Impact reporting: The business response to impact measurement & key conclusions
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 - The state of social and environmental impact measurement and reporting
Part 2 - Frameworks, methodologies and approaches for impact measurement and valuation
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 programme in their 2014 Impact Report, through the use of 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 programme with J.P. Morgan and the SMF was excellent and it has definitely increased my motivation to pursue a career in banking.’[1]
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 monetise their social impacts in the context of their employees’ health and working environments.
By applying the DALY (disability-adjusted life year) methodology, defined by the WHO as one DALY=one-year loss of ‘healthy’ life[2], Nestlé attempted to investigate how human health metrics can be applied to measure social impacts. Specifically, they looked into how their business affects life quality and expectancy of their employees through employment, health and safety conditions and living wages.
The project followed the stages of the Social Capital Protocol, and in the measurement and valuation stage a combination of different quantitative metrics were used, with all data being eventually converted into a monetary value.[3]
This example highlights how several different approaches can be combined to measure and value an organisation’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 assess 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 the society and the environment that occur across their supply chain, for their own operations and also looking at their direct customers.
The Value-to-Society approach monetises 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 [5]
Framework/methodology used: Developed by EY and Acciona, involving input-output models
Measurement/valuation approach: Quantification and monetisation of social and environmental impacts
To compare the company’s activities across the markets they operate in, Acciona worked with consultants EY to develop a methodology for measuring their socio-economic impacts. They created input-output models which account for national statistics, to model the effects of capital flows in the economy that result from their infrastructure and energy projects. To monetise impacts generated by employment, EY considered jobs 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.
By assessing and presenting their impacts in monetary terms, they are more effectively able to compare the impacts of different projects in different regions. This could help them to focus on maximising their positive impacts on society, by influencing which type of projects, and in which markets, to invest in.
5. BT Digital Inclusion [6]
Framework/methodology used: Social Return on Investment (SROI)
Measurement/valuation approach: Qualitative, quantitative and monetisation
BT commissioned Just Economics to assess their Get IT Together program, which aimed to put a social value to individuals of increasing their digital skills and getting online. Through the application of quantitative measurement, qualitative (surveys and interviews) and monetary valuation techniques, 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 about 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 as it has improved the internal communications with BT Finance colleagues. We found this to be a recurring theme throughout our research, that using 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 recognised ecological and economic accounting techniques, PUMA conducted the first E P&L study to value the environmental impacts of their overall business, including 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 the result of the 2016 assessment, PUMA estimated that their total impact was 457m euros (representing the cost to the environment), and the highest impact areas in terms of % contribution to that cost were GHG emissions (37%) and Land Use (24%)[7]. Due to a complex network of suppliers, a significant proportion of their environmental impact occurred within their supply chain, in particular their fabric and component suppliers.
PUMA’s executives described the tool as a driver for sustainability development as it allows to identify areas for improvement, manage business risks, find new ways of becoming more efficient and help conserve the natural ecosystems they depend upon. Since undertaking E P&L assessments, they have taken actions to train their suppliers in being resource efficient, and are expanding the assessment to include more supplies.
Following the success of E P&L with PUMA, Kering rolled it out across their brands and published the details of the methodology on their website to encourage other organisations to use it.
Key findings
Greenstone conducted a mixed method research involving desktop study, surveys and interviews with experts in the impact reporting field, with the aim 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
- Though the impact sector is considered to be immature due to a significant number of challenges related to data collection and quality, 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 harmonised.
- 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.
Greenstone will be publishing a full report on this piece of research in the next few weeks. Please subscribe to Greenstone’s blog to receive updates of this and other industry news.
References
[1] J.P. Morgan Philanthropy EMEA, Impact Report 2014
[6] BT, Valuing Digital Inclusion, 2014