Study Examines Methods Companies Use to Measure Their Impact on Society
Friday, July 13th, 2018
The Conference Board released a study with examples of how businesses put a monetary value on their environmental, economic, and social impacts. This emerging practice, total impact valuation, reveals to what extent their actions have a positive or negative influence beyond traditional financial accounting – a useful metric for any business looking to provide more societal value.
The study, Total Impact Valuation: Overview of Current Practices, looks at the approaches companies use to evaluate their total impact; the primary characteristics of these approaches, such as the types of indicators measured; and, the key similarities and differences between these approaches.
"Companies now face unprecedented pressure to disclose data about their environmental and social impacts, making total impact valuation a valuable tool in today's sustainability landscape," said Thomas Singer, author of the report and Principal Researcher in the Sustainability Center at The Conference Board. "But for the practice to gain more appeal across the globe, the business community must help to improve its key drawbacks – namely, the limited comparability of results given the absence of a standard methodology."
Insights from the analysis include but are not limited to the following:
Water use and greenhouse gas emissions are the two most commonly monetized indicators.
Companies typically select the indicators to include in their impact analyses based on a combination of data availability, measurability, and significance to their stakeholders. In addition to water use and greenhouse gas emissions, other commonly monetized indicators from the group of examined companies include employee training and workplace accidents.
Total impact valuation is still in its embryonic stage.
The study identified 14 trailblazing companies worldwide that met its overarching criteria: companies that publish the results of quantitative impact analyses that include both environmental and social impacts. The companies include multinationals BASF, AzkoNobel, and Samsung. While still in its infancy, the practice has gained momentum to the extent that many accounting firms now have a presence in this realm. Deloitte, EY, KPMG, and PwC have all established methodologies and provide relevant service offerings.
Extending total impact valuation to the value chain can yield insights, but only a handful of companies do this.
A valuation of impacts confined to just a company's own operations risks obscuring significant yet more distant downstream or mainstream impacts. Most companies engage in only this limited approach, due largely to the additional resources required for conducting a comprehensive analysis that includes its value chain.
Total impact valuation lacks a standard methodology, limiting the ability to draw useful conclusions.
At this point in time, variations in the methodologies used by companies makes meaningful comparisons across companies difficult, if not futile. For that reason, businesses should take with a grain of salt even the conclusions about the total impact valuation results of their own organization.