The emerging practice of quantifying the financial value of sustainability has been getting a lot of attention- internationally and locally. Canadian firms are asking: is this activity worth the effort, are the valuation strategies sound and are they going to be adopted widely by companies? It’s still early days, but the valuation projects we are seeing now have good potential to:
- Drive the internal business case
- Inform risk management
- Support business planning – forecasting, pricing and product strategies
- Deliver cost savings
- Demonstrate commitment to stakeholders and influence competitor
We believe it is time for Canadian companies to make new strides in integrating macro environmental trends into their micro business operations.
A company we are all quite familiar with, Canadian Tire, is now taking a life cycle approach to sustainability accounting. The Business Sustainability team works very closely with the corporate finance team to calculate and track environmental and economic metrics. These include the number of upgrades and improvements, forecasted avoidance of energy, emissions, and products and packaging, and cost avoidance due to such initiatives. Forecasts completed cover a wide segment of the value chain. In addition, sustainability performance results have been incorporated into employee incentive programs.
Since Canadian Tire started with quarterly reporting of their business sustainability numbers, they have seen considerable cost savings resulting from sustainability initiatives. This is catalyzing ongoing sustainability improvements, as the documented forecasted savings clearly reinforce the business case.
Puma’s recent announcement, assigning value to environmental profits and losses, also received the interest of sustainability folks worldwide. Puma developed a methodology to quantify volumes of emissions and water used across the value chain by assigning values to water and carbon. This helps the company understand the scale of its impacts and target resource intensive areas such as raw material production.
Some large chemical, cement companies, energy providers have done work in evaluating social and environmental costs to determine alternative production processes and site selection. There are, however, limited similar practices among retail and consumer goods companies. Given the global increase in the cost of commodities, depletion of resources and the increasing recognition of the value of nature’s products and services, I’m surprised broader sustainability accounting is not yet mainstream practice.
Recognizing implications for all industries, retailers and consumer goods are in a particularly precarious position. Fluctuating costs and diminishing supplies will likely squeeze margins and lead to cost shifting to consumers. Inevitably, this will drive supplier and product substitutions along value chains.
To our member firms, we are saying that it is important to examine the value chain through a more comprehensive lens to understand longer-term risks and opportunities. Measuring broader value of resources, operations and subsequent impacts will better position companies to forecast and respond to wider supply chain risks and increasing expectations of stakeholders. Additionally, CSR teams will be better positioned to truly convince senior leaders of the value attributed to sustainability practices; and the need to preserve what many of us care about.
There are challenges and limitations in assigning more holistic value to the resources we use and impacts. However, the current attempts to do so represent a promising avenue to truly safeguard sustainable development. Having a personal interest in these issues, I look forward to seeing how these concepts advance and how values of natural capital continue to influence businesses going forward.