Measuring and Managing Total Impact to Deliver New Information for Sustainable Results
The World Economic Forum’s Global Risks Report 2014 assesses some 31 high potential risks. It’s no surprise that six of the top ten risks of highest concern relate to environmental and social issues, according to¬†Global Risks, 2014, World Economic Forum. A recent PwC survey,¬†Total Impact Measurement & Management, shows that CEOs are increasing their focus on these factors, 93 percent believe measuring the total impact of their business ‚Äď the economic, environmental, social and tax implications ‚Äď could help them make better decisions about risk.¬† Despite this growing consensus that businesses need to understand how they are generating ‚Äď or potentially destroying ‚Äď value for different stakeholders in both the short and long term, less than a quarter of companies surveyed are using total impact analysis for decision making today. ¬†Some struggle to measure impacts in a timely, repeatable fashion.¬† Others need reliable data or the ability to ‚Äútranslate‚ÄĚ disparate impacts into dollars to enable equitable comparison.
A study by the Harvard and London business schools found that companies with sustainability programs outperformed those that didn‚Äôt have one by nearly 50 percent over a period of 17 years. Seventy-four percent of CEOs globally believe measuring the total impacts to their business contributes to long-term success, the PwC survey showed.¬† But now, quantifying non-financial impacts has been a challenge.¬† Launched at the United Nations Millennium Development Goals Innovation last fall, the TIMM (total impact measurement and management) is the first framework of its kind that can help businesses assess quantitative value through a number of lenses, including:
- The value chain and communities a business operates within
- Contribution to the economy
- Impact on the environment and wider society
Applying TIMM, businesses can move from feelings to facts, from qualitative guesses to quantitative insight. ¬†Better information can minimize risk and improve long-term shareholder value by facilitating more accurate, holistic decision making.¬† The ability to quantify and monetize ‚ÄĒin dollars‚ÄĒthe various impacts simplifies the process of understanding and evaluating the inevitable dilemmas that a company faces.¬† For example, in a decision such as whether to source raw materials locally versus importing, the company can compare and contrast the financial, social, environmental and tax impacts of different scenarios. ¬†Firms making decisions with long term implications find value in TIMM to ‚Äúfuture-proof‚ÄĚ them against changing expectations.
A growing number of companies are looking strategically at their environmental impacts.¬† Retailer Puma, for example, worked with several partners to better understand the impact of their operations on the environment.¬† As a result, they were able to decrease their environmental impact, differentiate their company, and innovate to reach new consumers through environmentally friendly products.
As traditional sources of business value are being eroded by climate change and resource scarcity and transformed by demographic and other economic or societal shifts, CFOs are expanding their risk horizons. The ability to create and protect business value by more efficiently using natural capital is high on the agenda. How to build resiliency and navigate through environmental and social challenges and opportunities will be key to charting a sustainable strategy for the future. Evidence is growing that companies who take steps now to measure and understand the total impacts — and tradeoffs– associated with their business decisions will increase their chances of outperforming their competitors over the long term.
Clinton Moloney is a Managing Director with PwC‚Äôs Sustainable Business Solutions Practice which helps clients across sectors develop practical solutions that address strategic, compliance, operational, reputational and financial sustainability-related issues.¬† Clinton works with Fortune 500 companies to connect sustainability with business strategy and is frequently invited to speak on the topic.¬† You can contact him @ firstname.lastname@example.org¬†
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