Ecological Economics 28 (1999) 41 – 53

METHODS

Towards indicators of sustainable development for firms

A productive efficiency perspective

Isabelle Callens, Daniel Tyteca *

Centre Entreprise En6ironnement, Institut d’Administration et de Gestion, Uni6ersité Catholique de Lou6ain, Place des Doyens, 1,
B-1348 Lou6ain-la-Neu6e, Belgium

Received 7 July 1997; received in revised form 25 February 1998; accepted 3 March 1998

Abstract

Sustainable development can be reflected by various economic, social and environmental factors that are closely
interconnected with each other, and with the additional dimension of time, which stresses the long-term perspective
of several factors. Due to their central role in human activities and development, firms should play an important part
in the attainment of sustainability goals. The purpose of this paper is to contribute to the methodology of indicators
that allow for the assessment of business participation into sustainable development. A fundamental standpoint
adopted is to view economic, social and environmental efficiency as a necessary (but not sufficient) step towards
sustainability. To work out indicators, we build on both the concepts of cost – benefit analysis and the principles of
productive efficiency. We assume that we have observations on economic, social and environmental factors for a set
of decision making units (DMUs), e.g. firms in an industrial (sub-) sector. The efficiency of each DMU is computed
from a set of observed data, using mathematical programming techniques, resulting in DMUs that are ‘efficient’ and
define the efficiency frontier among the set of DMUs, and DMUs that are ‘inefficient’. To cope with the
multidimensionality of sustainable development, it is important not to base decisions on one unique, aggregate
sustainability indicator; instead, it is suggested to develop two or three partial indicators that stress different aspects
of the problem. The proposed indicators could be used as an aid to detect so-called factors of unsustainability, and
hence to provide for recommendations as to the regulations and incentives, or managerial practices, that will
contribute to overall sustainability. © 1999 Elsevier Science B.V. All rights reserved.

Keywords: Sustainable development; Indicators; Measurement; Productive efficiency; Business

* Corresponding author. Tel.: + 32 10 478368/478375; fax: + 32 10 478324; e-mail: callens@prod.ucl.ac.be-tyteca@qant.ucl.ac.be

0921-8009/99/$ - see front matter © 1999 Elsevier Science B.V. All rights reserved.
PII S0921-8009(98)00035-4
42 I. Callens, D. Tyteca / Ecological Economics 28 (1999) 41–53
1. Introduction
In the last few decades, environmental prob-
lems faced by our modern society have given rise
to a considerable wealth of research. More re-
cently, environmental preoccupations appeared to
become part of a more global and fundamental
context, that of sustainable development. The cul-
minating point of that new awareness was reached
at the Earth Summit in Rio in June 1992. Many
nations have subscribed since then to the princi-
ples of sustainable development. Its most wide-
spread, general (and vague) definition had the
merit to create quasi-unanimity: it states that
sustainable development is a ‘‘development that
meets the needs of the present generation without
compromising the ability of future generations to
meet their own needs’’ (World Commission on
Environment and Development, 1987). Such a
broad definition is likely to give rise to various
different interpretations, since people all have dif-
ferent goals and sensitivities and will generally not
agree on what to sustain (Norrthon, 1995). Thus
we must be very careful in defining the goals and
options of sustainability. Moreover, the so-called
‘‘goals’’ of sustainability cannot be unique and
defined once and for all; rather, sustainability
should be viewed as a dynamic process in which
the targets have to be continuously checked and
improved, or as a philosophy that permanently
tends towards improvements.
According to Welford (1995), ‘‘sustainable de-
velopment is made up of three closely connected
issues and each one of these needs to be addressed
by industry. Firstly, the environment must be
valued as an integral part of the economic process
and not treated as a free good’’. This implies
‘‘minimal use of non-renewable resources and
minimal emission of pollutants’’, as well as pro-
tection of ecosystems in order to avoid the loss of
plant and animal species. ‘‘Secondly there is a
need to deal with the issue of equity’’. Equity
‘‘applies not only to relationships between the
First and Third Worlds, but also within countries
between people’’, which, e.g. implies the reduction
of unemployment. ‘‘Thirdly, sustainable develop-
ment requires that society, businesses and individ-
uals operate on a different time scale than
currently operates in the economy. This is the
issue of futurity’’. This implies longer term, inter-
generational considerations; therefore, ‘‘longer
planning horizons need to be adopted and busi-
ness policy needs to be proactive rather than
reactive’’ (Welford, 1995).
Thus society has to formulate sustainability
goals, incorporating all three aforementioned is-
sues, and these goals have to be permanently
checked and improved. The extent to which given
goals are met can be measured by activity or
performance indicators. The information obtained
from indicators is especially valuable in the assess-
ment of tools such as taxes, regulations, or volun-
tary agreements, as to their validity and
effectiveness towards meeting sustainability objec-
tives. For example, the information obtained from
life cycle analysis or life cycle assessment of prod-
ucts (SETAC, 1992) can be reflected in the form
of price signals to reflect their whole environmen-
tal or societal costs (Portney, 1993, 1994). As
another example, at the national level, environ-
mental laws and regulations can be improved by
using the information obtained from such indices
as NNP (net national product, i.e. GNP corrected
to account for degradation of natural capital).
Indicators can also be used to compare similar
existing units (products, technologies, plants,
firms, sectors and countries) in terms of their
performance with respect to some specified targets
(economic, environmental, etc.). In this case their
utility is to identify ‘laggers’ among the units
considered as well as the causes of lagging, and to
adopt relevant corrective actions. More generally,
indicators can contribute to discover so-called
factors of unsustainability (Callens and Wolters,
1998) and to give recommendations as to means
to reduce their influence. Conversely, indicators
can be used to select the best among a set of
possible alternatives still to be implemented. As
an example of the latter, one could think of
environmental impact assessment methods (De-
vuyst, 1993). Other uses of indicators include
monitoring the performance and progress of given
units (products, firms, etc., see above) over time.
Until now, sustainability indicators have been
developed mainly at the most global level, i.e. the
state or country level (Daly and Cobb Jr., 1989;
 I. Callens, D. Tyteca / Ecological Economics 28 (1999) 41–53
Pearce and Atkinson, 1992, 1993; Pearce, 1994).
Due to their central role in human activities and
development, firms should play an important part
in the attainment of sustainability goals. A recent
methodology, based on so-called sustainable de-
velopment records (SDR), was developed for the
firm or plant level (Bergström, 1993; Block and
Högström, 1995). That approach is primarily
devoted to the appraisal of a given firm’s contri-
bution to sustainability. Ragas et al. (1995) also
proposed to develop sustainability indicators for
production systems. They start from the concept
of environmental space, which would allow the
measurement of sustainability, through the defini-
tion of an adequate distribution scheme of the
various components of environmental space
among production systems.
The latter approach can be viewed as a ‘top-
down’ definition of sustainability indicators, i.e.
the measurement is performed with respect to
some global, predetermined level of sustainability.
In this paper we have a different, somewhat com-
plementary ‘bottom-up’ focus, that starts from the
production systems themselves. We set out to
compare various firms or plants in a given set, in
terms of their performance as regards sustainabil-
ity, in order to be able to detect which ones of
them are the laggers, what are the reasons for
lagging (e.g. which are the factors of unsustain-
ability involved (Callens and Wolters, 1998)) and
therefore what are the possibilities towards im-
provement. In this scheme, efficiency with respect
to economic, social and environmental resources
is viewed as a necessary (but not sufficient) step
towards sustainability. This is discussed in the
following section.
2. Economic, social and environmental efficiency
as a necessary step towards sustainable
development
Before conceptualizing and implementing sus-
tainability indicators for firms, we would have to
raise the following question: what is a sustainable
enterprise? However, the answer to such a ques-
tion in absolute terms appears impossible, because
it depends on so many factors that are hardly
43
controllable. For example, the geographic and
socio-demographic environment in which a plant
is located will play a determinant role. Thus, a
pulp and paper plant isolated in the Canadian
forest, making extensive use of forest products,
and discharging wastes into a large river, may
turn out to be sustainable because ecosystems are
only locally affected and long-term equilibria are
not affected. On the other hand, the same plant,
using the same resources and with the same pol-
luting activities, but located in a heavily popu-
lated area, is not sustainable because it would
deplete natural resources (forest, water) and have
negative impacts on the communities living in the
neighbourhood. Therefore we must look for a
definition in relative terms. As mentioned in the
introduction, we might refer to specific targets
stated for resource uses and external impacts, e.g.
with reference to the concept of environmental
space. Or we might compare similar production
units placed in similar contexts, to detect whether
some of them behave in a more appropriate way
than others, with respect to specific economic,
social or environmental characteristics. Then the
initial question can be more appropriately stated
as ‘in what way would a given enterprise be more
or less sustainable than another’? If we admit that
this is a valid question, the next step will be to
define the kind of information that should appear
in the sustainability indicators in order to allow
for such comparisons.
The discussion conducted so far implies that we
would hardly define any indicator based on suffi-
cient conditions for sustainable development. In-
stead, we start from investigating a set of
necessary conditions that firms must fulfill in or-
der to be sustainable. Necessary conditions are
viewed as being efficient in the use of resources, in
the pollutants released to the environment, in the
social role played by firms as reflected by their
rate of employment, the working conditions, and
in the care taken with respect to future genera-
tions in the setting of long-term objectives. Since
there are no benchmarks, for any of these charac-
teristics, that would indicate from which level
firms could be declared sustainable, the focus is
on comparing the firms between themselves. Some
are more efficient, or inefficient, in all respects;
44 I. Callens, D. Tyteca / Ecological Economics 28 (1999) 41–53

most often, however, they might be efficient in
specific respects but inefficient in others. Therefore
we need a methodology to take appropriate trade-
offs. This is what is developed in the paper.
Table 1 indicates a set of possible factors for
which information would be required in the frame-
work of efficiency. This list is not meant to be
comprehensive and is provided here only as an
example. It is likely to vary across the various
industrial sectors. The factors considered embrace
various kinds of quantities; for example, some of
them are representatives of stocks, other ones stand
for flows, while a third part of them would reflect
transformations. One other categorization would
distinguish between factors that are viewed as
emissions (e.g. pollutants that are present in a given
firm’s effluents), and others that can be character-
ized as immissions (i.e. wastes that are actually
discarded to the environment, whose influence and
quantification depend on the local characteristics of
the receiving bodies). The concept of immission
does not only apply to environmental, physical
characteristics, but can be adapted and extended as
well to socio-economic components. For example,
locating a firm in a given region may induce
employment not only in the firm itself, but also
indirectly in services or administrations in charge
of controlling the ecological or economic activities
of the firm, or in the transportation sector, etc.
Thus we are not trying to specify rigid boundaries
to the systems whose sustainability is being tested.
Instead, the emphasis herein is on the methodology
of the approach, whatever the investigated unit
may be. When dealing with a specific application,
however, setting the boundaries is fundamental:
then we would have to specify exactly which system
is under investigation (e.g. a plant with its inputs/
outputs, a plant or a company with its raw material
uses and its environmental impacts and immis-
sions). The list of factors to be accounted for,
among those indicated in Table 1 as an example,
will depend upon the specification of boundaries.
It can be seen in Table 1 that some of the factors
considered reflect sustainability goals for the firm
considered (mainly economic goals, which underlie
its ability to survive), while others (i.e. socio-eco-
nomic and ecological factors) mainly reflect sus-
tainability goals for society. It is also apparent that
some of the items cover more than one category of
aspects. For example, the use of natural (renewable
or non-renewable) resources clearly has economic
incidences, ecological impacts, but also social im-
pacts, related to resource availability for future
generations. Some items might have contradictory
influences depending on the aspects considered.
For example, employment would tend to be mini-
mized from a business point of view but should
rather be maximized from a social point of view.
Also, the intervention of certain factors might
evolve with the level of scientific knowledge, which
will influence the way in which they should be
accounted for in the elaboration of indicators. As
an example, one may think of the CFCs, once
considered a useful, inert auxiliary in various pro-
ductions, but now identified as one of the major
pollutants contributing to the ozone layer deple-
tion.

Table 1
Sample list of information required in the development of sustainability indicators at the firm level

Short term Long term

Economic as- Turnover, value added, output production, resources Profitability, competitiveness, market shares, product
pects used as inputs (including recycled products and en- durability; research and development efforts
ergy)
Social aspects Employment, salaries, labor intensiveness or produc- Welfare, education, availability of (non-) renewable,
tivity, injury risk noise, odour resources (including energy), size (SME vs big), per-
sonnel rotation rate
Ecological as- Natural resources, wastes, pollution, transportation Global impacts: biodiversity, global warming, acid
pects modes and distances deposition, landscape, ultimate waste disposal,
product recycling ability
 I. Callens, D. Tyteca / Ecological Economics 28 (1999) 41–53 45

Dealing with sustainability, some authors (Ash- Table 2

ford and Meima, 1993; Welford, 1995) also insist Notation used in the definition of sustainability indicators
on the importance of such factors as the state of Variables to Variables to mini-
technology, information structures, societal values maximize mize
and culture. These are hard factors to measure
directly but they can be captured in an indirect Economic aspects ECONmax,i i= ECONmin,i i= 1,…,
way in some of the items listed in Table 1. For 1,…, I1 I2
Social aspects SOCmax,i i= 1,…, SOCmin,i i= 1,…, I4
example, it might be important to satisfy cultural I3
preferences for small, decentralized centers of pro- Environmental ENVmax,i i= ENVmin,i i= 1,…, I6
duction, ‘‘using local resources and good technol- aspects 1,…, I5
ogy to increase productivity to make products
and provide services that satisfy the fundamental
needs of local people without destroying the envi-
ronment’’ (Ashford and Meima, 1993). Such cul- Table 1 by the symbols defined in Table 2. For
tural or social preoccupations can be reflected by each of the three classes of aspects, i.e. economic,
variables such as employment, labor intensive- social and environmental, we consider factors
ness, and plant size (Table 1) which should there- whose value should be minimized (all other things
fore be given the adequate orientation (i.e. the being equal) and those whose value should be
emphasis should be more on small size, labor maximized, in order to reach efficiency, or more
intensive plants in order to achieve sustainability). generally, in the perspective of sustainability. For
example, natural resources used should clearly be
minimized, from an economic as well as ecological
3. Sustainability indicators based on efficiency standpoint, while durability is a factor we would
standpoints tend to maximize in a sustainability framework.
Note that in the following, we will use the terms
Now we come to the difficult question of how ‘factors’, ‘variables’, ‘quantities’ and sometimes
to account for, and aggregate, such diversified ‘aspects’ as synonyms.
information as listed in Table 1, provided that it is First, if we consider the definition of indicators
available. Data on the factors listed in Table 1 in a strict cost–benefit framework, the problem
can be exploited in two possible ways. First, we would be to compare the DMUs with respect to
could use past observations on the values of these the values taken by the following kind of
factors; the indicator would then be a static tool quantity:
that would help us to identify efficient and less I1
efficient units among a given set. Second, we IndicatorCB = % ai ECONmax,i
could use projected values that would reflect a set i=1
I2
of possible alternatives; in this case the indicators
would be a prospective tool. In both cases, we − % bi ECONmin,i
i=1
have to assume that we have observations on the I3 I4
factors for a set of (existing or possible) decision + % gi SOCmax,i − % di SOCmin,i
making units (DMUs), i.e. plants in a firm or i=1 i=1

firms in an industrial (sub-) sector. Indeed, to be I5 I6

operational, the indicator should compare units + % oi ENVmax,i − % zi ENVmin,i

that are really comparable, in the sense that they
produce similar products that are designed to
fulfill analogous usages. We also assume, without
loss of generality, that the available data cover
one time period (1 year).
Let us designate the quantities enumerated in
i=1 i=1
(1)
in which the (positive) coefficients ai, bi, gi, di, oi
and zi represent either the prices of marketable
economic quantities (i.e. inputs, salaries, etc.) or
shadow prices of non-marketable quantities (i.e.
46 I. Callens, D. Tyteca / Ecological Economics 28 (1999) 41–53

pollution, productivity, etc.). It is supposed that puts’ (Färe, 1992; Klein and Yaisawarng, 1993;
each of the quantities appearing in Eq. (1) has been Nestor and Pasurka, 1993; Ball et al., 1994; Färe
scaled by a quantity reflecting the activity of the et al., 1989, 1996; Tyteca, 1996). The basic stand-
DMU. Most relevantly, this would be some mea- point of productive efficiency, as applied to envi-
sure of the output production. This is necessary to ronmental performance measurement, is to
give meaning to the comparisons. compare a set of decision making units (DMUs)
The main drawback of a cost – benefit definition between themselves, in terms of their environmen-
such as in Eq. (1) is the quantification of the tal or sustainability performance. The comparison
coefficients, especially those for which no market is usually restricted to similar units, e.g. plants or
prices exist. This is indeed a much controversial firms in a given industrial (sub-) sector, but can be
topic and many would argue that not even shadow extended to different geographic regions and to
prices would exist for such critical factors as different periods of time, which allows, e.g. for the
biodiversity, or even more simply, existence of a assessment of performance improvements over
given living species. Therefore in the following we time. The technique is also known as data envelop-
will consider approaches that do not use price ment analysis (DEA). Outlined below are three
coefficients, but instead, weights or intensities, that examples of DEA models that consider the sustain-
reflect the importance given to the various factors. ability problem under three different perspectives.
Moreover, we consider an indicator defined as a
ratio between a weighted sum of quantities that are 3.1. Model 0: generalization of the input–output
considered desirable, to a weighted sum of quanti- framework
ties that are viewed as inputs and whose interven-
tion has to be minimized: Consider the situation depicted in Fig. 1. This
illustrates the simplified case where we consider,
IndicatorIO = in Eq. (2), only one numerator quantity Qmax (i.e.
a quantity to be maximized, an output) versus only
I1 I3 I5
% ai ECONmax,i + % gi SOCmax,i + % oi ENVmax,i
one denominator quantity Qmin (an input). In
i=1 i=1 i=1 Fig. 1, DMU A is efficient because there is no
I2 I4 I6 other DMU that uses less of Qmin to produce
% bi ECONmin,i + % di SOCmin,i + % zi ENVmin,i
i=1 i=1 i=1
(2)
in which the subscript IO stands for input – output,
and ai, bi, gi, di, oi and zi denote coefficients that
represent a priori weights given to the economic,
social and environmental factors. These weights
should reflect hierarchies and/or priorities in the
opinion of the decision makers and may therefore
also considerably suffer from a high degree of
subjectivity. The latter would also be a serious
limitation if we were to generalize the use of
so-called ‘scientific’ environmental performance in-
dicators in which the factors are given arbitrary
weights (Jaggi and Freedman, 1992; Wehrmeyer,
1993; Tyteca, 1996).
As a last proposal for defining indicators of
Fig. 1. Two dimensional representation of a set of observed
sustainable development, we could generalize the
decision making units that use quantities Qmin of an input to
idea of extending the theory of productive efficiency produce quantities Qmax of an output. The straight lines
to the consideration of environmental factors, in represent the production or efficiency frontier, under two
which the wastes were taken as ‘undesirable out- different assumptions of returns to scale.
 I. Callens, D. Tyteca / Ecological Economics 28 (1999) 41–53
more of Qmax, while this is not the case for DMU
B, which will be declared inefficient. We translate
this situation by giving an efficiency score 1 to
DMU A, while the score associated with DMU B
will be less than 1.
In mathematical terms, generalizing to situations
where we have more than one output and one input,
we simply consider the framework reflected by Eq.
(2) and modify it so that no a priori value is given
to the six sets of weighting coefficients. Instead, we
consider these as the variables of a mathematical
programming scheme and compare one given
DMU, indexed ‘0’, to the whole set of DMUs for
which data are available. In this way, we offer the
possibility of incorporating various different kinds
of quantities, with different measurement units (i.e.
physical, economic, etc.) and meanings (i.e. stocks,
flows, transformations, etc.), that have to be aggre-
gated to reflect their distance to efficiency, without
requiring any assumption on the weights used in the
aggregation. The weights are the solution of a
mathematical program and will be computed in
such a way that the distance to the efficiency
frontier is minimized. The general formulation of
a DEA model that starts from Eq. (2) is the
following (see the aforementioned references for
details of formulation):
maxh0 =
I1 I3 I5
% ai ECON0max,i + % ci SOC0max,i + % ei ENV0max,i
i=1 i=1 i=1
I2 I4 I6
% bi ECON0min,i + % di SOC0min,i + % fi ENV0min,i
i=1 i=1 i=1
s.t.
I1 I3 I5
% ai ECONkmax,i + % ci SOCkmax,i + % ei ENVkmax,i
i=1 i=1 i=1
I2 I4 I6
% bi ECONkmin,i + % di SOCkmin,i + % fi ENVkmin,i
i=1 i=1 i=1
51 k = 1,..., K (3)
ai,bi,ci,di,ei,fi ] 0
Index k designates a DMU in the set of K DMUs
for investigation; the constraints define the feasible
set, i.e. the set of combinations of the factors taken
into account that are feasible in the present state
47
of technology; the frontier of that set is constituted
by the DMUs that exhibit the best practice in terms
of sustainability. The objective function in Model
0 indicates the problem of DMU ‘0’, i.e. given that
the efficiency of all DMUs is set to be smaller than
or equal to 1 by the constraints, the efficiency of
DMU ‘0’ is either equal to or smaller than 1, in
which cases it is considered ‘efficient’ or ‘ineffi-
cient’, respectively. The meaning of efficient and
inefficient in this context might be taken as ‘sustain-
able’ and ‘unsustainable’, under the assumption
that Model 0 appropriately reflects sustainability.
It should be stressed, however, that a DMU that
would be declared efficient because its index value
is one, is not necessarily sustainable, since it could
appear to be efficient because it would be better
than all other DMUs on only one factor. Thus it
is possible to refer to DMUs that are unsustainable
because they are inefficient, but efficient by no
means implies sustainable, the former being only a
necessary condition for the latter.
Among the widely recognized advantages of
DEA models are: (1) a clear and obvious standard-
ization, since all units are ranked according to a
scale with the convention that the value 1 represents
best performance or best practice; (2) an important
flexibility, since various versions of DEA models,
stressing important aspects in different ways, can
be formulated easily; and (3) the robustness of the
(non-) linear programming methods used to com-
pute the indicators. Additionally, the fact that no
a priori weight has to be given to the factors taken
into account is often presented as a main advantage
of DEA formulations. Indeed, the weights are
self-defined as the variables of the (non-) linear
programs used to compute efficiency scores. In that
way, some kind of absolute objectivity is associated
with DEA methods, because at the outset no
judgment of any kind from any person is required.
There is at least one definite advantage of such
methods, i.e. they provide effective ways to detect
DMUs that are inefficient even under the most
favourable weight combination, because for every
DMU under consideration, DEA methods will
actually select the weight combination that mini-
mizes the distance from the DMU to the frontier,
which is therefore the most favourable combination
within the space of all weight possibilities.
48 I. Callens, D. Tyteca / Ecological Economics 28 (1999) 41–53
This, however, is open to discussion, since in
extreme cases, due to the possibility of having zero
weights, and therefore all the weight concentrated
on one unique output or input, such procedures
can, and actually will, result in DMUs that are
declared globally efficient even if they are efficient
regarding only one of the specified variables. More-
over, DEA detractors argue, why would self-
defined, artificial weights be less arbitrary than any
a priori combination?
To accommodate for such a drawback, methods
exist, that allow one to incorporate judgments of
experts or analysts of the situation under concern
(Wong and Beasley, 1990). With relation to the
methods used in DEA, such judgments can take the
form of intervals within which the relative weights
given to some production factors should be in-
cluded. For example, considering the economic
inputs, whose value should be minimized, i.e. in Eq.
(3), possible weight intervals can take the form of
biECONkmin,i
a ki 5 I2
5b ki
% bi ECONkmin,i
i=1
which states that, for DMU k, the importance given
to input ‘i’ with respect to the whole set of inputs
be comprised between a ki and b ki . This implies that
zero weights, as well as the possibility of giving the
totality of the weight to the sole input i, can be
avoided. Other combinations and standpoints can
be reflected as well. For example, if for some
engineering reason, the relative weight of an unde-
sirable output (e.g. atmospheric pollutant) is asso-
ciated with the use of a given production input (e.g.
fossil fuel), this can also be reflected by a constraint
on the ratio between appropriate quantities as in
I4 I3
% di SOC0min,i − % ci SOC0max,i + % fi ENV0min,i − % ei ENV0max,i
i=1 i=1
min h0 = I1
% ai ECON0max,i − % bi ECON0min,i
i=1
I4 I3 I6
% di SOCkmin,i − % ci SOC kmax,i + % fi ENVkmin,i − % ei ENVkmax,i
i=1 i=1 i=1
s.t. I1 I2
% ai ECON k
max,i − % bi ECON
i=1 i=1
ai,bi,ci,di,ei,fi ] 0
Eq. (4). More generally, engineering standpoints,
or managerial perceptions or targets, can be trans-
lated using the notion of ‘standards’. Accordingly,
the strict endogeneous frontier can be substituted
by a standard frontier (Golany and Roll, 1994;
Tyteca, 1996).
Finally, one should also be aware of one other
potential drawback of DEA, i.e. the high sensitivity
of the results with respect to the number of factors
and units considered; one should therefore be
aware that a given result can only be considered
with reference to the associated data set. However,
this is no longer a drawback if we recall that best
practice, or best available technology, is always a
relative concept that heavily depends on what
actually exists.
3.2. Model 1: social and en6ironmental factors as
the main factors for scrutiny
Model 0 as stated above only mimics the usual
(4) framework of data envelopment analysis, i.e. a
situation in which we consider, on one side, the
quantities that are considered desirable (those ap-
pearing at the numerator), versus the quantities
that are viewed as inputs and whose intervention
has to be minimized (the denominator). In a
further, and more realistic step, we might consider
three categories of factors, i.e. the inputs, the
outputs, and the undesirable outputs. In this scope,
there are various ways in which the problem can be
viewed (Tyteca, 1996, 1997), and we first consider
one in which we try to minimize negative ecological
and social impacts that are opposed to the necessity
of producing economic outputs using adequate
quantities of inputs (which is a necessary condition
for a firm to survive):
I6 I5
i=1 i=1
I2
i=1
I5
i=1
]1 k= 1,..., K (5)
k
min,i
 I. Callens, D. Tyteca / Ecological Economics 28 (1999) 41–53 49

assumption is sometimes released, especially in the

Fig. 2. Production set and efficiency frontier for a set of
observed decision making units, based on one environmental
impact and one social impact. The values of a sustainability
indicator are illustrated for observed point B, for the case
where a reduction in both impacts is sought (u, reference point
B1, Model 1) and the case where only a reduction in the
environmental impact is sought (u%, reference point B2, Model
2).
The sign restrictions on the variables indicate
that all (economic, social and environmental)
case of pollutants: then these are considered only
weakly disposable, meaning that beyond a given
threshold, a given pollution discharge can be re-
duced only at the cost of a reduction of the
output production or some other variables (Färe
et al., 1989; Färe, 1992; Tyteca, 1997). One addi-
tional set of constraints could be added to the
model, stating that the denominators should be
positive, in order to insure that the conditions for
DMUs’ survival are met. Fig. 2 illustrates the
simplified case where we have one environmental
impact and one social impact, the reduction of
which would correspond to improved sustainabil-
ity (e.g. a pollutant release, and an accident
record). With Model 1, because both impacts
must be reduced, a move towards south-west will
yield an improvement, which is feasible until the
point reaches the frontier. If we consider, without
loss of generality, that the reduction in both im-
pacts is proportional, this will lead us to point B1,
where impacts have been reduced by a factor u.
The latter can be taken as the indicator value; it
corresponds to the inverse of the value of h0
obtained after solving Model 1 as stated in Eq. (5)
(Tyteca, 1996, 1997).
3.3. Model 2: en6ironmental factors as the main
factors for scrutiny

I6 I5
% fi ENV0min,i − % ei ENV0max,i
i=1 i=1
min h0 = I1 I2 I3 I4
% ai ECON0max,i − % bi ECON0min,i − % ci SOC0max,i + % di SOC0min,i
i=1 i=1 i=1 i=1

I6 I5
% fi ENVkmin,i − % ei ENVkmax,i
i=1 i=1
s.t. I1 I2 I3 I4
]1 k= 1,..., K (6)
% ai ECONkmax,i − % bi ECONkmin,i − % ci SOCkmax,i + % di SOCkmin,i
i=1 i=1 i=1 i=1

ai,bi,ci,di,ei,fi ]0
parameters are considered strongly disposable (i.e.
we can decrease output production down to ‘0’ at
no cost, and we can substitute inputs among
themselves, or decrease pollution, provided addi-
tional levels of appropriate inputs are used). This
In this case, the emphasis is on minimizing the
environmental impacts of the DMUs under con-
sideration. The sign conventions at the denomina-
tor of the objective function and the constraints
are based on the fact that we now consider the
social factors as making part of the production
50 I. Callens, D. Tyteca / Ecological Economics 28 (1999) 41–53

factors (inputs) (Tyteca, 1997). In this case, in
Fig. 2, a reduction has been sought only in the
direction of environmental impacts, and the point
reached from point B is point B2, resulting in an
indicator value of u%. A similar model could be
stated with social factors as the main factors to
scrutinize. Thus what is illustrated here is that we
do not look for one unique indicator value, but
that instead, the methodology outlined in this
paper allows us, using the same basic information,
to specify as many indicators as required by the
specific application considered. The choice among
the indicators depends upon political or manage-
rial decisions.
4. Discussion and conclusions
Application of the models of Section 3, with
only a subset of variables reflecting environmental
and economic quantities, was performed using
small data sets for a few case studies summarized
in Table 3. In these situations we speak of envi-
ronmental performance indicators. At least the
results obtained showed that an analysis such as
proposed herein is feasible. Now, to apply more
generally the ideas developed in this paper, we
have to generalize the environmental performance
indicators to much wider situations, i.e. situations
in which there are many more variables to ac-
count for. The first challenge is to define (as
discussed in Section 2) and collect appropriate
data that will provide the basis for the new indica-
tors to be built.
An important aspect of any kind of indicator is
the necessity to take account of as many relevant
characteristics as possible (Gramlich, 1990). For
example, a regulation that stresses some peculiar
components of the pollutant charge while ignor-
ing others might result in a substitution between
pollutants and therefore in an overall increase of
the global pollutant charge (Meriläinen, 1995). On
the other hand, taking many factors into account
might suffer from both computational intractabil-
ities and data unavailability. Moreover, from a
strict technical point of view, accounting for many
variables in data envelopment analysis might re-
sult in the extreme situation where all firms in a
given set are considered efficient. Therefore there
must be some kind of tradeoff between the num-
ber and the representativity of characteristics ac-
counted for, which can be solved by some
preliminary investigation of the data using, e.g.
principal component analysis.
The latter kind of problem might also find a
partial solution if, instead of trying to develop one
unique aggregate sustainability indicator (such as,
e.g. in Model 1 above), we define two or three
partial indicators that stress different aspects of
the problem. For example, we would consider two
indicators, one centered on environmental preoc-
cupations (such as, e.g. in Model 2 above), the
other stressing social preoccupations (as com-
mented under Model 2). In this way we could gain
accuracy in the description of the situation, while
providing the decision maker with the possibility
of meaningful tradeoffs (the priority given to so-
cial or environmental preoccupations is left to the
public decider).

Table 3
Examples of applications of DEA methods to the measurement of environmental performance and sustainable development

Case Factors accounted for Reference

Chemical plants One output and two pollutants (to air and water) treated as inputs Haynes et al. (1994)
Fossil fuel-fired elec- Output: kilowatt-hour production; inputs: labour, fossil fuels, capi- Färe et al. (1996), Tyteca (1997,
tric utilities tal; pollutants: SO2, NOx, CO2 1998)
Pulp and paper Output: pulp production; inputs: labour, energy, fiber, water; pollu- Callens and van den Berghe
tants: particulates, TRS, SO2 BOD, TSS, AOX (1997)
Municipal waste Output: waste diversion rate; input differential cost of recovery; Courcelle et al. (1998)
management undesirable output: waste residue ratio
 I. Callens, D. Tyteca / Ecological Economics 28 (1999) 41–53
A possible disadvantage of DEA methods may
be that the way in which the weight factors are
determined is not straightforward for the non-spe-
cialist, so that decision makers may be guided by
parameters they do not fully understand. To cope
with this difficulty, we should stress, on the one
hand, that graphical representations of the interac-
tions between factors, as in Figs. 1 and 2, can be
helpful in understanding and illustrating the way
in which tradeoffs are being made and the possible
directions towards improvement. On the other
hand, as discussed in Section 3, flexibility of the
DEA methods easily allows expert judgments and
managerial perceptions to be incorporated into the
models, thereby improving their acceptability.
Additional attention should be drawn to limita-
tions and potential extensions of the methods
proposed in this paper. First, whereas the fact that
no a priori factors are required for weighting the
impacts is often considered an advantage over
other methods, this can have significant draw-
backs, such as, e.g. the existence of units that will
be declared ‘efficient by default’ because they are
best on only one aspect, even though they might be
much worse in all other respects. As mentioned,
this can be solved through use of weight limiting
techniques. But even not accounting for that, the
main usefulness of the method can be seen in its
ability to point to those units that are less efficient,
and provide for explanatory factors which may
help in the identification of factors of unsustain-
ability.
As another example, the frontier obtained from
observations on existing decision making units
merely reflects best practice, which as such does
not imply sustainability. Indeed, as described in
Section 3, the data envelopment analysis methods
can only yield results that reflect what has been
incorporated into the data, i.e. if past observations
are being used, the results obtained will be based
on how industries made their choices in the recent
past. In a sustainable development perspective,
there may be important tradeoffs to be made as
regards, e.g. the future use of (non-) renewable
resources as inputs. Such tradeoffs can be reflected
by restrictions on the weight combinations as in
Eq. (4), i.e. in that way, the present or past
decisions can be gauged with respect to trade offs
51
that appropriately translate the choices we have to
formulate for the future. Thus, replacement of the
best practice frontier by some kind of ideal frontier
reflecting sustainability goals that society may
formulate for production units will provide an-
other useful extension of the methods developed
herein. Once again, it should be stressed that such
a sustainability frontier is by no means static;
instead, it should evolve both with the improve-
ment of the knowledge we have about the world
we live in and with new goals we set for future
generations.
A few last comments can be made about the
actual use of the indicators. Not only could they be
exploited to compare firms of a given industrial
(sub-) sector in a national context, but perhaps
more importantly in a sustainability perspective,
they could serve to compare firms or sectors in
different countries (in the First and Third Worlds
for example) that can significantly differ in the way
they take social and environmental goals into
account. This can result in the formulation of
adequate corrective actions since the causes of
unsustainability can be detected from the indica-
tors. And here we return to the ultimate objective
of using indicators, namely, providing the govern-
ments with adequate tools to adopt regulations
and incentives that will ensure overall
sustainability.
Acknowledgements
The paper benefited from valuable discussions
with, among others, Marie-Paule Kestemont (Uni-
versité Catholique de Louvain, Belgium) and the
participants of the Summer University of Southern
Stockholm, ‘Management of Sustainable Enter-
prises’ (Stockholm, Sweden, August 1995). The
research benefited from grants from the Belgian
National Scientific Research Foundation (FNRS,
Brussels) and from the Intercollegiate Center for
Management Science (CIM, Brussels).
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