Our work

Our starting point: social tensions and unequal distribution of resources 

Over the last century our economic system has created tremendous wealth that has not been distributed equally across the globe. Today, this system is reaching a tipping point: Our globalized markets and digitalization are changing our business models. Social tensions due to climate change and the unequal distribution of income and resources are key challenges for the stability of our social, environmental and economic systems. 

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The graphic illustrates the argument that the economy and society should be seen as embedded parts of the biosphere, i.e. our planetary boundaries. It challenges the current sectorial approach where social, economic and ecological development are regarded as separate parts. Companies play a crucial role to enable sustainable and inclusive value creation. Therefore, it is paramount to identify, understand and ultimately manage businesses multiple impacts on society.

Ilustration by Jerker Lokrantz. Azote for Stockholm Resilience Centre, Stockholm University https://www.stockholmresilience.org/research/research-news/2016-06-14-how-food-connects-all-the-sdgs.html

The methodology behind

There are two major perspectives on value: Firstly, there is a stakeholder perspective that focuses on positive and negative impacts of corporate activities on the environment and by extension society – the value to society perspective. And secondly, a financial-driven view of how these impacts (and dependencies) affect the (longer term) financial performance of corporations – the value to business perspective. Both perspectives are inherently connected and have, thus, been widely acknowledged as “double materiality”. The VBA embraces both methodological streams, as both streams are fundamental for understanding a company’s long-term value creation.

 

Impact valuation

The applied methodology is grounded in impact valuation, meaning that impacts on society, customers, employees, and the environment will be quantified along the value chain and translated into monetary units. Impact measurement and valuation (IMV) allows to integrate pre-financial information in financial statements which speaks to the reality of financial markets and the corporate world. Applied in steering and disclosure, IMV embeds human well-being within the planetary boundaries as yardstick in our processes.

Traditional environmental and social reporting stops at the quantification of impacts (e.g. tonnes of greenhouse gas emissions). The assignment of a monetary value to these impacts allows for an understanding of the scale of the consequences of more traditional measurement and reporting. It also enables a direct comparison of different impact areas.

 

The basis for impact valuation is a common understanding of how activities and inputs relate to impacts on human well-being. This process of interpreting the complex links between business activities and impact on society is reflected in the “impact pathway”. 

 

To understand the underlying calculation methodology for monetary impact valuation better, download our General Methodology paper.

Standardization and testing

The global impact measurement standard is not only needed to foster long-term thinking, but also to consolidate all the knowledge that has already been created in this field. The Value Balancing Alliance is, therefore, building on the work of leading universities, experience of its member companies and existing frameworks. Through structured piloting process conducted by all member companies, the methodology will be regularly be tested and the feedback from practitioners and other stakeholder groups will improve the methodology and guidance materials.

Calculation concept 

The objective of the VBA Methodology is the comparable disclosure of a positive or negative value to the impacts of businesses on society. The VBA standardizes the valuation coefficients to monetize corporate impacts on society and the environment by providing a pilot tested framework and application guidance. At its core, the methodology formalizes the calculation logic for impact measurement and valuation (IMV) based on the impact pathways that have been traced in each relevant topic area per indicator. The IMV models require a reliable data infrastructure and processes for the collection of internal company data on operational impacts and external data on value chain impacts.

Value chain boundaries

The influence of a company goes far beyond the boundaries over which it exercises financial or operational control. For example, decisions regarding materials and suppliers have indirect impacts on a company’s supply chain. Similarly, the design of products and services affects how customers use and dispose of products, which leads to indirect impacts on society. Hence, a meaningful assessment of the relationships between companies and nature and companies and society needs to take such upstream and downstream effects into account. Therefore, users of this methodology should apply impact valuation to areas influenced by business activities even if the influence occurs outside the narrow boundaries of mainstream financial reporting.

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