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Best-in-Class in Methodologies for Putting a Monetary Value on Social Impact

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Bea boccalandro, SROI Thought Leader, Georgetown university
Witold Henisz, Deloitte & Touche Professor of Management, The Wharton School, Univeristy of Pennyslvania
Lise Laurin, Director & Founder, EarthShift

What are the most pragmatic methodologies for converting various measures of social impact into monetary terms? Why have 'Social ROI' models seen both ups and downs over the last several years? How are smart brands turning SROI results into powerful communications pieces?

Publié dans : Business, Économie & finance
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Best-in-Class in Methodologies for Putting a Monetary Value on Social Impact

  1. 1. The New Metrics of Sustainable Business 2013 Best-in-Class in Methodologies for Putting a Monetary Value on Social Impact Bea Boccalandro, Georgetown University Witold Henisz, The Wharton School, University of Pennsylvania Lise Laurin, EarthShift
  2. 2. Evaluating the social, economic and environmental consequences that flow from your activities. Creating the business case for societal impacts Lise Laurin llaurin@earthshift.com 830 Taft Road • Huntington, VT 05462 • Phone (802) 434-3326 Fax (802) 329-2214 • www.earthshift.com Copyright EarthShift LLC – All Rights Reserved
  3. 3. What happens when you choose product B? • Product A has higher GHG impacts than Product B? • Product A has higher particulate emissions than Product B? • Product A has higher child labor than Product B? Product B Product A Copyright EarthShift LLC – All Rights Reserved
  4. 4. What happens to the children making Product A? • In India, child labor raids force children back to poor families where there is nothing to eat. They get sent out to “hidden” jobs where there is even less oversight of how they are treated. http://articles.chicagotribune.com/2008-0418/news/0804170692_1_child-labor-working-children-india Copyright EarthShift LLC – All Rights Reserved
  5. 5. Results of choosing products made without child labor • After the Child Labor Deterrence Act was introduced in the US, many children in South Asia resorted to jobs such as "stone-crushing, street hustling, and prostitution." UNICEF's 1997 State of the World's Children study found these alternative jobs "more hazardous and exploitative than garment production."[31] Copyright EarthShift LLC – All Rights Reserved
  6. 6. Consider the consequences of your metrics carefully! Copyright EarthShift LLC – All Rights Reserved
  7. 7. Why include societal costs and benefits in an ROI? • Reduce risk! • Improve employee and community relations=higher productivity and license to operate • Improve return to investors • The process improves buy-in • Optimize the decision Copyright EarthShift LLC – All Rights Reserved
  8. 8. Valuation systems for societal impacts • Quantitative vs Qualitative • Cost-benefit by stakeholder vs Cost-benefit only to the investor • Consider only culturally-insensitive issues (e.g., health & safety impacts, direct cost implications) vs consideration of many or all societal issues • Include only guaranteed costs and benefits vs include uncertainty • Use standardized costing methods vs allow stakeholders input into costs • Use averaged valuation vs stakeholder specific valuation vs stochastic valuation Copyright EarthShift LLC – All Rights Reserved
  9. 9. Common Principles • • • • • • • Involve stakeholders Understand what changes Value the things that matter Only include what is material Do not over-claim Be transparent Verify the result Copyright EarthShift LLC – All Rights Reserved
  10. 10. What has changed in the last 14 years? • Better definition of the process—how do you go about doing an assessment? • More guidance on valuation—more data available on costs/benefits for common social (and environmental) issues • Reduced cost to perform an assessment—through online tools and the incorporation of social networking in the tools • Inclusion of uncertainty—tools with sophisticated Monte Carlo analysis and cascading probability capability • Analysis by stakeholder Copyright EarthShift LLC – All Rights Reserved
  11. 11. S-ROI How do you do it? Define the goal and scope Do traditional ROI analysis Do a Life Cycle Assessment Identify stakeholders Bring stakeholders or their representatives on board, get buy in Streamline the analysis Hold workshop - Identify stakeholders - Identify potential risks and opportunities - identify costs and benefits Conduct impact assessment Interpretation /Feedback to decisionmaking loop Copyright EarthShift LLC – All Rights Reserved
  12. 12. Cogen from woody biomass by stakeholder } Higher raw material costs tourism less pollution additional revenues from forest residue risk that preferred bedding (sawdust) will be used in cogen Copyright EarthShift LLC – All Rights Reserved
  13. 13. For more information, contact: llaurin@earthshift.com (802) 434-3326 x 102 For more information Copyright EarthShift LLC – All Rights Reserved
  14. 14. NEWMONT GHANA FV TOOL PROJECT Witold Henisz, Deloitte & Touche Professor of Management, The Wharton School, University of Pennsylvania
  15. 15. Introduction to the FV Tool (www.fvtool.com) Estimates expected net present values (NPV) of local investments  Answers two critical questions: “what” is the right portfolio of sustainability investments? “what” is the financial return they will likely bring?  Supports alignment across finance, risk, operations, social, HR 15
  16. 16. FV Investment Scenarios Scenario B : Scenario A: • Health: expanding mitigation for broader population • Health: mitigation only for workers & community • Water & Sanitation: expanding mitigation for broader population • Water & Sanitation: mitigation only for workers & community Difference between Scenario A and B
  17. 17. Value Driver Examples More Conciliatory Land Acquisition Process: $2.87 per square foot less than expected leading to $230,000 savings.  Four months faster than expected leading to $700,000 more revenue. Malaria Eradication: Reduction from 3,195 cases of malaria to 0 3 days of absence from work or $120 of lost productivity Savings of $30 worth of treatment Additional lost work an productivity for family illness Higher recruitment and retention costs for most skilled workers $850,000, two-year program Distributed bed nets, instructed and monitored use Sprayed insecticide & improved drainage to eliminate breeding pools.
  18. 18. Indirect Value Protection Based on Six Project Risks • Roadblocks that disrupted production which were expected to occur once every other year, last one week and cost a fixed $3m plus one week of lost revenue. • Serious complaints which are expected to occur 12 times per year with an expected average cost of $50,000. • Exploration protests which were expected to occur every other year, last two weeks and cost $5m plus two weeks of lost revenue. • Fines and legal judgments which were expected to occur every third year with an average cost of $3m. • Water protests which were expected to occur every other year with an average cost of $200,000 • The risk of expropriation which was estimated at a 1 in 1,000 probability in any given year. 18
  19. 19. FVTOOL, Value Protection
  20. 20. Occurrences FVTOOL, Monte Carlo Simulation Value in Billions 20
  21. 21. FVTOOL, NPV of sustainability Dashboard - Total Sustainability Value Added For $2billion CAPEX project, sustainability investments returned as much as $187 million of NPV. 21
  22. 22. Key Findings of FV Ahafo Pilot and Developments over Last 9 Months • Value creation swamped by value protection • Estimates of latter mostly qualitative in FVTOOL • Need better quantification of stakeholder preferences within FVTOOL • Who wants what how badly? • Who has power? • Who influences whom? • Jan 2013 add-on incorporates stakeholder influence into risk mitigation consequence but how to sequence stakeholder mapping & analysis and financial valuation? • Cross-functional conversations and collaboration swamped value of npv calculation 22
  23. 23. Notable Quotes: Sustainability Team When we first heard of it, those of us on the social side were happy to get something that would help Finance understand us. We are more confident in costing the programs that we do. This puts us in a much better position with finance. In previous meetings, other departments had figures and we had to talk to explain. Now we are putting figures to our words just like other departments. The change within the ESR team is marked. What are these risks that we are trying to mitigate? Are their costs justified in terms or risk mitigation? Previously program owners were not connecting the dots to risk mitigation or value creation. Now we challenge the numbers. Previously, we had no framework to evaluate. People are now trying to highlight the value of their initiatives for the business not just for stakeholders.
  24. 24. Notable Quotes: Finance Team My biggest surprise was that it is possible for the ESR team to have a conversation in financial terms. Every conversation I had with them before, … they never could articulate their assumptions and acknowledge costs and benefits. Now they can and do. They have their act together and can explain a business case … Previously, they were not able to see their business case. … Finance and [Environment and Social Responsibility] are now working together much better than before. Just those changes alone justify the effort put into the pilot. Ebenezer Kyere-Buabeng , Finance Newmont Ghana Gold In the last business planning meeting, I saw a huge improvement in SR's presentation of budget and supported by data of the business benefits of SR programs. The meeting went very smoothly compared to previous meetings. Lester Ampong, Senior Business Planning Analyst, Newmont Ghana Gold
  25. 25. Notable Quotes: Group Executive Quantifying the net present value of sustainability initiatives at Newmont’s Ahafo mine in Ghana had finally allowed the company to get “Beyond NPV.” Nick Cotts, Group Executive, ESR
  26. 26. The social bottom line: Social Return on Investment (SROI) ratio or Net Present Value (NPV) Bea Boccalandro bea@veraworks.com www.veraworks.com 717-414-2885 (US) The New Metrics of Sustainable Business Conference September 25, 2013
  27. 27. Definition: SROI ratio (and NPV) • Similar to the ROI, the Social Return on Investment (SROI) ratio is a monetary comparison of the value of the results and the value of the investment, only in this case the return is societal, not financial. • Formula: SROI ratio = Social impact, monetized and adjusted for inflation & other _______________________________________________________________________________________________________________ Investment, monetized • Net Present Value (NPV) is similar: Social impact, monetized and adjusted for inflation & other – investment, monetized
  28. 28. SROI ratio = Social impact, monetized and adjusted for inflation & other _______________________________________________________________________________________________________________ Investment, monetized
  29. 29. SROI ratio = impact Social impact, monetized and adjusted for inflation & other _______________________________________________________________________________________________________________ monetized Investment, monetized
  30. 30. Measure impact???? Monetize it????
  31. 31. How can we communicate the societal value of our corporate social responsibility?????
  32. 32. Example 1: Our presence is associated with twice the societal benefits of the average company
  33. 33. Example 2: Every $1 invested in community schools generates $10 of value to society Source: “Measuring Social Return on Investment for Community Schools” by The Finance Project, 2013.
  34. 34. What is the societal value of reuniting one homeless child with her family?????
  35. 35. ExampleIn3: Every $1 the Operation Come reuniting 2010, investment in invested in Home Reunite Program (not including inhomeless youth with families generates $56 of kind contributions by Greyhound Canada) was approximately $53,000 - averaging value to society about $750 per reunion. Assuming that 75% of the 72 reunites were succssful for at least one The Operation Come Home Source: “MEASURING RETURN, year, this would represent an annual Reunite Program” by MeasuredOutcome, 2012. savings of between $1.6 and $3m.2
  36. 36. Can the amount of joy we experience at any one time be measured? Can the value of reuniting one homeless child with her family be calculated? They already have!
  37. 37. Rely on indicators • There is no direct way to hold many important concepts, like happiness, to a measurement tool. • However, there are excellent indirect measures for happiness and for virtually all social sector outcomes, no matter how abstract. • The lynchpin to measuring abstract outcomes is the “indicator.” • An indicator is a measurable gauge of something not directly measurable.
  38. 38. Three rules for measuring (formerly) “unmeasurable” societal impact 1. Make a reasonable investment in measurement
  39. 39. UL Safety Ambassador Program Value Creation Model Inputs Key Activities Impacts Youth are more: Annual Paid Staff 240 hours Annual Volunteer # of Employees 156 # of Employee Hours 780 # of Children Reached 3900 Annual Costs Rewards Reproduction Replacement kit Total $1,500. $3,500. $10,000. $15,000. Per Event Per Child $96. $3.80 Paid Staff Work with schools, community event planners, camp leaders, youth group advocates to plan safety educational events Work with employee to plan safety educational events Coordinate employee volunteers with safety educational events Volunteer Staff Work with schools, community event planners, camp leaders, youth group advocates to plan safety educational events Set-up event, deliver safety lessons, pack up event • Inspired to be more safety conscious • Aware of safety issues and engaged in safe behaviors • Likely to influence their caregivers to “look for the UL Mark” Employee volunteers have greater: • Morale, pride in company and knowledge of company’s positive traits • Confidence in company’s future resulting in loyalty toward company and professional pride • Communication skills • Awareness of company’s mission • Sense of personal accomplishment • Retention • Engagement • Productivity • Advocacy for company’s mission Parents, community members and other external stakeholders involved with Safety Ambassadors have: • Stronger view of UL brand • Awareness of products bearing UL Mark • Safety consciousness • UL labeled product purchases • Advocates for UL Mark
  40. 40. Image: Bay Journal
  41. 41. Find a few good indicators for a few good outcomes not Find a perfect indicator for every outcome
  42. 42. Three rules for measuring (formerly) “unmeasurable” societal impact 1. Make a reasonable investment in measurement 2. Find a few good indicators for a few good outcomes
  43. 43. We should aspire to the attribution problem. PS: If we are lucky enough to have this problem, we can manage it using “dead weighting.”
  44. 44. Three rules for measuring (formerly) “unmeasurable” societal impact 1. Make a reasonable investment in measurement 2. Find a few good indicators for a few good outcomes 3. Consider yourself lucky if you have the attribution problem
  45. 45. SROI ratio = impact ✔ Social impact, monetized and adjusted for inflation & other _______________________________________________________________________________________________________________ monetized Investment, monetized
  46. 46. Monetizing the value of societal impact Good news! We live in a hyper-monetized world. There are many places to find valuation data for societal impacts: • What would it cost to create that impact? • What societal costs does that impact avoid? • What do taxpayers pay to generate this impact? • What is the market value?
  47. 47. Examples of what SROI ratios can do

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