For Pioneers of Total Impact Valuation, Standardization is the Next Frontier
From greenhouse gas emissions to gender pay ratios, today’s companies are expected by institutional investors and others to share an ever-broader array of nonfinancial reporting to ever-widening circles of stakeholders. Starting in 2017, The Conference Board has tracked the rise of a response to these new expectations: total impact valuation. The ambitious practice entails attempting to identify and quantify in monetary terms the sum total of a company’s economic, social, and environmental impacts.
Published today, Total Impact Valuation: Insights from 10 Trailblazers marks the second phase of this ongoing research initiative. It zeroes in on the practical application and implications of the impact valuation approach via surveys and in-depth interviews with ten diverse organizations at the vanguard of the practice: AkzoNobel, Argos, BASF, LANXESS, Linde plc, Novartis, SGS, The Crown Estate, The Travel Foundation, and UPM. Among the report’s key insights for what’s ahead:
- Standardization is the crucial missing link in current impact valuation approaches. With total impact valuation in its relative infancy, companies have been able to innovate and individuate, freely choosing which indicators to track, what values to assign to them, and how to report their results to the public. The lack of a standard methodology, however, makes it challenging for stakeholders and other companies to benchmark performance against peers.
- Prevailing methodologies are still too fledging to steer strategy. Companies that participated in the research agreed that impact valuation creates value for their companies, but few have arrived at methodologies mature and reliable enough to use regularly in internal strategy briefings. For many, total impact valuation remains siloed in CSR/sustainability teams, having yet to break through among the traditional metrics of corporate strategy and finance.
- For now, the biggest benefit of impact valuation is external recognition. Engaging in impact valuation is a signal to investors that a company is thinking holistically about the externalities it generates—even as the lack of standardization has heretofore limited the comparability of impact data for quantitatively assessing investment decisions.
- When used strategically, impact valuation can unlock business opportunities and uncover risks. Three of the 10 participating companies report leveraging impact valuation results to enter new markets, by demonstrating the societal value generated beyond financial terms. Likewise, four companies were able to identify significant costs that were previously hidden, including those related to employee turnover and CO2 emissions.
- Most believe impact valuation will be expected and potentially even required of large companies in the future. This sentiment is backed by the growing interest in the practice from mainstream investors and regulators, and the emergence of industry-led initiatives to develop and standardize this practice. These include the Impact Valuation Roundtable, formed in 2015, and the Value Balancing Alliance, launched earlier this year.
“As environmental, economic, and social sustainability rise in urgency, the standardization of impact valuation methods stands to be one of the defining business developments of the next decade,” said Thomas Singer, Principal Researcher at The Conference Board and author of the report. “Leaders and organizations that join the conversation today have the opportunity to shape the non-financial ‘accounting standards’ that, for future generations, may be as central to understanding a company’s performance as the P&L statement itself.”
About The Conference Board
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