Practical Insights into Impact Measurement & Valuation

Key take-aways from the RobecoSAM webcast
Practical Insights into Impact Measurement & Valuation
Publ. date 10 Nov 2017
Earlier this year, RobecoSAM rolled out the Impact Measurement and Valuation criterion to all industries in the Dow Jones Sustainability Index (DJSI) universe. The new chapter posed a big challenge for many companies, which was reflected in the on average low scores in this area. We shine light on the emerging topic and provide practical insights for better understanding RobecoSAM's expectations.

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During a recent webcast, RobecoSAM’s Senior Analyst Rashila Kerai provided specialist insights into the criterion’s results and expectations on the topic of Impact Measurement and Valuation. Integrating this emerging topic into the DJSI questionnaire is a logical consequence for RobecoSAM, looking at the evaluation of sustainability reporting from simply identifying and measuring input and output towards calculating outcomes for society, and monetizing these impacts.

Low scores overall, with some exceptions further ahead

In 2017, average scores on the Impact Measurement and Valuation criterion were extremely low. Companies in the materials, telecommunication services and consumer staples industries, and companies from Europe and emerging markets did (slightly) better than other sectors and regions. The majority of companies (74%) indicated that they are applying monetary impact valuation, opposed to merely quantitative or qualitative impact valuation or pilot projects. The legitimacy of these statements is however not evident: RobecoSAM has only accepted 15% of the answers as valid.

RobecoSAM’s expectations: current, complete, correct

For this DJSI questionnaire chapter, RobecoSAM indicates that it is looking for information that is active and current, has a broad coverage, values social or environmental externalities, and applies some form of valuation (either monetary, qualitative, or quantitative).It is important to include an explanation of the methodology or results of the analysis as supporting documentation. From companies that are still in the development or pilot phase, RobecoSAM expects a clear indication that testing has begun, and an expected roll-out date of the valuation framework should be provided. For full points, all these elements also need to be publicly disclosed.

RobecoSAM recognizes that there are not one or two generally accepted standards. Some examples of standards that were accepted included the application of existing methodologies (e.g. True Value and TIMM), and the participation in frameworks such as the Natural Capital Protocol or the WBCSD’s Social Capital Protocol. Furthermore, the analysts allocated points for models where the value of the externalities clearly showed costs or benefits to society and environment, not simply the market price or direct financial costs incurred for the company, and where externalities were well described.

Examples of best practices include AkzoNobel’s 3D P&L assessment and Kering’s environmental profit & loss tool, of which the latter shares its methodology publicly as an open source approach. Unilever was mentioned by RobecoSAM as an example of a company that applies quantitative, but not monetized, valuation.

Costs, revenues, more ‘standard’ assessments not accepted

Answers that were not accepted did not meet the above requirements, and for example described direct costs or savings for the company (such as energy savings, market price carbon, philanthropic donations) as a method of valuation. More ‘functional’ environmental and/or social impact assessments were also not accepted, as well as life cycle analysis, human rights assessments or standard risk analyses. Finally, RobecoSAM indicated that is not looking for revenues from more sustainable products and services, or more purely economic indicators such as Economic Value Add or Gross Value Add, in this question.

Impact Valuation methodology developments for 2018

Based on feedback from participating companies, RobecoSAM mentioned that for the 2018 assessment, it will clarify expectations, improve questions, definitions, and guidance, and provide additional insights on the qualitative or quantitative way to measure externalities. It is recognized that impact valuation is an emerging field, both for companies and for asset managers. RobecoSAM thinks the concept will mature over time and will be more widely applied, and in the meantime it will continue to recognize and reward companies that are leading the way.

Developing your Impact Valuation approach

Is your company planning to start with measuring and eveluating its impact? Finch & Beak developed a concrete approach to get your Impact Measurement & Valuation started. The methodology is based on the WBCDS's Natural and Social Capital Protocol in order to reap the benefits of an open source approach. Please contact Josée van der Hoek, director, at josee@finchandbeak.com or call +31 76 522 28 17  for more information.

Image source: Let's Colour/AkzoNobel

About Nikkie Vinke

Multidisciplinary advisor in benchmarking, (open) innovation, strategy development and program management, with a black belt in DJSI. | nikkie@finchandbeak.com

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