NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

In my daily work at the World Business Council for Sustainable Development (WBCSD), I hear it again and again from our member companies: “How do we improve the understanding, measurement and management of the social impacts of our operations?”

Why is this question so prevalent? Firstly, the issue is fundamental for companies striving for social and environmental capital to be managed as effectively, or even more effectively, as financial capital. (This notion is a central piece of our Vision 2050 report.) Secondly, it is necessary to provide a credible foundation for increasing regulation that requires disclosure of non-financial performance, and to support the move towards integrated reporting. Thirdly, and most importantly, it is a priority for the practical, day-to-day performance management of companies that are increasingly driven to understand and improve their relationship with society.

To help provide an answer, WBCSD member companies have asked us to begin an initiative to advance the measurement and management of corporate social impacts. As part of the Redefining Value program, our mandate is to:

• Consolidate the voices of many businesses and convene a platform for greater alignment
• Catalyze the development and harmonization of tools and approaches for corporate performance management and decision-making to integrate environmental and social, alongside financial, concerns
• Manage a space for companies to learn, exchange, promote innovations and showcase leadership

With our new paper, we are calling on organizations, experts and practitioners to join us in developing a harmonized approach for businesses to measure and value their interactions with society: A Social Capital Protocol.

Where there’s a will, there’s a way

While the will is there, well-established corporate tools do not yet exist to provide social impact data that can support day-to-day decision-making, or to provide credible, reliable and readily available data for non-financial reporting, let alone be effectively considered alongside environmental and financial performance.

Fortunately, this void is not holding business back. Our new paper profiles how companies are applying, tailoring and developing new approaches to measurement and valuation to fit the needs of their organizations and stakeholders. Featuring examples from Alliance Trust, ArcelorMittal, BT, DSM, Holcim, J.P. Morgan, KPMG, Lafarge, Masisa, Nestlé, PWC, SABMiller, SCA, Schneider Electric, Sompo Japan Nipponkoa and Veolia, it highlights how a range of valuation approaches are being put into practice by a wide range of corporations.

For example, global energy firm Schneider Electric has set up a sustainability scorecard: the Planet and Society Barometer. As the report notes, the barometer tracks major sustainable development challenges for the company. Key Performance Indicators (KPIs) are used to inform and track improvement plansbased on external inputs and internal consultations. The result of each KPI is converted into a score out of 10, and the corporate level scorecard is composed of the equally weighted average of all indicators. The results are externally audited, and demonstrate progress on sustainability improvement plans for the group as a whole.

In another example, concrete giant Lafarge has developed a new strategic methodology to allow country management teams to tailor their sustainability strategy to fit their specific local context: the Lafarge Sustainability Compass. As the report notes, the methodology helps country management teams assess their performance and maturity level in 10 main “impact areas” around natural and social capital defined through the lens of stakeholders. Managers then use the Sustainability Ambitions 2020 program to make progress on each impact area. Based on this assessment, managers can identify key issues for their business and stakeholders, select priority areas on which to act and draw up action plans that combine business growth with ambitious targets for sustainability.

These are just two examples demonstrating significant progress in the field and illustrating how leading companies are already actively considering social information alongside other management information. However, the WBCSD’s members are pushing for more. Developing tailored approaches is generally time consuming and resource intensive. While they fit the needs of each organization or project, the ability to compare, benchmark or assure best practice is still limited. Companies are keen to drive the maturity of this practice, and are looking for a commonly accepted approach.

Within the paper, we highlight the need for action and introduce the WBCSD’s use of the term “social capital.” This goes beyond a focus on social impacts by also considering how a company itself depends on people and society. Thinking of social resources as a form of “capital” helps to align financial, natural and social capital, and helps companies consider how social capital relates to their business drivers and decisions. By taking a broader perspective, we aim to bring together practices around the measurement, valuation and management of human capital (people’s skills, experience and knowledge), social capital (societies’ shared values, norms and institutions), relationship capital (connections and networks) and well-being, as well as the socioeconomic impact of business activities.

We also propose what a protocol could look like – providing a consistent process for business to measure and value its impacts and dependencies on social capital. We suggest this process should be underpinned by tools and approaches for business that would be needed to support its delivery, and guided by appropriate ethical and operational principles to inform its application. Of course, the tools and guidance that would be required by business to deliver the protocol are currently disconnected or do not exist at all. As a result, we highlight some of the areas where significant work will be needed.

Platform thinking

We are under no illusion of the complexity of the task ahead, and are delighted to already have an impressive set of partners to help us tackle the challenge. The B Team, CIRAIG, the Global Impact Investing Network, Grameen Foundation, International Finance Corp., the Initiative for Global Development, the Roundtable for Product Social Metrics, Social Value International and the William Davidson Institute will all be lending their expertise and support to the initiative. (Disclosure: The William Davidson Institute is the parent organization of NextBillion.) Collaboration will be essential in order to build the critical mass necessary to ensure a legitimate and broadly accepted approach for business. If you feel you have tools, methodologies or resources to contribute to this effort, or simply want to exchange thoughts, do not hesitate to get in touch with me via email at cerri@wbcsd.org.

Have a look at our Social Capital webpage to find out more – including how your organization can get involved.

Kitrhona Cerri is Manager, Redefining Value – Social Capital for the World Business Council for Sustainable Development (WBCSD).