Does all this measurement add up? Private Sector Perspectives on Aggregation

Barend van Bergen, special advisor at KPMG and co-author, ‘New Vision of Value’

The private sector and individual companies are getting more familiar with the concept of monetisation as an approach to help understand, measure and manage their societal impacts. Monetisation is just one route to the goal of aggregation of different outcomes.

Although not undisputed, monetisation provides a common metric through which a company can more easily understand and compare its various impacts. This helps executives to better manage and consider the different social and environmental factors when making decisions.

There are clearly also challenges in quantifying impacts in financial terms. As the adage says: “Not everything that counts can be counted”. Monetisation cannot fully express certain ethical aspects of corporate behaviour, for example human rights. Clearly monetisation is not an exact science and the results should therefore be considered as an indication or approximation, rather than exact numbers.

While acknowledging the limitations of monetisation, it is clearly a promising method that offers a strong potential to bring considerations of societal value into corporate decision making. It also offers a useful means to draw comparisons between a company’s various impacts.

Companies acknowledge that the concept is not perfect, and the data is not yet as reliable as that used for financial reporting. In the last few years an increasing number of companies are exploring triple bottom line approaches and the monetisation that comes with that. Some companies have shared the learnings and results, for example:

• PUMA was first multinational to develop and publish an environmental P&L (E P&L)The initiative is now adopted by their holding company Kering which has developed an E P&L for several subsidiaries which helps to manage environmental impacts across the operations and supply chain
• Novo Nordisk was the first pharma company to publish an environmental profit and loss account (E P&L), exploring impact measurement in seven countries and specific areas (e.g. clinical research)
• Volvo has used monetisation to demonstrate the impact of substituting diesel or biogas buses to fully electric busses and comparing conventional Total Cost of Ownership (TCO) with societal TCO
• Holcim was the first multinational to develop and publish an integrated P&L. In the related publication they acknowledge the challenges of such an approach:

‘…..the statement is a tool to allow us to understand – and share with stakeholders – the extent of our impacts on society and the environment, and to track progress against the Holcim Sustainable Development Ambition 2030.

‘.......the statement and methodology depends on a set of assumptions. ……. We are aware that these assumptions can, and indeed should, be challenged. By publishing this statement, we seek to contribute to the debate and the discussion on developing robust methodologies for companies and sectors to measure and report on the financial value, positive and negative, of  externalities’

In the near future more companies will be stepping up to the plate. The recent development and launch of the (draft) Natural Capital Protocol will help them to do so. A significant number of companies have been involved in the development and road testing of the protocol.

Monetisation is not necessarily the ultimate solution. We might end up with a more sophisticated and multi-lensed approach to evaluating business performance.

Some people believe that we should, eventually, shift to integrated reporting as defined by the International Integrated Reporting Council’s (IIRC) framework which identifies six types of capital that a company requires in order to create corporate value: financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital, and natural capital.

Barend van Bergen is the co-author ‘New Vision of Value’ (KPMG True Value). Currently he is special advisor to a number of KPMG member firms and spending a portion of his time on research and education.

This blog is from a wider discussion document on the challenges of aggregation, collated and put together by Social Value UK. The whole document provides perspectives from a range of sectors, and can be downloaded in full from the Social Value UK website.

If you're interested in learning more about measuring and managing your impact, you could join Social Value UK and EVPA's upcoming Impact Management workshop: the fundamentals on October 5th, 2016.