been written directly into the loan agreement, with no provision for updates to methodology or emission factors, the KPI could not be assessed as intended. The result was legal rework, additional cost, and project delays.
Partnering for success
AsureQuality brings independent, practical expertise to sustainable finance KPI design and review. We work with organisations to help ensure their KPIs are fit for purpose from the start.
This includes helping to ensure that:
- KPIs are clear, credible, and aligned with stakeholder expectations
- Measurement approaches are practical and well defined
- Data requirements are understood and achievable
- Assurance requirements are considered from the outset
Example
Westpac New Zealand engaged AsureQuality to support the design of its Sustainable Farm Loan programme. Using the Sustainable Agri-Finance Initiative guidance as a starting point, we worked with Westpac to help ensure the requirements were set at an appropriate level of ambition, workable in the New Zealand context, and able to be independently verified.
We also helped ensure requirements could align with existing industry assurance programmes where appropriate, or be treated as not applicable where relevant, such as animal welfare requirements for a horticulture operation. This helped create a programme that was both practical and credible for a wide range of farm systems.
We are here to help
Sustainable finance KPI design is not just about selecting metrics. It is about making sure those metrics are relevant, measurable, credible, and workable in the real world.
That requires technical judgement, independence, and a clear understanding of how assurance will be applied in practice.
To learn more about our Advisory Services or discuss your KPI framework, contact our Sustainability Assurance team.