16 August 2019
With global warming, natural resource depletion, and public insecurity on the rise, it has become increasingly clear that businesses need to reprioritize the way they measure success. We sat down with Value Balancing Alliance CEO Christian Heller to learn what value balancing means and how it has the potential to truly change the world.
What does value balancing mean?
It means that companies around the world accept that truly measuring the value they create goes well beyond financial books. It is about balancing their financial social, human and environmental impact of their business activities.
The changing environment of business requires us to examine the role of business in society and how we define the value each business creates. Internationally operating companies have a great deal of influence, as they face the challenges of a global market economy on a daily basis. Without these strong, financially stable companies, there can be no prosperity. Against the new business environment companies need to consider social, human and environmental aspects in their balance sheets to ensure long-term success.
Why have you created the Value Balancing Alliance?
I’m convinced that promoting sustainable business and delivering good growth requires the integration of additional capital into our corporate management accounting systems. Environmental and social objectives must be valued alongside financial KPI in common metrics to improve the well-being of all people.
The Value Balancing Alliance focuses on the development and standardization of a respective model to empower decision makers to enhance and protect value. I’m keen on being part of the alliance to rethink and change the way we run our businesses.
What can we extract from nature, societies and humans and what must we give back to it?
Nature, society and humans can be seen as stock capital: we can only take as much that the Earth, society and humans can still recover. This kind of capital can be managed similarly to finance. I’m convinced that using financial capital metrics is the smartest way to integrate additional capital into our decision making and steering processes.
The market and the pursuit of monetary profitability are a prerequisite for prosperity and legitimacy, as long as they go hand in hand with social and ecological responsibility. Can a model like value balancing contribute to a safe and healthy economy?
The concept of impact management and valuation, which is the basic method of the model we are developing, is the most promising way to optimize value – not just profits. Using impact on human well-being as a yardstick changes the perspective on business performance. Using a monetary metric for all indicators allows not just the comparison, but a straightforward implementation of environmental, social and human aspects into decision-making and steering.
When it comes to our global economic standard, we need to reassess, rethink, restructure, localize, and redistribute. How will this new structure flow into the value balancing model?
Using human well-being as the main metric of business performance changes the perspective on value drivers. For example: wages and taxes generate purchase power, allowing consumers and governments to invest. Therefore, they are positive value drivers in contrast to today’s management systems. What’s interesting here is that measuring impact on human well-being is always localized; e.g. it makes a huge difference to pollute air in a highly populated city compared to a dessert. The local conditions are taken into account when valuing the benefits and costs we create for societies.
How can social and ecological responsibility be measured so that it is actually reflected in the balance sheet? What can this look like?
We are designing a model that will measure and value natural, social and human capital in the same way it values financial capital. The objective is to demonstrate the overall value contribution in a consistent metric such as an integrated balance sheet or value statement. Global implementation of this metric will come further along in our journey, but the ambition is clear: demonstrate the overall value a company is contributing to society.
What will be the scope of Value Balancing Alliance assessments?
In our model we will focus on the common denominators regarding business impacts across industries. We will identify metric markers like financials, climate change, and human capital. The availability of robust data and sound assessment methods will guide our undertaking, and the final scope needs to be defined with stakeholders – but we will differentiate between steering, monitoring and simply communicating the impact we are enabling.
What does growth mean today? Can value balancing create a new definition of growth? For example, do committed, proud employees with work-life balance and corporate gender equity equate to more or better growth?
The Value Balancing Alliance will come up with a new definition of growth. We will develop a tool to foster good growth, optimizing the value we create, not just the profits we generate. Our concept of growth is much broader than just financial. For us, growth is linked to human well-being – therefore, it needs to be seen as much more qualitative than quantitative.
What are your next steps to further instill value balancing in your company?
As of today, we recognize a global request to rethink the way we do business. Impact investing, sustainable finance, ethical consumption, triple bottom line accounting, net positive thinking, etc. are just a snapshot of the development. The Value Balancing Alliance, based on its current framework, will develop a model to standardize the increasing variety of tools that can measure the value contribution of business. Our objective is to empower decision makers, such as top management, investors and politicians, to assess business performance more holistically and improve the decisions we make for a better future.