Relation between performance metrics and targets

[mhoullier]

When setting targets on a topic covered by sustainability standards, entities are in general to choose the metric used for the target. This target might directly be one the metric whose disclosure is required directly by the standards as a performance metric, in which case users will be able to directly use the current performance measurement to understand the entity's progress on its target.

It is however also common to use metrics derived from the performance metrics. For instance, while entities must report their direct GHG emissions, they may state a target as percentage of their baseline direct GHG emissions, in a statement such as "50% of our baseline direct emissions".

It would in general not be practical for standard setters to create taxonomy elements that represent the percentage of change from the baseline for every performance metric. On the other hand, it is also very important not to have entities create raw extension elements for this purpose, as this would greatly reduce the usability of the disclosure. Taxonomies should therefore prepare a mechanism to tag such disclosures.

For instance, a mechanism such as the one we suggested for entity-specific metrics could be used. The 50 figure could then be tagged with a PercentageOfBaselineValue element and a DirectGHGEmissions member (using the line item directly as a member) in a MetricsAxis dimension.

Our concern here is to identify other common relations between performance metrics and target metrics so that the taxonomies can prepare elements to perform a role similar as PercentageOfBaselineValue in the example (or equivalents if a different mechanism is used).

[mhoullier]

Directly using the performance metric as a target metric is fairly common.

In such a case, no specific mechanism is required.

[mhoullier]

Using a percentage of the baseline value is very common, where the baseline value itself is reported using the performance metric directly.

Changes relative to the baseline value may also be disclosed as a year-over-year change

We have not observed uniform changes (either expressed as absolute values or percentages of baseline) used as target metrics in our quick review.

[mhoullier]

Using the accumulated value between the baseline and the target date is fairly common.

From an analytical point of view, this is equivalent to using the average value between the baseline and the target date, but a different XBRL concept would need to be used as the amount is different.

[mhoullier]

All of the above relations also have variants where the baseline performance metric value is adjusted for the change in activity level of the company.

To be entirely well-defined, it would be necessary to differentiate between different types of activity level measurements, though as seen in the first example, it may not always be explicitly disclosed.

[mhoullier]

Another observed relation is one where the target metric is the percentage of the entity's activities for which a threshold condition (expressed using the performance metric) is true.

With the threshold approach necessary to evaluate alignment with the Taxonomy Regulation, such target metrics could become more prevalent in the future. In that case, the "activity level" would often be revenue or operational expenditure.

[mhoullier]

It must be noted that some of the abovementioned types of derived target metrics may not be allowed under some of the sustainability standards, in which case there would of course be no need for their taxonomy to include a corresponding model.