CSR Research Digest – June 2012
The report outlines a direct and indirect approach companies can use to put a value on sustainability, including long term, difficult-to-quantify benefits. Considering both direct and indirect valuation methods helps analyze, prioritize and measure the contribution sustainability initiatives make to shareholder value.
- The cost of sustainability programs is readily apparent.
- And companies are typically able to determine the short-term value from cost savings, risk reduction or product and service innovations.
- Putting a dollar value on intangible benefits, especially those over a long period of time, is where companies struggle.
- Companies can measure the value of sustainability and how their environmental efforts directly contribute to profits, using two evaluation methods.
- The direct approach looks at the profit and loss impact of sustainability initiatives.
- The indirect method does recognize that sustainability initiatives create shareholder value.
- But it’s not directly connected to profits and losses.
- Instead, it uses a methodology called multi-attribute utility analysis, which has been widely adopted by government agencies for public policy decisions.
- The indirect method might be used, for instance, when a company pushes to create a more diverse workforce.
- The company might recognize that the move is good for business, increases employee satisfaction and boosts productivity.
- Still, it might be reluctant to use the direct method, which focuses on profits and losses, to put a value on a diversity initiative.