The cost of sustainability programs are readily apparent, PwC said. And companies are typically able to determine the short-term value from cost savings, risk reduction or product and service innovations. Putting a dollar value on intangible benefits, especially those over a long period of time, is where companies struggle, the consultancy said.
Sustainability Valuation: An Oxymoron? outlines a direct and indirect approach (see graphics) companies can use to put a value on sustainability, including long term, difficult-to-quantify benefits.
The direct approach looks at the profit and loss impact of sustainability initiatives. The indirect method does recognize that sustainability initiatives create shareholder value. But it’s not directly connected to profits and losses. Instead, it uses a methodology called multi-attribute utility analysis, which has been widely adopted by government agencies for public policy decisions.
The indirect method might be used, for instance, when a company pushes to create a more diverse workforce. The company might recognize that the move is good for business, increases employee satisfaction and boosts productivity. Still, it might be reluctant to use the direct method, which focuses on profits and losses, to put a value on a diversity initiative.
Two other reports released earlier this year by PwC illustrate the increasing importance of sustainability for investors as well as environmental, social and governance issues for private equity houses. Some 94 percent of private equity firms expect ESG issues to become more important to their business in the next five years. The same percentage also believe that ESG activities can create investment value. However, only 20 percent of the private equity firms surveyed have put systems in place to measure value created from ESG activities, said PwC.