In the previous two parts of this blog series on social and environmental impact reporting, we have provided an overview of the key findings of our research about existing trends and challenges in the impact measurement and reporting space. We have also aimed to provide clarification around terminology and valuation methodologies that currently exist in the field.
To view the first two parts, please click on the links below. In this part, we explore the business response to social and environmental impact measurement and reporting.
Part 1 – Social and Environmental Impact Reporting – Research Insights (cority.com)
Part 2 – Impact Reporting: Frameworks, Methodologies and Approaches (cority.com)
The Business Response to Impact Measurement – Case Studies
With so many methodologies, it’s not surprising that there are variations in approaches when it comes to impact reporting. Below we outline six case studies showing how businesses have approached social and environmental impact measurement.
1. JP Morgan & Social Mobility Foundation – Qualitative Impact Measurement Approach
Framework/methodology used: No specific framework defined
Measurement/valuation approach: Qualitative measurement
In 2012 and 2013, JP Morgan and the Social Mobility Foundation supported students from low income backgrounds interested in the investment banking sector. Through the Aspiring Professional Programme (APP), they provided work placement opportunities as well as career mentorship and skills development.
JP Morgan demonstrate the impact of the program in their 2014 Impact Report. They use selected quotations and case studies that express the APP participant’s opinions and emotions.
‘J.P. Morgan does not just invest in its operations, it invests in people too and I feel that both J.P. Morgan and SMF have invested a great deal in me and I am truly grateful for this. I hope to prove that it was indeed a worthy investment.’
‘The program with J.P. Morgan and the SMF was excellent and it has definitely increased my motivation to pursue a career in banking.’
This qualitative approach is particularly useful when used to communicate impacts to an external audience. However, it may not be considered as useful when used for internal reporting or to support business decisions.
2. Nestlé & Valuing Nature – Quantitative/Monetary Valuation Approaches
Framework/methodology used: Social Capital Protocol
Measurement/valuation approach: Quantitative and monetisation of social impacts, and the use of the DALY methodology
In a pilot project with Valuing Nature, Nestlé embarked on an effort to measure and monetize their social impacts in the context of their employees’ health and working environments.
The DALY (disability-adjusted life year) methodology, is defined by the WHO as one DALY=one-year loss of ‘healthy’ life. Nestlé applied this methodology and attempted to investigate how human health metrics can be applied to measure social impacts. Specifically, they looked into how their business affects the life quality and expectancy of their employees. They examined employment, health and safety conditions, and living wages.
The project followed the stages of the Social Capital Protocol. Additionally, they used a combination of different quantitative metrics in the measurement and valuation stage. Lastly, all data was eventually converted into a monetary value.
This example highlights how several different approaches can be combined to measure and value an organization’s social impacts. The case study also supports a key finding of our research – that some sectors, including health, have better established methodologies for measuring and valuing impacts than others.
3. BASF’s Value-to-Society – Monetary Valuation Approach
Framework/methodology used: Proprietary framework developed by BASF
Measurement/valuation approach: Monetisation of environmental and social impacts
BASF has developed their own ‘Value to Society’ approach to assessing their economic, environmental and social impact in monetary terms. They applied this particular approach to improve their understanding of both positive and negative impacts to society and the environment that occur across their supply chain. Both for their own operations and also looking at their direct customers.
The Value-to-Society approach monetizes the following categories of impacts:
- Profits (net income, amortization, depreciation)
- Taxes, Wages & Benefits, human capital and health & safety
- Air pollution, GHGs, water pollution, solid waste, land use and water consumption
For the non-financial impact categories they apply the valuation coefficients provided by PWC in their Total Impact Measurement and Management (TIMM) model.
4. EY and Acciona
Framework/methodology used: Developed by EY and Acciona, involving input-output models
Measurement/valuation approach: Quantification and monetization of social and environmental impacts
Acciona worked with consultants EY to develop a methodology for measuring their socio-economic impacts. The aim was to compare the company’s activities across the markets it operates in. They created input-output models that account for national statistics. Thus, they could model the effects of capital flows in the economy that result from their infrastructure and energy projects. To monetize impacts generated by employment, EY considered job creation along the whole supply chain. From direct jobs related to operations and maintenance of facilities to indirect and induced jobs created as a result of additional spending.
Assessing and presenting their impacts in monetary terms, allows them to compare the impacts of different projects in different regions. This could help them to focus on maximizing their positive impacts on society. Specifically, by influencing which type of projects, and in which markets, to invest.
5. BT Digital Inclusion
Framework/methodology used: Social Return on Investment (SROI)
Measurement/valuation approach: Qualitative, quantitative, and monetization
BT commissioned Just Economics to assess their Get IT Together program. This program aimed to put a social value on individuals by increasing their digital skills and getting online. They applied quantitative measurement, qualitative (surveys and interviews) and monetary valuation techniques. Thus, they managed to forecast that the present value of the social benefit created by the program would be over £1.5 million for an investment of over £420,000. This indicates that for every £1 invested in the program, they would generate over £3 of social value to the society.
SROI assessment provided BT with better insights into the barriers that customers have been facing while using their services. Information gathered during the interviews and surveys was later used to develop new programs for low-income customers and housing associations.
BT also acknowledge the importance of translating the impact values in financial terms. Mainly because it has improved the internal communications with BT Finance colleagues. We found this to be a recurring theme throughout our research. The use of monetary valuation is the best way to put impacts into a common business language that everyone can understand.
6. Kering and PUMA
Framework/methodology used: Environmental Profit and Loss (E P&L)
Measurement/valuation approach: Monetisation of environmental impacts
Using recognized ecological and economic accounting techniques, PUMA conducted the first E P&L study to value the environmental impacts of their overall business. They also included their whole value chain. In simple terms, the E P&L represents the amount to be paid for providing clean air and water, decomposing waste, and restoring soils and the atmosphere, following their depletion in quality as a result of a business’s activities.
As a result of the 2016 assessment, PUMA estimated that their total impact was 457m euros. While representing the cost to the environment. Additionally, the highest impact areas in terms of % contribution to that cost were GHG emissions (37%) and Land Use (24%). Due to a complex network of suppliers, a significant proportion of their environmental impact occurred within their supply chain. Mostly focusing on their fabric and component suppliers.
PUMA’s executives described the tool as a driver for sustainability development. This tool allows them to identify areas for improvement, manage business risks, and find new ways of becoming more efficient. It also helps to conserve the natural ecosystems they depend upon. Since undertaking E P&L assessments, they have taken actions to train their suppliers to be resource-efficient. They are also expanding the assessment to include more supplies.
Following the success of E P&L with PUMA, Kering rolled it out across their brands. They also published the details of the methodology on their website to encourage other organizations to use it.
Key Findings
Cority conducted a mixed method research involving desktop study, surveys, and interviews with experts in the impact reporting field. The aim was to provide clarity on key terminology, and highlight trends and barriers associated with impacts measurement and reporting.
Below is a summary of our key findings:
- There are misconceptions on what impact measurement and valuation are
- A lack of data availability and lack of robust measurement frameworks were determined as the most pressing challenges that companies currently face when considering or implementing impact measurement and valuation
- Companies are interested in measuring both social and environmental impacts for decision-making and external reporting purposes
- Companies employ a variety of tools for impact measurement and valuation. These include SROI, TIMM, HACT, Natural and Social Capital Protocols, TCFD, the GIIN tools, Flexible Framework as well as in-house developed methodologies
- The impact sector is considered to be immature due to a significant number of challenges related to data collection and quality. However, there are some fields and tools that are more developed than others. It was noted that the social impacts field is more advanced and tools such as SROI are widely used across different industries and for the activities of different scopes and scales
- Appropriate tools for impact measurement and valuation should be selected depending on companies’ resources as well as the target audience who will benefit from the communication of the impact data
Looking Ahead
As the market demand for new tools that enable impact reporting increases and the number of companies interested in impact measurement and valuation grows, the following will be needed to meet these demands:
- Consolidation of methods/techniques – Experts strongly believe that the sector will substantially evolve within the next five years and early adopters that are investing human and financial resources into it will benefit once techniques and methods are harmonized.
- Consistency of measurement/valuation – As investors increasingly look to leverage impacts reporting as part of their decision making process, there is a need for greater comparability across approaches. Early adopters are pathing the way for exploring how different models fit with different sector needs which will form the basis for practical discussions around where consistency is possible and where it would hinder relevancy, particularly at a sector level.
- Increased collaboration – Collaboration at a sector level is needed to define metrics that are relevant for particular industries to be able to report on for investor audiences. This will ensure a framework for comparability and transparency is defined to enhance the uptake of reporting on social and environmental impacts.
References
J.P. Morgan Philanthropy EMEA, Impact Report 2014
Mortality and global health estimates (who.int)
Social Impact Valuation White Paper Jan 2017.docx (nestle.com)
BT, Valuing Digital Inclusion, 2014
ACCIONA develops methodology for measuring the socio-economic footprint of its activities
