maandag 9 november 2015

It’s all about the money: Turning non-financial indicators into financial impact

‘Accountants will save the world’ was what Peter Bakker, president of the World Business Counsel for Sustainability (WBCSD) in 2013[1] stated about how companies should measure and compare their sustainability performance. Although he didn’t say how, he was right. This is reflected in an upcoming trend; the emergence of different methods to measure and compare non-financials such as the environmental and social impact of organisations. These methods are often based on quantifying the outcomes of an organisation in financial terms, better explained or popular named as the monetisation of impacts. Considering the early development phase in which these methods are currently positioned, a variation in design is apparent, and no ‘dominant design’ has evolved yet. Therefore, to get a clear view on these developments, this blog outlines the current state of monetisation methods and will explore why monetisation of impacts is important to organisations.

Why monetise impact?
Valuing impact can create several opportunities to organisations, as they gain insight into the organisation’s impact on society and the environment:
  • Better overview of risks, which can be foreseen in an earlier stage.  This can prematurely mitigate potential problems and greatly improve decision making.
  • Comply with the growing demand from stakeholders that increasingly ask for a larger focus on non-financials.
  • It can reduce costs because of a better understanding of the internal processes (e.g. allocating resources and the impacts of safety and energy reduction), and could foster new innovations.
  • From an external perspective, there is an opportunity for improved communication as society requests more transparency. 
  • Consumers and future employees are increasingly appealed to buy and work for ‘responsible’ and/or ‘sustainable’ organisations.

Integrating Impact


Our world is full of societal and environmental challenges, and it seems obvious that we are in need of a system that is able to provide us with insight into the actual impact of our choices. This is also echoed by the International Integrated Reporting Council[2], which states that the value that an organisation creates is based on four stages. Namely, the input-, business model-, output- and outcome stage (more information on this value creation model is provided in our last blog on Integrated Thinking[3]). These four stages eventually result in the impact an organisation has on the environment and society. But how can organisations translate different impacts into a monetary value? A lot of organisations are experimenting with methods to monetise their impacts. Although there is no leading method yet, monetisation seems to have great potential for organisations to improve their performance. Therefore, some assistance is needed. At this moment, only several experts are able to provide this service. Albeit the market for providing this service is still relatively small, it is growing and shows a promising future. Should your organisation be on the sideline waiting for this market to move forward or engage in an active manner by experimenting with this method?

Best practices
Several organisations are experimenting with new methods of monetising impacts. Currently, they differ largely on their scale of application, namely by product, project, region or organisational scale. PUMA was one of the first organisations that monetised the environmental impact of its product. They used a method that calculated the true costs producing a pair of shoes by incorporating environmental costs into its production costs. Based on this information PUMA has made drastic changes and now aims to find alternative substitute leather types. The PUMA case dates back to 2011, however other have followed since then, such as Natuurmonumenten. This is the largest nature conservation society in the Netherland. The organisation monetised its impact of societal services such as CO2 storage, particulates storage and natural water purification. With this method they found out that nature conservation does not halt economic development but instead is an important carrier for economic recovery, which strengthened the organisation’s license to operate. On a more regional scale, Heineken aimed to quantify the effects of its activities by performing socio-economic impact studies in several East African countries. This greatly helped the organisation’s management to make better business decisions based on actual facts on the impact it has on society. This study also gave insight in how Heineken could help to increase the yields of small-scale farmers, which indirectly improved their sales and income. These organisations have benefited from monetising impacts, but we believe many more organisations can benefit from this approach.

Monetization will repay your efforts
The main goal of impact monetisation for organisations is to better allocate resources in order avoid or decrease negative impacts and/or to increase the positive impacts. This is endeavoured by taking into account the different values of these impacts in different contexts, and thereby gaining a more comprehensive view of the total impacts of an organisation on society. It should however, be noted that monetising and valuing an organisations impact is not an ‘one size fits all’ approach, is organisational specific and requires a high level of insight in an organisation’s impact. Nevertheless, despite the initial effort that the monetisation of impacts requires for organisations, these are in our opinion most definitely outweighed by the benefits.

Nick de Ruiter is a partner at Sustainalize and has produced several Integrated Reports. He is also a specialist in CSR strategy setting and performance monitoring.

Mart van Kuijk is intern at Sustainalize. He is writing his master thesis on impact measurement and impact monetization.

[3] Integrated thinking: how to smartly visualise your unique selling points (http://cr-reporting.blogspot.nl/2015/10/how-to-smartly-visualise-your.html, 2015, 2015

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