Big Companies, NGOs, Academics Learning To Value Triple Bottom Line
Assigning economic value to natural resources and other external factors is currently a hot topic in sustainability circles (see “Valuing Natural Capital at McDonald’s, Unilever, and Coca-Cola” and “Life Cycle Assessment Plays Key Role In the State of Green Business”).
On March 21, EarthShift is hosting a “Sustainability-ROI Facilitation Workshop" in Portsmouth, New Hampshire. Sustainability-ROI, sometimes known as Total Cost Assessment, is what EarthShift uses to answer those discussions. The methodology, along with the 3Pillars software tool, allows professionals across functions to reconcile the need for financial returns with their commitment to sustainability (see “Big Company CFOs Leading the Charge Toward Sustainability?”).
By bringing diverse stakeholders together to assess potential implications of a decision, S-ROI combines the measurement of environmental, social and economic impacts to show a bigger picture of the total costs and benefits of an investment or decision to a set of key stakeholder groups (see “Bayesian Probability, Sustainability, and the Triple Bottom Line”).
From a technical perspective, the S-ROI methodology allows for the inclusion of externalities and intangible costs and benefits that are not captured by standard ROI and cost accounting practices. The output is recorded in traditional Net Present Value (NPV) terms, offering a good way to evaluate innovative and non-traditional concepts.
The Benefits of Stakeholder Diversity
Participants in this month’s workshop include an NGO representative, an academic, a student from Japan and a student from Greece, as well as two participants from large Fortune 100 companies. That kind of stakeholder diversity is where S-ROI gets its power. “The thing I love about this methodology is that everyone is on the same side of the table,” says EarthShift founder and S-ROI evangelist Lise Laurin, who will lead the session. “Every perspective is honored and included in the assessment. There are no wrong perspectives or wrong ideas.”
Even though getting a diverse group together could seem daunting for some organizations, one of the main goals of the session is to show the methodology’s efficacy and cost-effectiveness. “I want them to see that this is first of all very doable, that it’s something you can sit down and crank out without huge resources,” Laurin says, adding that the 3Pillars software program is designed to reduce resource requirements even further.
Learning S-ROI requires action. In workshop settings, Laurin typically leads groups through a standard example, where a conventional t-shirt manufacturer assesses whether to acquire an environmentally friendly competitor. There is a solid benefit to the acquisition, but while traditional ROI measures show risks on both sides, the S-ROI analysis done by the class typically shows that benefits to the company brand, employee morale, and other non-traditional factors far outweigh the risks.
Broad Applicability of S-ROI
Though assessing a potential acquisition is one strong use case for S-ROI, the methodology and the 3Pillars software offers broad applicability. In fact, Laurin is set on further expanding the uses of S-ROI, both in the business world and beyond. “One of the things that I’d love to see happen is municipalities, state and federal governments start to look at this, because it’s a much better way to make policy decisions” (see “CityMart Helps Scale Sustainability in Cities Around the World”).
Some of the S-ROI projects EarthShift has facilitated in the past include:
• Investigating increased investment in HIV/AIDS education by the mining company Rio Tinto
• Analyzing the implications of installing a recirculating system on a cooling water tower for a large industrial company
• Installing a pollution prevention device for a major energy producer
• Assessing and planning for a successful new product introduction for a major chemical company
• Assessing Dow Chemical’s 2015 Sustainability Goals
• Undertaking a series of studies on the impacts of biofuels
As part of the March 21 workshop, participants will receive a project template within 3Pillars, along with an EarthShift-developed report supplying costs of intangibles and certain externalities. “Sustainability investments pay off in ways other than increased economic ROI,” says Laurin. “They pay off through improved morale, branding, competitive advantage, retention of employees, sustainability of supply chains, and companies are much better able to maintain their license to operate. It’s about risk mitigation,” she says.
BP and the Benefits of S-ROI
Laurin points to BP as an example of a firm that would have benefited immensely from S-ROI. “They have an anecdotal history of ignoring safety rules and being very poor in that area. If they had done an S-ROI around much of what they do, they would have found that it’s more risky for bottom line than following safety rules. By trying to cut corners, they put themselves at risk for huge losses.”
Instead of one person swimming upstream to make change, S-ROI offers a venue and framework for stakeholders to gather and assess a decision. That results in increased institutional buy-in to sustainable decision-making.
Laurin says she hopes that the March workshop will allow its participants to go back go their organizations prepared to make the strongest case yet for sustainable decision-making. “Many sustainability decisions do not have required return on investment period, but when you add in this other criteria, they do,” Laurin says. “That’s the power of S-ROI.”
Contact us to learn more about Sustainability ROI and EarthShift’s other sustainability software, consulting, and training services.
Image courtesy © Rizj | Dreamstime.com
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