Our Value to Society
Why We Measure Value to Society
We add more than just financial value to society. We are convinced that our long-term success depends on our capacity to deliver sustainable value to our stakeholders and to wider society. Through our Purpose-driven Leadership approach, we strive to become an ever more sustainable company and maximize the positive impact we can have. Our stakeholders (employees and suppliers, investors, customers, governments and industries, consumers, and communities and the planet) are the ultimate beneficiaries of this effort.
We are working on a new approach to Purpose-driven Leadership to ensure that our impact on society is considered in our strategic decision-making – alongside our operational, legal, tactical and financial concerns. To function optimally, this leadership model requires a fair basis of comparison across all areas, which is why we have begun to measure the environmental and social value we create in financial terms. This process, known as impact valuation, will help us to better understand our material issues, set our sustainability priorities and track our progress toward the ambitions laid out in our Strategic Focus. It also marks another important step toward fully integrated reporting.
In traditional economics, GDP is used to measure the total economic value generated at a national level, while a company’s impact is defined as gross value added (GVA). GVA is generated through traditional financial calculations, such as the payment of wages and salaries, profits generated and taxes paid. However, these metrics have been questioned as they only give a partial picture of wealth and performance. Alternatives to the GDP have been proposed, such as the OECD Better Life Index.
With the same motivation, at a company level we have proposed a methodology, our SGS Impact Valuation Framework, to move beyond GVA. This methodology, which aims to quantify and monetize our positive and negative impacts on society, helps us understand our value creation and make better strategic decisions.
How We Measure our V2S
Impact valuation is based on the premise that in order to succeed, companies must more precisely understand how value is created and diminished as a consequence of their activities and use this information to mitigate risks and harness business opportunities. This holistic view can change the way in which flows of costs or benefits are understood internally and externally. For example, internally, impact valuation can support decision making, risk identification and innovation, and it can act as a management tool to help orient company strategies toward sustainable activities, solutions and sourcing. Externally, it can help investors and other stakeholders evaluate the influence of social and environmental externalities on business value drivers such as growth, profitability and risk.
At present the model is not intended to be a financial accounting tool. Instead, it will help us understand and monitor our path toward achieving our Sustainability 2020 Ambitions and demonstrating SGS’s Value to Society in a comprehensive way. On this basis, our total Value to Society could eventually become a strategic KPI in its own right. With this new approach, we are also embracing the strategy, encouraged by the International Integrated Reporting Framework, of creating a cohesive and comprehensive view of how our material factors generate value over time.
SGS’s impact is explored across the entire value chain: our operations, supply chain and services. At present, our analysis only comprehensively covers our operations and supply chain. We are undertaking advanced technical work to develop accounting procedures to measure the value created by our services. Once this is integrated into our analysis, we can expect to see a significant increase in our Value to Society figure. This is because many of our services help other businesses and governments achieve their own sustainability targets and add value for citizens and customers.
Our Capitals and Indicators
Capitals are stores of value that are used by all businesses as inputs into the organization’s business model. These capitals are then enhanced, consumed or modified by the business as part of their business processes. There is a continual flow between and within the capitals as they are increased, decreased or transformed by the business. Understanding these flows forms the basis for understanding a company’s value to society.
In line with the Integrated Reporting Framework’s approach, SGS analyzes six types of capital stock: financial, manufactured, human, natural, intellectual, and social and relationship, across our operations and supply chain.
The sum of the collective positive and negative impacts of these six capitals provides us with a figure that represents our value to society in quantitative terms. SGS’s cutting edge Impact Valuation Framework seeks to value the societal impacts that result from SGS-driven activities across the six capitals in a common unit – Swiss Francs. These impacts can be either positive or negative in order to reflect an associated benefit or cost.
In order to calculate SGS’s impact on each capital, a set of 31 measurable indicators has been identified. These relate to specific corporate level performance indicators, such as CO2 emissions, employee turnover and research and development. They were selected based on a combination of material business topics, the availability of reliable primary and secondary data and the feasibility of calculation methods. An economic value has been assigned to each indicator which, in turn, contributes to the positive or negative flow of each capital. We strive to increase the positive effects of our business activities and minimize the negative contribution of our business activities.
For example, reducing our CO2 emissions would decrease our negative impact on our natural capital flow, while increasing our investment in research and development would increase our intellectual capital flow and vice versa. Our indicators have been selected based on materiality principles and the available research literature and data to enable calculation.
This approach allows us not only to benchmark our overall holistic performance but to observe areas of weakness and strength, and to get relatively granular in identifying areas for performance improvement in the future. Moreover, it allows us to gain some insight into the subtle interlinkages between the capitals, in line with the objectives of the Integrated Reporting Framework.
Double-Positive Decision Matrix: Driving Value for SGS and for Society
Looking forward, in addition to continuing to refine our model, we will also promote its potential to support holistic decision-making within the organization. To this end, we have begun to develop a decision-making tool to encourage managers to prioritize actions which have the potential to add value to society as well as to SGS.
The double-positive decision matrix will directly support our Integrated Leadership approach, which seeks to emphasize to managers that in addition to profit and loss, they should be striving to consider the broader impacts of their actions.
Case Study: Employee Training
- Value to Society
Our people can carry this training with them when they leave the office, potentially benefiting society with the skills that they have learned. Taking this into account, we have estimated that our investment in training and development programs, which represented almost 4.4 million workforce hours in 2018, has had an impact on society of more than CHF 255 million.
- Value to SGS
Our commitment to training our people ensures that our employees are onboarded faster and continually enhance their skills. This helps SGS retain the leading experts in the market. Investment in training translates into financial benefit for the company due to enhanced skills and productivity.