Key performance indicator
A key performance indicator, or KPI, is a selected quantitative or qualitative measure used to track performance against a defined objective. A useful sustainability KPI specifies what is measured, the boundary, method, unit, period, data source, and responsibility, so results can be interpreted consistently and compared with a baseline or target.
In simple terms
Not every metric is key. A KPI is chosen because it helps decision-makers monitor an important outcome, driver, risk, or commitment. Financial materiality can help determine which sustainability measures are decision-useful for investors. Sustainability KPIs might cover emissions intensity, injury frequency, water withdrawal, supplier assessment, or the share of eligible activities meeting defined criteria. The label alone does not make a measure reliable. Users need a clear formula, scope, denominator, consolidation approach, treatment of estimates and restatements, data controls, and an explanation of how the indicator relates to the objective it is meant to track.
Why it matters
Well-designed KPIs turn broad sustainability ambitions into observable performance and can support governance, reporting, incentives, and finance. A sustainability-linked bond may use a selected KPI to determine whether specified financial characteristics change. Poorly chosen indicators can reward activity instead of outcomes, hide absolute impacts behind intensity improvements, or invite selective reporting. A balanced set should be decision-useful, reproducible, comparable where appropriate, and reviewed when strategy or evidence changes.
Example
A company aiming to reduce operational emissions selects absolute Scope 1 and Scope 2 emissions as a KPI, defines organizational and reporting boundaries, documents calculation methods and data owners, sets a base year and target, and reports both progress and restatements. It does not substitute the number of efficiency projects for the emissions outcome.
How it differs
Sustainability-linked bond
A KPI is a performance measure; a sustainability-linked bond is a financing instrument whose terms may be linked to selected KPIs and associated sustainability performance targets.