by Ana Bachurova
“Having a redefined understanding of the true value of the organization is paramount for insuring that businesses are successful.”
– Rodney Irwin, Managing Director – Redefining Value & Education, World Business Council on Sustainable Development
Scale Up, this year’s U.S. Business Council on Sustainable Development conference at Yale, started with a stimulating question: why is scaling up so damn hard? Participants from the business community and academia articulated a few possibilities: there are too few change agents inside big corporations; perhaps we just aren’t innovative enough; or maybe we lack the necessary emotional intelligence tactics. While all of these discussions offered answers, I found that a major bottleneck to scaling up became evident during the session, “Measurement, Valuation, and Integrated Reporting.” The fact is, a company needs clear, consistent measurement and reporting to effectively scale up.
The session began with a global perspective, presented by Rodney Irwin of the World Business Council on Sustainable Development (WBCSD), who joined remotely from Paris. The good news, he noted, is that issues of sustainability and social impact have climbed up the business agenda. A study by the professional services firm KPMG found that in 2012-2013 the 100 largest global companies across 10 industry sectors (and their associated corporate foundations) invested, on average, the equivalent of 2.5 percent of their pre-tax profits in social and environmental programs. That said, only 20 percent of these companies have quantified metrics for measuring the impacts of these programs, making it difficult to appreciate the value of their efforts. The old management adage “What gets measured gets managed” holds true here. When managers need to select which programs to continue and scale, how are they going to decide? Should they look at inputs and outputs, or at outcomes and impacts?
The same applies for what is typically considered the core of a business. Business activities do not happen in a vacuum, so measuring and reporting only the financials omits part of the whole picture. This is where integrated reporting comes in. The WBCSD has begun discussions to consolidate existing efforts around integrated reporting and to develop a common understanding and application of the concept. Their recently launched “Redefining Value” initiative, for example, measures natural and social assets and costs as a complement to financial metrics. This will help managers make better business decisions based on a fuller picture of costs and benefits.
Natalie Allan Teear, of PwC, followed Irwin with a national perspective, walking the audience through the U.S. landscape of sustainability and integrated reporting. She highlighted the principle of materiality—the information needs of a reasonable investor—in the context of environmental and social issues. She also discussed the role of the Sustainability Accounting Standards Board (SASB) in establishing sustainability accounting standards for publicly-listed U.S. corporations. The SASB develops industry-specific metrics for sustainability that can be used in company filings to the Securities and Exchange Commission. Work is now underway for standards in three new sectors: transportation, services, and resource transformation.
Teear also demonstrated PwC’s Total Impact Measurement and Management (TIMM) framework, which provides a holistic view of an organization’s value-creation. TIMM looks beyond simply inputs and outputs, taking into account the outcome and impacts of activities. It was created to assist companies as they transition to integrated thinking and integrated reporting.
Teear’s presentation closed out with a well-known example of corporate leadership in this space: PUMA and its Environmental Profit and Loss Account (EP&L), which was designed to put a monetary value on the environmental footprint across the value chain—from the production of raw materials to the point of sale. The EP&L is used throughout PUMA as a tool for strategic decision-making, risk management, and transparency.
Erica Guerra from Holcim, a global building materials company, finished the session on an optimistic note. Holcim just released its Corporate Sustainable Development Report for 2013. It is not an integrated report per se, but it successfully shows how to incorporate sustainability impact indicators in day-to-day operations. Instead of simply looking back at past achievements, the report contains Holcim’s sustainability strategy, the Sustainable Development Ambition 2030. This strategy details Holcim’s aspiration to generate one-third of their revenue from the portfolio of Sustainability Enhanced Solutions, and it sets intermediate targets across three focus areas: Climate, Resources, and Communities. It is an excellent example of a company reevaluating its solutions portfolio and business model. According to Guerra, the formulation of this ambition presents an opportunity to change the entire materials industry.
Though the conference kicked off with a discussion of why scaling up is so damn hard, this panel nicely tempered the message: yes, that’s true, but integrated measuring and reporting can make the prospect much damn easier.
Ana Bachurova (MBA’14) is a graduate of the Yale School of Management. She has a background in international development, particularly with environmental governance, sustainable development of natural resources, and the water-energy nexus. Her academic and professional interests now focus on the dual linkage between business and sustainability: how business can offer solutions to environmental and societal problems, and how incorporating sustainability in corporate agendas can create value for business and society.