ESG Target setting for non-financial KPIs - BDO

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Target setting for non-financial KPIs

2025 has already been a rocky year for business. Changing geopolitical situations, extreme weather events, and economic uncertainty have many companies taking a hard look at their operations. Including their ESG efforts.

As many companies reorient their sustainability strategies, one thing becomes clear: the importance of well-structured key sustainability performance indicators (KPIs) cannot be underestimated as they help track progress. But here's the thing – a good KPI without a target is like running a race without knowing where the finish line is.

Setting targets is already tough for well-established KPIs and often comes with some form of arbitrary ambition. This challenge intensifies when KPIs rely on proxies, self-reported data, or tough-to-gather data, which is often the case in ESG settings...

So how can organisations navigate this complexity? Based on our experience working with companies over the past few years, here's what actually works in ESG target setting.

Why focus on target setting?

We see this challenge repeatedly: dedicated teams pushing sustainability initiatives forward, but without clear definitions of success. Therefore, establishing clear targets is essential not only for measuring progress but also for motivating teams and aligning efforts across the organisation. They also facilitate accountability, as stakeholders can assess performance against specific benchmarks.

More importantly, well-defined targets help to clarify expectations and set the stage for meaningful discussions around performance. They allow businesses to identify areas of improvement and celebrate successes, fostering a culture of continuous improvement. In the context of ESG, where the landscape is constantly evolving, having robust targets can guide organisations in navigating challenges and seizing opportunities.

Ultimately, effective target setting transforms KPIs from mere numbers into powerful tools for driving change and achieving sustainable growth.

Three types of ESG targets (and when to use them)

Based on our experience, most ESG targets fall into three categories:

Self-explanatory targets: these are straightforward and quantifiable metrics that provide clear insights into specific areas of performance. Think number of work-related accidents or incidents of discrimination within the workplace. Sometimes the target is obvious because the goal is clear – protecting people. Will you therefore reach this target? Not always, but it still should be the goal to aim for. These targets are typically possible in a context that is easy to track and report, often making them essential for compliance and safety monitoring. Their clarity also allows organisations to quickly assess their performance and make necessary adjustments to improve workplace conditions. Implicitly or explicitly, many organisations will already have such targets in place.

Arbitrary targets: these targets often involve qualitative assessments and can be more challenging to define and measure. Examples include diversity metrics and employee well-being indicators, which are often linked to KPIs that are difficult to quantify. As a result, organisations often resort to using qualitative data or proxies, making target setting and monitoring difficult. Setting these targets requires careful consideration and could involve employee surveys or feedback mechanisms. These targets often feel arbitrary (why would we strive for 5% increase in employer satisfaction and not 10% or 2%?) but having them is still better than having none at all. This is because setting these targets can drive initiatives to improve performance and impact.

Standardised targets: these targets are based on recognised external frameworks and methodologies, providing a consistent approach to measuring ESG performance. Examples include Science-Based Targets and Equal Salary for metrics. Standardised targets are valuable because they align organisations with industry best practices and regulatory requirements. They also facilitate benchmarking against peers and demonstrate a commitment to sustainability and social responsibility. By adopting standardised targets, organisations can ensure their efforts are credible and transparent, enhancing trust among stakeholders.

How to set effective ESG targets?

Now we come to the crux of the matter: how to set effective ESG targets. Establishing targets that are both ambitious and achievable is essential for driving meaningful change within organisations. To address this question, we have developed a practical framework that works across industries:

Framework & KPI selection

After performing a Double Materiality Assessment (DMA) to prioritise which topics are material, organisations should set KPIs and targets for those topics. The first step in setting ESG targets is to identify the framework and KPIs that best align with your industry, company size, and strategic ambitions. Various frameworks exist, each offering different methodologies and metrics tailored to specific sectors or objectives.

When selecting KPIs, it is crucial to consider not only the relevance of the metrics but also their ability to drive performance improvements. Look for KPIs that have been validated through industry benchmarks, enabling you to compare your performance against peers. Engaging stakeholders (including employees, customers, and investors) in this selection process can also provide valuable insights and foster a sense of ownership and commitment to the targets.

Target setting

The targets should naturally flow from the chosen KPIs, as discussed in the deep dive of different kind of targets. It is essential to define these KPIs in a SMART manner (Specific, Measurable, Achievable, Relevant, and Time-bound).

But here's the crucial part: ensuring everyone understands what these KPIs actually mean. Training sessions, workshops, and clear communication make all the difference. A shared understanding across the organisation is essential to enhance collaboration and commitment to achieving the targets.

Action plan as validation of the target

Here’s where theory meets reality. Developing a realistic action plan is crucial for validating the feasibility of your targets. This plan should outline the specific steps required to reach each target, including the resources needed, timelines, and responsible parties.

Resource allocation: identify the financial, human, and technological resources necessary to implement the action plan. This may involve budgeting for new initiatives, estimating the time investment needed to drive the actions, hiring additional staff, or investing in training programs to build capacity.
Timeline and milestones: establish a timeline with key milestones to track progress. Breaking down the action plan into smaller, manageable tasks can help maintain momentum and facilitate regular assessments of progress.
Monitoring and evaluation: incorporate mechanisms for monitoring progress and evaluating the effectiveness of the action plan. Regular check-ins and progress reports can help identify any obstacles early on, allowing for timely adjustments to keep the organisation on track.

The climate case

Many businesses are measuring greenhouse gas emissions and want to set carbon reduction targets. But which targets make sense? How can organisations balance ambition with achievability? BDO Belgium has developed an approach that effectively strikes this balance.

Framework selection

Depending on the industry, size, and ambitions of your organisation, one framework may be more applicable than others. Our initial analysis involves matching your organisation with a framework that aligns with your specific context and value drivers.

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Science Based Targets

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These frameworks will dictate the process that should be followed in the subsequent steps for target setting. Certification isn't necessary – organisations can adopt the process and principles that work for their situation.

Target setting

Following the process outlined by the selected framework, the next step is to determine the minimum targets that should be achieved by specific deadlines. Typically, targets are set for Scope 1, 2, and 3 emissions, with short-term goals (e.g., by 2030) and long-term aspirations (e.g., by 2050). Once these minimum targets are established, the feasibility of achieving them can be assessed.

Reduction Planning

Setting base year and model: utilise greenhouse gas calculations to establish a base year, which will serve as the foundation for modeling how emissions will change over time. This baseline is critical for understanding progress and evaluating the effectiveness of reduction strategies.
Expected changes: after setting the base year, it is essential to quantify all factors expected to have an impact on your organisation’s carbon footprint in the coming years. Specifically, this includes assessing the effects of planned carbon reduction initiatives, organisational growth, external influences, and sectoral changes, all of which will be integrated into a comprehensive model.
Filling the gaps: based on the developed model, conduct a necessary feasibility analysis to identify required carbon reduction decisions. This process will help ensure that your targets are not only aspirational but also grounded in reality, facilitating actionable steps toward achieving your ESG objectives.

Moving forward with your ESG journey

Now that you understand the importance of setting effective ESG targets, it's time to take action! Assess your current KPIs, engage your stakeholders, and start defining your targets.
Let’s work together to create a more sustainable future.

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Setting targets represents just one strategic move in your sustainability journey .

You'll find additional proven approaches and actionable insights in our comprehensive ESG white paper, where we outline the complete roadmap for turning compliance challenges into competitive advantages.

Download the white paper

How can BDO help?

We at BDO can assist your organisation with a pragmatic and practical approach for setting targets and developing the necessary strategy. Our services range from performing the full analysis to coaching, and from making a high-level assessment to an in-depth impact of climate impacts on the value drivers of your organisation. Feel free to reach out to discuss all the possible solutions we have in store for you.

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