Putting a Price Tag on Sustainability

31% of companies want to quantify the impact of their sustainability efforts on shareholder value.

Herve Kieffel of PWCThere’s growing interest among finance executives in getting a handle on the value of sustainability initiatives, instead of just using those efforts to meet regulatory requirements or generate good public relations. And some are taking the next steps—prioritizing initiatives and allocating capital based on those decisions.

“They’re moving away from looking at this as just a requirement, but rather as something that brings value to the table,” says Hervé Kieffel, a principal in PwC’s sustainability valuation practice.

At the same time, companies trying to put numbers on their sustainability initiatives face significant challenges, and a substantial number of businesses are far less advanced in their approach to measuring the results of sustainability initiatives.

Those are some of the findings of a recent survey of 1,400 corporate executives, conducted by professional services giant PwC during the firm’s August webcast about sustainability valuation.

About one-third of the webcast attendees were CFOs and other finance executives, which was a significant change from the year before, according to Kieffel. “A larger and larger number of executives in finance are looking at sustainability in terms of, ‘What’s in it for me?’” he says. “They want to understand how these initiatives help the environment, but also have a return on investment.” In fact, 31% of respondents said they’re interested in quantifying the impact of sustainability on shareholder value.

According to Kieffel, the ability to allocate resources to sustainability initiatives involves three steps. First, companies need to understand the value of their efforts, using a framework that allows them to identify value drivers and then measure and monetize the results. Once businesses have that framework in place, they then can move to the next phase, prioritizing those initiatives.  The last stage involves making real budgeting decisions, based on the list of priorities already established.

For a significant number of companies (36%) surveyed, the prioritization process presents a particular challenge.  According to Kieffel, that’s largely because they’re wrestling with how to consider not just direct cost savings of initiatives—say, efforts to reduce water usage—but also indirect results, such as creating better relations with the surrounding community. “You have to figure out a way to compare these areas, so it’s not apples and oranges—initiatives with clear cost savings vs. those with no direct financial benefits,” he says.

In fact, for many companies, while direct costs savings are important, indirect impacts also are crucial considerations. Twenty-five percent cited the effect on the environment as the most crucial factor, while 24% say talent, corporate know how, and retention are key, and 16% cite local community and media perception.

Respondents cited a number of specific approaches they use to quantify the value derived from sustainability initiatives. Top on the list was “aggregating cost savings,” which was cited by 24.2%, which 16.3% said “measuring total value generated, including indirect benefits in dollar terms.”

The survey also revealed a significant difference in corporations’ maturity levels regarding their approach to sustainability measurement. “There’s a broad divergence between leaders and laggards,” says Kieffel. For example, 10% are in the process of budgeting and allocating capital to initiatives, but 39% haven’t attempted any valuation at all.

 

 

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