An 8 page report requiring a 10-15min focussed read. Best to read EPI's 2 previous reports to get the most out of this one, although can still be very insightful if reader has an adequate background on corporate purpose. It focuses on how businesses can get practical about measuring purpose and the impacts a company's activities has on people and planet (and also the impact purpose has on the company's bottom line).
About the Report
- Businesses are continuing to be put under the microscope with regard to their role and responsibility in society. Specifically the resources they use to produce their products and services, the change this creates, and the impacts they have on stakeholders and planet. As such this has prompted many measurement initiatives to help companies understand and report on both the positive and negative impacts they are placing on society. Most initiatives come with complexities making it difficult for companies to adopt.
- This report puts forward a 3 step framework for companies to consider as a way of measuring the impact their business activities have on shareholders and stakeholders
- It refers to the need for a system of measurement that can serve the need of 4 specific parties (executives, middle management, institutional investors and policymakers) if business and economies are to operate effectively (NB: it mentions parties such as employees, customers, suppliers and civil society but the former 4 are particularly relevant to the delivery of corporate purpose)
Key Insights
- Traditional methods of measuring company performance overstate profit where companies cause detriments to other parties and understate profit by not fully recognising where they confer benefits. Accounts currently do not provide all the information that is relevant to promoting responsible, purposeful business practices.
- The 3 step framework aligns measurement of business impacts with the strategic motives of an organisation and monetization through 2 distinct but complimentary methodologies (enterprise cost based approach and societal valuation based approach.
- There are 3 benefits for this 3-stage approach - it allows the org to capture financial and non-financial impacts, secondly, different stakeholders (investors, society leaders, employees) can undertake their own assessment of the value of the org, finally - cost based accounting and valuation answer different questions. Cost based accounts for resources the company expends in correcting detriments or generating positive impacts, whereas valuations capture the net benefits or detriments of the org's activities.
- Motives: The reports suggests companies follow the "British Academy Future of the Corporation" program definition of corporate purpose as being about "producing profitable solutions for problems of people and planet, not profiting from producing problems for either". This focuses business purpose on problem solving and identifying commercially viable, profitable and sustainable solutions and the avoidance of detriments.
- Metrics: The framework suggest a company's metrics can be derived by their inputs (resources it uses in its activities), outputs (what it produces), outcomes (changes it brings), and impacts (consequences on wellbeing of stakeholders and planet)
Money: Here the framework suggests monetizing the metrics - i.e. placing a value on human, social and natural capital and doing this through 2 methods including an enterprise cost based approach and societal valuation based approach. The cost based approach helps companies avoid causing harm to others because they are required to track the cost of remedying detriments.. conversely (in a positive way) they can also track the value they are creating to other parties (eg if they invest in an asset which confers benefits to other parties over more than a year they can track this on the balance sheet by way of capital expenditure). The societal valuation approach tracks impact of a company's activities on society and the environment - things such as 'cost of carbon emitted' as material costs but it also tracks value determined that is material, physical and financial to the firm's purpose and strategic operations.
