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If business examined the right kind of data would it result in a different decision? Malcolm Preston outlines a new PwC framework challenging businesses on how it makes decisions
I was recently in New York attending a side event at the UN General Assembly. Speaking at the CDP S&P 500 report launch at the New York Stock Exchange, and seeing Climate Week in full swing, the focus was very much on the choices and decisions business is making and living with the consequences. With the release of the IPCC 5th Assessment Report in the same week confirming that humans are influencing the climate system and a 40% increase in CO2 from pre-industrial levels, it just confirms the point.
I was speaking at the Millennium Development Goals (MDG) Advocacy Group Innovation Forum hosted by Ban Ki-moon. The event was designed to raise the profile of innovation as we all push towards delivery of the MDG 2015 goals. It was not just a privilege to be able to present, but a unique opportunity to showcase PwC’s new framework for enabling business to quantify and value their impact, and to feel confident they’re making the optimal decision for their business and their stakeholders.
Currently, our choices have more an impact than we realise. There’s a ripple effect, sometimes positive, sometimes negative, that radiates out from those initial actions.
Business decisions are no exception – the financial impact is perhaps the first impression, but the wider impact is felt by stakeholders, communities, environment, economy amongst others.. Getting it right could lead to securing your licence to operate and good growth. Getting it wrong, well we all read the press ...
Our experience at PwC supporting businesses making decisions about investment, risk and opportunities, has put us in a unique position to support business with a new, more holistic approach to these decisions and understanding their ‘total impact’.
Our CEO Pulse Poll survey on the topic suggests there’s a wider interest too. 85% thought a total impact approach would provide more insight than conventional reporting. 93% thought total impact would help them manage their risks better.
So what do we mean by ‘total impact’? We think that if the measure of business success goes beyond financials, and a value (and a cost) is calculated for the social, environmental, tax and economic activities of a company, business can see at a glance the total impact they're making. It also means they can see the trade-offs between alternative strategies. In effect, the business can see the optimal decision for itself and all its stakeholders.
We recognise boards rely on quantitative data. The qualitative is easily dismissed as it's harder to compare. When you're talking about financial performance vs jobs created, you're mixing money and people, but if you put a value on those jobs suddenly you can compare across with confidence.
Up until as recently as the last three years, there was no value placed on environmental impacts, so the cost wasn't quantified and up until now, there was no value placed on social outcomes. Over the last three years, in collaboration with some key clients, we have been working on techniques to achieve this - we can now put a value on both. It’s what’s we call Total Impact Measurement & Management (TIMM), which was launched during Climate Week.
So what does it mean in practice? Imagine you’re a drinks company looking with brewing operations in Africa. Do you import your barley or grow an alternative locally? Focus on tax and economics and there’s a similar story for both, so flip a coin to decide which is the better option.
But with a wider lens, using the wider dimensions of impact and value identified in TIMM, growing locally will dramatically improve local livelihoods, and reduce greenhouse gas emissions (as distribution costs drop). But - and here’s the 360 degree view TIMM challenges decisions on - growing locally still poses a real conundrum around water (it’s already scarce and will mean local communities have less). You can start to see why business needs a richer data set and how this would lead to better engagement with stakeholders too.
It is all about choice, but having full sight of the facts will hopefully steer that choice to one that’s more aligned to real, inclusive, responsible and lasting growth ie. ‘good’ growth.