Companies that focus only on the bottom line often can’t see over the horizon, and they certainly can’t see how their activities impact others. That impact, long recognized as a looming risk, is increasingly being seen as an opportunity to both secure sustainable supplies of raw materials and win the loyalty of discerning consumers.
26 October 2016 | What if Steve Jobs had only considered cost, and ignored aesthetics, functionality and other issues? He would never have sparked innovations core to Apple products. “Think different” was fundamentally about expanding the set of factors that mattered in designing the company’s products. Of course, cost mattered – and so did other factors. Immensely.
Few question the importance of expanding the opportunity space, to consider how products or companies can benefit people. And yet, few relentlessly pursue the space where product and corporate value is created due to a generation of not one, but multiple returns — for customers, investors, as well as for societies and the natural environment.
There are a growing number of cases where companies create multi-dimensional return on investment or ROI. For example, Paul Polman, CEO of Unilever, asserts, “The more our products meet social needs and help people live sustainably, the more popular our brands become and the more we grow. And the more efficient we are at managing resources such as energy and raw materials, the more we lower our costs and reduce the risks to our business and the more we are able to invest in sustainable innovation and brands.”
Imagine if business people consistently examined decisions in terms of prospects for total value generation — financial ROI, as well as measurable local community- and societal returns, and also environmentally beneficial outcomes. Corporate decisions could be thoroughly assessed for a 360-degree view on risk and opportunity. Investors, shareholders, business decision-makers, and employees would all have more insight with which to make decisions.
This idea is no longer far-fetched. A growing set of corporate leaders — as varied as Dow, SwissRe, Unilever, Interface, and others — actively consider multiple dimensions to decision-making. Corporate case examples of multi-dimensional factors being brought into decision-making, and value creation have been laid out by BSR, the Corporate Eco Forum, the Natural Capital Coalition, the Shared Value Initiative, Social Value Portal, the Nature Conservancy and others. Many of these cases illustrate corporate “shared value” creation, as well as the business “benefit multiplier” of investing in nature.
The rationale is simple. More information about corporate risk and opportunity offers an expanded range of insight, which translates into better decisions and management. This broadened range of sight will also serve companies well in an era of greater corporate transparency — as environmental, social, and governance (ESG) issues are increasingly queried by investors and shareholders, who wish to understand risk in a climate changing, water challenged, and socio-economically unequal world.
Note Bloomberg’s work on a water risk valuation assessment tool, as well as the S&P Global Indices UK Limited’s pending purchase of TruCost, an environmental data and insight firm. Many of these business risks also represent opportunities — to cut costs, increase efficiencies, improve products, spark customer loyalty, anticipate regulation, and enhance brand.
It is timely, therefore, for business leaders to assess the range of frameworks and tools for measuring corporate value creation along multiple dimensions — including in terms of financial returns, as well as social return on investment (SROI), corporate community investment measurement, shared value, social impact, social impact assessment (SIA), social value, enhancements to natural capital, and also maintenance of ecosystem services flows.
Yet, despite increasing maturity of approaches to measuring value creation, many of these tools remain focused on one additional issue — such as value to society, or positive environmental impact. There is a gap in approaches that integrate across rigorous measurement of metrics, such as financial returns, societal benefits, and natural capital maintenance (or even enhancement).
This gap — in rigorous tools for effectively measuring multi-dimensional ROI — is not just than a missed opportunity. It is a failure to capture the full set of returns that are being realized from business decisions and investments.
As a result, corporate decision-makers are challenged to see the business and community or societal benefits of investing in operations, products, or collaborative initiatives that avoid or mitigate impacts on natural capital and ecosystem services — including related to climate change risk and water risk management.
Similarly, corporate community engagement teams do not have a straightforward approach for assessing the community-relevant returns from corporate environmental actions — though they exist in very material ways, such as related to water availability and even water quality, as well as buffering from flooding and numerous other issues.
The current disjointed set of business value creation measures represents a failure to show how value creation can be robustly measured across multiple dimensions that can inform decisions within a well-run business.
Within this context, BSR’s Natural Capital & Ecosystem Services Working Group convened a roundtable that brought together thought and practice leaders who are focused on the seldom cross-pollinated areas of work related to “shared value”, blended value, impact investment, SROI, community and social impact, natural capital valuation, and ecosystem services measurement.
The intent was to start a conversation about how to measure, in a joined up approach, the various ways in which businesses are producing value — with a particular focus on both ecosystem services and local community impact measurement approaches, metrics, and systems.
The rationale is that corporate decision-makers are more likely to act on business models focused on “shared value” — which include decisions that avoid or mitigate impacts on natural capital and ecosystem services — if they have robust and credible measures with which to assess whether (and how) improving flows of ecosystem services also creates social or community value as well as financial returns.
Stemming from the discussion, the pathways forward for business decision-makers are clear. The opportunity to apply robust multi-dimensional value generation frameworks exists through linking up various approaches, including:
For measuring societal and community returns: Acting on leading principles and best practices from shared value, social impact, social impact assessment (SIA), social value, social return on investment (SROI), corporate community investment measurement, and related fields that focus on business delivering both financial and societal returns.
For assessing positive impact on natural systems, upon which human communities also rely: Reviewing early on in corporate decision-making processes lists of ecosystem services and functions with which to identify impacts and consider avoidance or mitigation through ecological restoration — such as, with environmental factors laid out in Abt’s work for the US Department of the Interior on socio-economic metrics to measure climate resilience projects, as well as the EPA’s on “Final Ecosystem Goods and Services” or European Environment Agency’s “Common International Classification of Ecosystem Services.” When appropriate, businesspeople can apply ecosystem services measurement tools to gain a detailed understanding of costs / benefits of various scenarios (for example, the Ecosystem Services Identification & Inventory tool, for one).
For placing financial values on natural systems positive actions: Applying widely vetted, tested and reviewed approaches, such as the Natural Capital Protocol or project-specific valuation through ecological economics tools and applications or natural capital accounting methods
The most robust business opportunity assessments and measurement of multi-dimensional returns will combine currently siloed frameworks. The result will be an integrated approach to examining financial, as well as community, societal, and ecological results — such as, bringing together traditional financial measures of return on investment, with leading societal and community returns work, and also approaches to measuring positive impact measurement on natural systems.
The opportunity is clear. Thought and practice leaders are already acting. Now is the time to jump in and engage with the new era of value creation.
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