Impact beyond the balance sheetFollow @PwC_LLP
Author: Malcolm Preston, Global Sustainability Leader
In September, I spoke at the UN Millennium Development Goals (MDG) Innovation Forum, hosted by Ban Ki-moon, which brought home to me the important role business has to play in delivering the eight MDGs. I heard many practical solutions which responded to the demands of a changing world and the mega trends playing out within it, while still making sound business sense. It was great to see such innovation and forward thinking in action.
With my background in accounting, I always think it’s surprising that financial reporting is based on a centuries-old system that really hasn’t changed with the times. We’re all so used to the traditional metrics and measures of valuation and success that we’ve seen little innovation here. But do these metrics really support the direction that many companies now want to take?
The results of our CEO pulse poll survey on total impact suggest not. Of the 187 CEOs we surveyed, 85% thought a total impact approach (taking into consideration their company’s economic, environmental, tax and social impacts) would provide more insight into their business than conventional reporting. And 93% thought it would help them manage their risks better.
So what do we mean by ‘total impact’? Well, it’s all about taking a holistic view of a company’s overall impact. By measuring business success beyond financial analysis, and calculating a value (and a cost) for the social, environmental, tax and economic activities of a company, business can see at a glance the total impact it’s making. It’s a more innovative approach that also means companies can see the trade-offs between choosing different strategies, allowing them to make the optimal decision for themselves and all their stakeholders.
If total impact sounds so attractive, you might think everyone must be using it - but, you’d be wrong. We found that while 72% of CEOs measure economic impact and 62% measure environmental impact as part of their board level decision making, less than 25% of CEOs measure their total impact. So we asked them why? 89% of CEOs were put off by the lack of availability of data and 85% by the lack of a robust framework.
But times are changing. With new research and methodologies in place to turn qualitative into quantitative data and to put a value on it, it feels like there’s a new way to do business. Certainly, some companies are already embracing a total impact approach to better understand the value they create beyond the balance sheet. Take a look at these great examples from SHE transmission, PUMA, Rio Tinto, HP and Standard Chartered to see how these companies are understanding their impact from a different perspective.
Malcolm Preston is Global Sustainability Leader for PwC, and leads a team of some 700 sustainability and climate change experts. Malcolm has a view on all aspects of sustainability from climate change to reporting, to supply chains to international development, and specialises in Total Impact Measurement & Management.