Our Value to Society
Value to Society represents a further evolution in our sustainability thinking. It describes the method to quantify, in financial terms, the contribution that SGS makes to the economies and wider societies in which we operate. Over time, we expect Value to Society to play a greater role in helping us to define our business purpose and shape strategy. Our belief is that companies will succeed or fail based on their ability to understand, maximize and sustain the value that they create for society beyond requisite financial returns.
Value to Society assumes that all business activities directly and indirectly depend on the services emanating from six types of capital stock: natural, social, human, intellectual, manufactured and financial.
Figure 1: Capital Stock Descriptions
Some capital stocks (e.g. property and plant) and their services will be owned and controlled by SGS, while others are either leased (e.g. labor) or borrowed (e.g. climate stability). To generate Value to Society the condition of these six types of capital stock must be maintained and preferably enhanced. This is achieved by ensuring that the positive flows resulting from SGS business activities throughout the value chain either balance or, ideally, outweigh the negative flows.
To illustrate this point, human capital is the store of labor/work embodied within SGS employees. Throughout the year, each capital stock (and its store of services) either enhances or deteriorates based on the extent to which capital flows – use, investment, depreciation and appreciation – are applied. In the case of human capital, if employees work excessive hours (use), then fatigue (depreciation)results, which, in turn, results on reduced labor productivity (depreciation). Figure 2 details this central capital stock-flow dynamic.
Figure 2: Capital Stock Flow Dynamics
This economic valuation provides the basis for our Green Book, which, since 2012, has been helping SGS to better understand the financial implications of our social impacts (or our sustainability performance). For each of our sustainability KPIs, we have developed appropriate economic values, drawing largely on published literature on economic valuation by the OECD, government agencies and scientific institutions. Translating sustainability performance into financial terms enables us to compare, aggregate and integrate our sustainability KPIs with conventional management and financial accounting systems. This allows construction of a single measure of Value to Society that we refer to as Net Value Added Plus (NVA+). NVA+ builds on the conventional measure of economic contribution, Gross Value Added (where GVA is the sum of employment costs plus gross operating surplus). We arrive at the NVA+ figure by subtracting all the depreciation indicator values and adding the sum of all investment and appreciation indicators to reveal a deeper and more holistic understanding of the contribution that SGS makes to society and the global economy at large. Figure 3 explains the NVA+ calculation and Figure 4 illustrates the calculation using a waterfall chart form.
NVA+ enables us to construct a time-series trend-line by division, by country of operation and by Group. From 2017, SGS will calculate NVA+ based on a three-year rolling average to accommodate any rebalancing of the methodologies used and the likely introduction of additional indicators (as data and information becomes available).
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