P2 Chp 4: Normalizing Data for More Effective Comparisons

Question 1

What are three core assumptions enabling traditional accounting standards comparability?

Answer 1

-economic entity, in which reported information is complete for the economic entity or business unit it covers
-reliability, in which only verifiable information and transactions are reported
-periodicity, in which reported informatino covers a uniform time period

Question 2

What does comparative analysis serve as a useful tool for?

Answer 2

how well an individual company manages its material sustainability impacts

Question 3

What are three primary components of the comparative analysis, evaluation against:

Answer 3

-past performance
-peer performance
-benchmarks and targets

Question 4

The learning objective for Chapter 4 Normalizing Data for More Effective Comparisons is…?

Answer 4

Differentiate options for normalizing sustainability information to improve insight into a company’s performance relative to that of its industry peers and over time.

Question 5

Within the comparative analysis process, it is vital to take into account the unique ________ that exist in the sustainability information value chain that may affect users’ ability to ______ draw conclusions from ESG data.

Answer 5

unique challenges
…
accurately draw conclusions

Question 6

When approaching an ESG metric, what should users consider about the usefulness of the data?

Answer 6

If the data is useful as reported or if it can be modified to be more useful

Question 7

What are three sequential questions in examining the data disclosed using SASB metrics?

Answer 7

-Is the disclosed sustainability accountig data useful on a stand-alone basis?
-Does it need to be normalized for use in comparisons?
-If it needs to be normalized, which financial or activity metrics are most appropriate?

Question 8

Why is sustainability not “black and white” and the purpose of sustainability accounting is not to determine whether a company is “sustainable” or “unsustainable”?

Answer 8

This of the information yielded in the metrics as being applicable to a company’s activities, strategic approach or other operational aspects not the company as a whole.

A company may be effectively managing its sustainability risks and opportunities or it may not be.

A company may be a leader regarding certain risks and opportunities and a laggard regarding others.

Question 9

What is the following an example of?
Consider two restaurant chains. Restaurant A might pay higher-than-average wages and therefore experience far lower staff turnover rates relative to industry benchmarks. At the same time, it might also serve nutritionally deficient food that is not aligned with shifting consumer preferences. On the other hand, Restaurant B might pay its employees minimum wage and experience high staff turnover but serve nutrient rich foods and therefore have a more positive impact on the lives of customers

Answer 9

One company is not
more or less “sustainable” than the other; they manage sustainability-related risks and
opportunities differently.

Question 10

Normalization is used only with ______ data, but not all ______ data need to be normalized

Answer 10

quantitative

Question 11

Answer the Yes / No with regard to the folloing question of the need to normalize the data:
Is the data already normalized, as in a percentage or ratio?

Answer 11

Yes - normalization is not needed
No - Normalization may be needed

Question 12

Answer the Yes / No with regard to the folloing question of the need to normalize the data:
Are absolute values useful on their own (for example in comparing against a regulatory cap, or where 0 is the ideal performance level)?

Answer 12

Yes - Normalization may not be needed
No - Normalization may be needed

Question 13

Answer the Yes / No with regard to the folloing question of the need to normalize the data:
Does the range of performance on a metric vary widely, such that it would benefit from being on a common scale?

e.g. the number of recalls in the Processed Foods industry typically ranges from 0 to 10, meanwhile Scope 1 GHG emissions can range from hundreds to billions of tons of carbon dioxide equivalents for Agricultural Products companies

Answer 13

Yes - Normalization will likely improve comparability
No - Normalization may not be needed

Question 14

For the FSA, which column is the most recent period always reported in?

Answer 14

The right-most column

In other words, the lower numbered years always occur before / to the left of the higher-numbered years

Question 15

For the example of a company reporting total water withdrawals in Year 1 of 20,000 and Year 2 of 30,000. What must you consider when assessing whether the company’s performance is worsening?

Answer 15

Normalize based upon activity data for an output-normalized basis of comparison. In this case based upon cases of product produced, which increased from 500 to 750 and ends up being the same amount of cubic meters of water per case in both years.

Question 16

Before conducting comparative analysis, however, a user must first do what?

Answer 16

Select the best metrics to use to normalize the data

Question 17

What are Comparable Absolute Values and name four examples

Answer 17

Sustainability metrics where the disclosed information may be useful on its own as absolute data

Examples:
-GHG emissions in an industry facing regualtory caps since normalization would not provide any insight into how close the company is from the cap
-number of recalls since fewer recalls indicate better performance
-number of oil spills since fewer spills indicate better performance regardless of size or output
-number of nuclear power units identified to have unacceptable performance in electric utilities since fewer power units in this category indicate better performance

Question 18

What is important to note about comparable absolute values in terms of understanding their financial impacts?

Answer 18

You may still choose to normalize metrics to better understand the financial impacts and/or their magnitude.

E.g. a company with one product recalled 10 times would experience proportionally worse impacts than a company with 100 products and the same number of recalls

Question 19

Normalizing sustainability accounting data to reflect a company’s scale and situation requires additional data to properly frame a datapoint. And what should that. What should that additional information help do?

Answer 19

Help explain the specific data and put it into meaningful context

Question 20

What are three key sources of information used to normalize ESG data?

Answer 20

-financial statements and reports, such as regulatory filings (revenue, net earnings, etc)
-SASB Standards (activity metrics)
-other data regarding the operating context and conditions of the company (e.g. regulatory limits and industry-specific characteristics as applicable).

Question 21

What are the contextual information that is useful for analyzing information disclosed via a particular SASB sustainability accounting metric called? Often high-level business data, or industry specific datapoints.

Answer 21

Activity metrics

They are used to supplement the financial and non-financial measures already included in regulatory filings

Question 22

For the exampel in the Automobiles industry given the amount of materials used and companies that reuse or recycle waste can achieve cost savings…which of the following SASB activity metrics provides insight on a company’s performance on the issue “weight in metric tons of end-of-life materials recovered”?
-Revenue
-Expenses
-Number of vehicles sold
-Number of vehicles produced

Answer 22

Number of vehicles produced because in this example the Automobile company’s efficiency in using materials provides insight into cost savings and mitigation of regulatory or supply risk.

Question 23

Discuss the general rule of thumb related to normalization and the sustainability dimension: Environment

Answer 23

Generally, environmental metrics are significantly influenced by the type, size and scope of a company’s operations and are best normalized on a revenue basis or production basis (e.g. energy consumption per ton of steel produced)

Question 24

Discuss the general rule of thumb related to normalization and the sustainability dimension: Social Capital

Answer 24

These metrics tend to revolve around impacts of a company’s products or services, and in heavy industries, its production or extraction activities. Many of these metrics are best normalized by company output. For example the number of vehicle recalls by the number of vehicles sold.

Question 25

Discuss the general rule of thumb related to normalization and the sustainability dimension: Human Capital

Answer 25

Generally these metrics require less normalization than other SASB metrics as they tend to be expressed as rates or percentages (e.g. injury rate). The company’s number of employees can provide context on the scale of the impact. Occasionally, the number of employees of a specific segment such as executive management may also be used. e.g. the number of accidents at a trucking company by the number of truck drivers instead of all company employees

Question 26

Discuss the general rule of thumb related to normalization and the sustainability dimension: Business Model & Innovation

Answer 26

Generally, these metrics examine the environmental and social impacts of a company’s products, such as use-phase efficiency and end-of-life issues. These metrics are usually best normalized by the scale of the company’s operations or by using financial measures (e.g. floor area or EBITDA). Some of these metrics are already normalized by revenue, such as a metric for percentage of products by revenue that contain certain hazardous substances.

Question 27

Discuss the general rule of thumb related to normalization and the sustainability dimension: Leadership & Governance

Answer 27

Typically relate to a company’s governance as well as its environmental and social impacts through the supply chain. In some cases, these metrics ask for disclosure of fines, which generally can be normalized in relation to a company’s revenue to better understand cash flow implications. Metrics that capture ethical violations, tend not to lend themselves to normalization as the ideal number is zero.

Question 28

For the example in the Pulp & Paper Products industry for GHG Emissions disclosure topic Scope 1 emissions, talk through the better way to normalize the below GHG emissions given the industry averages:
GHG Emissions: 105,000
Revenue ($B): $5.2

Industry Average Scope 1 emissions: 75,000

Industry Average Revenue per MTCO2e: $22,812

Answer 28

Even though the company is higher in gross emissions as shown by the difference in 105,000 to 75,000, because emissions are closely tied to energy consumption from manufacturing and there are a range of very large to very small producers, their emissions normalized by revenue is more meaningful at
$5,200,000,000 divided by
105,000 MTCO2e =
$49,521 per MTCO2e
indicating the economic efficiency of the company is superior to the industry benchmark.

Question 29

For the example in the Hotels & Lodging industry reporting 10 million cubic meters of water in a given time period, what was a better metric from the financial reports than revenue and why? What is the secondary / additional activity metric that should also be used?

Answer 29

Number of properties and serviceable rooms directly dictates the quantity of water used by guests, and so when normalizing to number of rooms.

However the rooms are not always occupied, so it should be:
Total water withdrawn:
10,000,000
Activity metric: total inventory of rooms:
10,000
Activity metric: average occupancy rate: 85%

So 10,000,000 times 8,500 rooms occupied = 1,176 cubic meters per occupied room to compare

Bonus: additional context may be needed as a water / swimming resort in a hot place with families might be expected to use more than a business hotel

Question 30

SASB Activity metrics are designed to provide information that is / is not already publicly available and that can be particularly _________ in normalizing sustainability performance metrics.

Answer 30

is not already publicly available
…
useful in normalizing sustainability performance metrics

Question 31

What are the four basic categories of activity metrics?

Answer 31

-number of employees
-amount of product sold
-amount of asset use / size or capacity of asset
-amount of assets owned versus leased or outsourced

Question 32

Discuss the Telecommunications Services industry accounting metric for energy management:
Total energy consumed
Percentage grid electricity
Percentage renewable energy
as it relates to the activity metric for data usage

Answer 32

Telecommunications companies consume substantial amounts of energy to operate. Consumers expect to always have reliable access to telecom services,
necessitating a continuous, uninterrupted supply of energy. Energy expenses constitute a significant portion of total costs—5 to 6 percent on average—and are highly relevant to long-term financial performance, particularly with the global focus on climate change and its attendant emphasis on energy efficiency and use of renewables. The sustainability accounting metric associated with the environmental footprint of operations includes two measurements that are already normalized: percentage grid electricity and percentage renewable energy.
A company’s total energy usage, however, needs to be normalized. Total energy consumed could be normalized by some available measure of company size, such as the number of customers or revenue. However, neither of these metrics effectively conveys a telecom company’s scale relative to its business activity, which is transmitting data. Normalizing a company’s energy use by the amount of data transmitted could yield a more effective rate for comparing its performance with that of its peers or over time. Since total data transmission amounts may not be readily available elsewhere (e.g., in annual reports or regulatory filings), the SASB Standard for this industry includes a SASB activity metric for data usage:
* TC-TL-000.D: Network traffic (petabytes)
The total network traffic is to be reported in petabytes (PB). When reported using the SASB Standard, network traffic can be used to normalize energy usage

Question 33

If two companies from different industries have the same Total Energy Consumed and Revenue, what should you consider about their normalization?

i.e.
Internet Media & Services
Total energy: 10,000
Revenue (in $M): $500

Alcoholic Beverages Company
Total energy: 10,000
Revenue (in $M): $500

Answer 33

Because they have different key inputs for value creation, you should consider the differences in each company’s use of energy as a key input for value creation.
For Internet it is for data centers, and for Alcoholic Beverages, it is for the production and distribution of products. So the normalization for Internet against data processing capacity, percentage outsourced is more meaningful, and for Alcoholic Beverages it is more meaningful to compare to volume of products sold which significantly changes each metric.

Question 34

In many cases, a SASB disclosure topic includes multiple sustainability accounting metrics and a given metric may even include multiple measurements. Why?

Answer 34

SASB metrics are designed to provide enough data and information to thoroughly understand and interpret a company’s performance on a given sustainability issue, all of which tend to be important when analyzing performance

Question 35

For the Non-Alcoholic Beverages industry example for issue Water & Wastewater management with the following metrics, measurements and values, please calculate and interpret the results for normalization:

COMPANY A:
Revenue ($M): $10,000
Total water withdrawn (m3): 5 million
Percentage from water-stressed regions: 30%
Total water consumed (m3): 4 million
Percentage from water stressed regions: 30%

INDUSTRY AVERAGE:
Revenue per water withdrawn ($/m3): $1,900
Percentage from water-stressed regions: 22.3%
Revenue per water consumed (m3): $2,417
Percentage from water stressed regions: 22.7%

Answer 35

When calculating Company A’s revenue per cubic meter for water withdrawn, $10B over 5 million cubic meter= $2,000 per cubic meter
and
revenue per cubic meter for water consumed, $10B over 4 million cubic meter = $2,500 per m3
Company A does better than each of the industry averages.
However, this industry relies heavily on water as an input, and water scarcity can result in higher supply costs, supply disruptions, and social tensions, so the higher percentage in water stressed regions for both water withdrawn and water consumed might lead you to judge the firm having higher operational risks than the industry as a whole. The company’s current performance and risk profile may make it unable to sustain that performance in the long term.

Question 36

Why is it important to remember that a clear understanding of how an ESG issue impacts business performance often cannot be interpreted with just one metric?

Answer 36

Effective comparison of ESG data relies not just on standardized disclsoure to ensure quality data but also on an ability to recognize where information used to evaluate performance on a topic may not be complete.

Question 37

What are the traditional and sustainability modes of comparison relied upon when analyzing company performance with financially material information?

Answer 37

-Past performance
-peer performance
-benchmarks and targets

Question 38

Changes in a company’s performance on critical sustainability factors ______ meaning when evaluated relative to other datapoints.

Answer 38

Gain meaning

Question 39

Describe comparative analysis against past performance and why it matters

Answer 39

Comparing company-reported data at two or more distinct points in time allows users to interpret a company’s performance trajectory, and can therefore be useful in assessing a company’s current and future performance.

Question 40

Calculate and explain the relative performance of the industry Food and Beverage sector for issue Waste / Food Waste Management and the accounting metric “Amount of food waste generated, percentage diverted from the waste stream”

GROCER A
Amount of Food Waste generated (tons):
Year 1 - 200,000
Year 2 - 170,000
Number of retail locations
Year 1 - 500
Year 2 - 490

GROCER B:
Amount of food waste generated (tons):
Year 1: 110,000
Year 2: 115,000
Number of retail locations:
Year 1: 350
Year 2: 380

Answer 40

Calculating for Grocer A:
Year 1: 200,000 tons over 500 stores = 400 tons of food waste per store
Year 2: 170,000 over 490 stores is 346.9 tons of food waste per store
Representing a YoY decrease of 13.2%

Calculating for Grocer B:
Year 1: 110,000 tons over 350 stores = 314.3 tons of food waste per store
Year 2: 115,000 tons over 380 stores = 302.6 tons per store
Representing a YoY decrease of 3.7%

Grocer B has lower absolute food waste than Grocer A and is measurably lower in food waste per store. Yet Grocer A is improving at a faster rate. It is worth examining whether Grocer B has attributes that enable it to better control its food waste production (perhaps by donating or repurposing unsellable items)

Question 41

Explain why for the regulated industry Semiconductors on issue GHG Emissions accounting metric Gross global Scope 1 emissions and amount of total emissions from perfluorinated compounds, it may be beneficial to use both absolute and normalized data for year over year comparisons

Answer 41

Absolute emissions can be beneficial given companies operating in the EU may be subject to cap-and-trade laws that limit emissions, and so you may want to track against a regulatory cap. Normalized emissions data per unit produced will tell efficiency and reveal directional trending on the company’s management of emissions

Unused emissions allowances (often called carbon credits), constitute salable assets with rising monetary value so a small company with a high emissions rate per unit would indicate relatively poor performance, but because of the small size, may fall below the industry cap, creating a revenue opportunity in the sale of emissions allowances.

Question 42

Normalization can help make reported sustainability data more useful in peer-to-peer comparisons by taking into account the differences between companies in the same industry. What choice can be important to frame datapoints in the most useful way?

Answer 42

An appropriate activity metric for normalization is important

Question 43

Normalize, compare and provide insights on the following example from Food & Beverage Sector, GHG Emissions, Air Emissions from Refrigeration and associated sustainability and activity metrics:

GROCER A:
Gross Global Scope 1 emissions MTCO2e:
Year 1: 100,000
Year 2: 90,000
Number of stores:
Year 1: 500
Year 2: 490
Average store size:
Year 1: 30,000
Year 2: 30,000

GROCER B:
Gross Global Scope 1 emissions MTCO2e:
Year 1: 60,000
Year 2: 61,000
Number of stores:
Year 1: 350
Year 2: 360
Average store size:
Year 1: 50,000
Year 2: 50,000

Answer 43

First you would multiply the activity data to get the total cubic meters of store size to compare the two Grocers.

Grocer A in Year 1: 15M
Grocer A in Year 2: 14.7M
Grocer B in Year 1: 17.5M
Grocer B in Year 2: 18M

Then you would use this figure rather than the number of stores as a normalization factor:

Grocer A
Year 1: 100,000 over 15M = 0.0067
Year 2: 90,000 over 14.7M = 0.0061

Grocer B
Year 1: 60,000 over 17.5M = 0.0034
Year 2: 61,000 over 18M = 0.0034

Grocer A is achieving a reduction in year over year emissions while Grocer B is relatively constant but about half the emissions per cubic meter.
You would want to understand why Grocer B appears to be meaningfully more efficient in controlling its emissions

Question 44

What does the following example from the Alcoholic Beverages Industry for energy management demonstrate?

Company A:
Total Energy Consumed in GJ: 10,000
Number of production facilities: 10
Total Production Space in m2: 1 million

Company B:
Total Energy Consumed in GJ: 20,000
Number of production facilities: 15
Total Production Space in m2: 2.5 million

Answer 44

Company A is 1,000 GJ per facility compared to Company B at 1,333 GJ per facility suggesting it is more efficient

Company A is 0.01 GJ per square meter and Company B is 0.008 GJ per square meter indicating it is important to normalize against total production space and select the right activity metric.

Question 45

For most SASB topics, quantitative data is either already being collected by companies or easily could be collected to provide useful information to internal and external decision makers. What percentage of SASB metrics are quantitative?

Answer 45

75%

Question 46

Which dimension & issue categories are examples of inherently difficult to quantify?

Answer 46

Human rights and ethics

Question 47

What does the following list of sustainability accounting topics for Aerospace & Defence industry, issue & disclosure topic Data Security exemplify?

Sustainability metric 230a.1:
1) Number of data security breaches and
2) percentage involving confidential information

Sustainability metric 230a.2:
Description of approach to identifying and addressing data security risks within (1) company operations and (2) products

Answer 47

The quantitative measure for past perforamnce is an important indicator of future performance but it doesn’t tell the whole story. The second, qualitative metric provides a fuller understanding of a company’s potential performance going forward. For example, this can help explain whether a spike in past incidents represents an anomaly that the company is tackling effectively or whether it is indicative of a systemic problem with how the company manages cybersecurity risk.

Question 48

What does the following example from the Apparel industry, Issue: Product Design & Lifecycle Management, Disclosure Topic: Management of Chemicals in Products exemplify?

Sustainability Accounting metric 250a.1:
Discussion of processes to maintain compliance with restricted substances regulation

Sustainability Accounting metric 250a.2
Discussion of process to assess and manage risks and/or hazards associated with chemicals in production

Technical Protocol: the entity shall describe how it prioritizes chemicals for reduction and/or elimination from its products and how it works to incorporate alternative chemicals into product formulation and design, including through materials substitution assessments

Answer 48

In this case, qualitative metrics were deemed superior to quantiative ones in capturing the sustainability characteristics of the company under this topic.
Given the increasing regulatory and public scrutiny being given to the use of harmful chemicals, poor management can result in regulatory or legal actions. The availability and use of chemicals in these products are constantly changing as new processes and chemicals are developed and old ones are retired, so Standards research staff determined processes and procedures were the most important indicators for managing chemicals.

Question 49

[CHECK FOR UNDERSTANDING] What are the questions that can help determine if ESG data will likely need to be normalized to facilitate more effective comparisons?

Answer 49

There are three main questions that can help a user determine if ESG data should be normalized:
* Is the data already normalized, as it is when presented in the form of a percentage or ratio? If not, normalization may be needed.
* Are absolute values useful on their own (i.e., there is no absolute value to compare against such as a regulatory cap)? If not, normalization may be
needed.
* Does the range of performance vary widely? If it does, normalization will likely be additive

Question 50

[CHECK FOR UNDERSTANDING] When are activity metrics superior to financial metrics for normalization, and when is the inverse true?

Answer 50

To answer this question, a user must consider how metrics used for normalization help explain specific data and put it into meaningful context, and how the data provides insight into the financial impacts of a given sustainability metric.
The SASB Standards provide activity metrics that are useful for analyzing sustainability accounting metrics where commonly-reported financial information does not already serve this purpose. Activity metrics produce non-financial business data (e.g. number of employees, number of facilities, units produced, etc.) or industry-specific data (e.g. hospital-bed days for Health Care Delivery companies, total landfill gas generated for Waste Management companies, highrisk food violation rates for Food Retail companies, etc.). Activity metrics are particularly useful when interpreting company efficiency related to Environmental issues, productivity related to Social Capital issues, and productivity related to Human Capital Issues.
Financial metrics serve as superior metrics for normalization where they provide the most insight into the financial impacts of a sustainability issues. In other words, where an issue is directly or indirectly linked to channels of financial impact.
For example, revenues and earnings can be highly useful when interpreting the economic efficiency of a company related to Environmental issues, the profitability of a company related to Business Model and Innovation issues, or the cash flow implications of Leadership & Governance Issues.
However, it is important to remember that normalization is not prescriptive. The “best” metric comes down to the question(s) the user seeks to answer

Question 51

[CHECK FOR UNDERSTANDING] How can the selection of different activity metrics impact the usefulness of normalized sustainability data?

Answer 51

The selection of different activity metrics determines the type of insight a user can gain from comparative analysis or analysis of a company on a stand-alone basis. It amounts to the difference between understanding the full spectrum of ESG-related risks and opportunities associated with a sustainability topic, or not. In many cases, more than one metric for use in normalization is necessary to understand the full breadth of an issue.
For example, consider a user that is analyzing the energy performance of a company in the Restaurants industry. To better understand energy performance, the user is considering normalizing “total energy consumed” by two difference activity metrics: “number of company-owned restaurants” and “number of employees.” Which activity metric provides more useful insight? In this case, “number of company-owned restaurants” would, because restaurant operations require kitchen equipment that is extremely energy intensive. Scale of operations directly influences energy performance, while workforce size does not. By normalizing “total energy consumed” by “number of company owned restaurants,” a user can see what average energy consumption is per restaurant and compare
per-restaurant energy consumption across peer companies and against past performance. This normalized metric provides insight into the energy efficiency of physical operations

Question 52

[PUTTING INTO PRACTICE]
For the example on page 99 for Waste Management companies as it relates to methane, landfill gas, regulation and flares / diversion, answer the first question:
1. Which metric(s) from Table 2 would not serve as a useful normalization measure?

TABLE 1:
METRIC YEAR 1 YEAR 2
(1) Total landfill gas generated (MMBtu) 2,600,000 2,908,000
(2) percentage flared 9% 10%
(3) percentage used for energy 45% 50%

Table 2: Additional Data
METRIC YEAR 1 YEAR 2
Revenue (million $) $1.8 $2.1
Number of landfills 15 15
Net LFG generated (MMBtu)* 1,404,000 1,599,400
Vehicle fleet size 2,000 2,005
Number of municipal clients served 750 840

Answer 52

While emissions from fleet vehicles may be important in evaluating the company’s total GHG emissions, vehicle fleet size does not influence landfill gas emissions
in any way, based on the description in the first paragraph of how landfill gas is generated. Therefore, vehicle fleet size would not serve as a useful normalization
measure.

Question 53

[PUTTING INTO PRACTICE]
For the example on page 99 for Waste Management companies as it relates to methane, landfill gas, regulation and flares / diversion, answer the first question:
2. If normalizing total generated landfill gas using more than one factor, how would insights generated from each differ?

TABLE 1:
METRIC YEAR 1 YEAR 2
(1) Total landfill gas generated (MMBtu) 2,600,000 2,908,000
(2) percentage flared 9% 10%
(3) percentage used for energy 45% 50%

Table 2: Additional Data
METRIC YEAR 1 YEAR 2
Revenue (million $) $1.8 $2.1
Number of landfills 15 15
Net LFG generated (MMBtu)* 1,404,000 1,599,400
Vehicle fleet size 2,000 2,005
Number of municipal clients served 750 840

Answer 53

Two metrics in Table 1—percentage flares and percentage used for energy—are already normalized and do not need to be normalized further (see Section 4.1.). Based on the information provided above, a user may choose to normalize total landfill gas generated by (1) company revenue, (2) number of landfills, and/or (3) number of clients served. Recall that, in general, environmental metrics are often best normalized on a revenue basis or a production basis.
a. Normalizing by company revenue:
When normalizing by company revenue, the analyst would produce the following results:
Year 1:
2,600,000 MMBtu ÷ $1,800,000 = 1.44 MMBtu per $
Year 2:
2,908,000 ÷ $2,100,000 = 1.38 MMBtu per $
When normalizing emissions by company revenue, the analyst gains insight into the relative economic efficiency of the company related to emissions from landfill gas.
Based on two years of performance data, it appears the company is improving its economic efficiency by generating fewer emissions per dollar revenue over time.

Two metrics in Table 1—percentage flares and percentage used for energy—are already normalized and do not need to be normalized further. Based on the information provided above, a user may choose to normalize total landfill gas generated by (1) company revenue, (2) number of landfills, and/or (3) number of clients served. Recall that, in general, environmental metrics are often best
normalized on a revenue basis or a production basis.

Here, it may be useful to consider net emissions per dollar revenue as well:
Year 1:
1,404,000 MMBtu ÷ $1,800,000 = 0.78 MMBtu per $
Year 2:
1,599,400 ÷ $2,100,000 = 0.76 MMBtu per $
With capture systems in place to repurpose emissions into energy inputs, the
company releases significantly fewer emissions into the atmosphere while still
marginally improving economic efficiency. Notably, this year-over-year comparison
does not include energy expense offsets due to on-site electricity generation. To the
extent that the company can increase capture to reduce per-dollar emissions,
it can reduce its emissions levels by further scaling.
b. Normalizing by number of landfills:
When normalizing by number of landfills, the analyst would produce the
following results:
Year 1:
1,404,000 MMBtu ÷ 15 landfills = 93,600 MMBtu per landfill
Year 2:
1,599,400 MMBtu ÷ 15 landfills = 106,627 MMBtu per landfill
This mode of normalization tells the user the average level of net emissions per
landfill for the company. In the context of single-company analysis, the relative
performance of per-landfill emissions reveals that emissions per landfill have
increased. While absolute numbers may initially indicate that flaring and capture
techniques are improving, the normalized metric reveals that net emissions per
landfill has increased substantially, which may be cause for concern if emissions
rates become at risk of exceeding regulatory limits.
When considered alongside #1 above, a user may deduce that while economic
efficiency related to emissions has improved (a positive indication of future
performance), total emissions have also increased, which may be interpreted as
a risk, depending on the analyst’s perceived likelihood of future regulation for the
company. What other information provided in the tables above might help further
investigate this issue?
Two metrics lend additional insight into this issue. The first is net LFG generated.
As discussed in the case above, LFG capture systems can repurpose landfill gas
into energy used by the company, simultaneously reducing reliance on other energy
sources such as grid-based electricity and reducing the level of emissions reaching
the atmosphere. In the case above, net LFG is significantly lower than total LFG
generated, meaning the company’s exposure to future regulatory caps is markedly
lower than it would be otherwise. The LFG-to-energy system may also explain the
company’s improved economic efficiency. Though to fully answer that question, the
user would need to evaluate energy consumption and operating costs in more detail.

c. Normalizing by number of customers served
When normalizing by number of customers served, the analyst would produce the following results:
Year 1:
2,600,000 ÷ 750 clients = 3,467 MMBtu per customer
Year 2:
2,908,000 ÷ 840 clients = 3,462 MMBtu per customer
When normalized by customers served, the analyst gains insight into average emissions generated per customer. As the industry experiences shifting demand for recycling, material reclamation, and other forms of landfill diversion, this metric can lend insight into the extent to which a company is able to effectively mitigate LFG through upstream strategies. Additional contextual information such as changes to service offerings, business model innovation, or other strategic actions would therefore inform how the analyst interprets this metric. For now, performance indicates a marginal decrease in per-customer emissions from Year 1 to Year 2.