Measuring The Impact Of A Company On Society

Dennis Nally

Chairman of PwC International Ltd

The Imperative To Rebuild Trust…

Business today is suffering from a global trust deficit. Recent experience has underlined time and again just how fragile trust can be, and how serious the consequences are when it evaporates. So the challenge – and priority – is to find practical and actionable ways to earn back the trust of society.

In fact, rebuilding trust is imperative for many reasons. Amid today’s pervasive connectivity and constant 24/7 scrutiny, trust is a critical asset. Yet it doesn’t appear on the balance sheet or figure in any financial reporting.

Business does many great – albeit often unacknowledged – things for society as a whole. It creates jobs; drives economic activity and growth; generates the profits that fund tax revenues; and fuels global trade that helps reduce poverty. But all too often, business is perceived as ruthlessly pursuing its own interests, irrespective of society’s needs.

For a company without public trust, doing business becomes very difficult. Conversely, a business that’s highly trusted can magnify its beneficial impacts on society, by taking decisions faster and with more certainty, attracting and retaining more and better people, and being able to expand and innovate with greater confidence.

…Demands A New Settlement – And A Clear Purpose

So, how can we close the trust deficit? Trust is a two-way street: if it isn’t reciprocated, it doesn’t work. So what’s needed is a new, mutually understood settlement between business and society – one that aligns expectations on both sides and clarifies the contribution that each is seeking from the other.

The settlement should define the purpose of business in society. By having a clear and explicit purpose that is based on and takes ac- count of the needs of all its stakeholders, a business can give society an unimpeded view of why it exists, and of what it does and why.

“Financial measures – historically the main focus of businesses’ assessment and reporting of their performance – are no longer enough”

Measuring And Articulating Impacts

However, simply having a purpose and living by it isn’t enough. Every business needs a way to measure and articulate its own impact across a broad range of issues.

Why? Because financial measures – historically the main focus of a businesses’ assessment and reporting of their performance – are no longer enough. True, financial numbers are still important. But alongside that, a host of further factors now influence how highly a company is rated by investors and trusted by society.

For example, how do the business’s activities and performance impact its employees? Its suppliers? Its customers? The environment? The communities it works with? And how do all these impacts in different dimensions integrate with each other, and with the business’s overall purpose and strategy? Perhaps most importantly, how are competing issues prioritised and addressed?

The Need For A New Model

For some years, companies, standard-setters and regulators have been responding to the growing demand for more diverse and integrated information. Companies have raised their game in social and environmental reporting. And we’ve seen advances including ‘triple bottom line’ reporting, the Global Reporting Initiative (GRI) Guidelines, and – most recently – the Integrated Reporting Framework from the International Integrated Reporting Council (IIRC).

However, as reporting continues to evolve, today’s assurance model – still grounded in financial measures – is struggling to keep pace. What’s needed is a new model – one that enables a business to gain and provide transparent, credible and integrated insights into all its impacts across all relevant domains. Put simply, it would show whether a company’s growth is ‘good’ growth in line with its purpose – and therefore worthy of being trusted by society.

A Way Forward: Total Impact Measurement And Management (TIMM)

Over the past three years, we’ve been working with our clients to create the basis for such a model, by developing ways to help them to measure, manage and track a wider array of impacts, and report these transparently and credibly to stakeholders. We’ve now brought all this together into what we call Total Impact Measurement and Management (TIMM).

TIMM separates out an organisation’s impacts between four core domains, and then breaks these down into specific areas, assessing the organisation’s impacts in each. In this way, TIMM enables management to develop a better understanding of the social, fiscal, environmental and economic impacts of their activities and planned activities.

This approach means TIMM enables management to compare strategies and investment choices using quantified data, thereby evaluating the overall impact of each possible decision. This flexible modelling capability provides a framework supporting better-informed business decisions, through a deeper understanding of which stakeholders will be affected by which decisions and why.

It will open the way to new and wider approaches to assurance, by enabling companies to specify the source of each piece of information and – if appropriate – the process by which it has been assured. So the reader will be able to decide for themselves how credible and trustworthy each data item is, and how aligned it is with the company’s stated purpose.

Not An End In Itself – But The Start Of The Journey

At PwC, we believe TIMM is a good start on the journey towards providing the all-round view of a company’s impacts that will ultimately drive renewed trust. But we also know there’s a long way to go. The entrenched and long-standing focus on financial measures and statements – and on short-term planning and performance rather than longer-term sustainability – will be very hard to dispel.

For example, we recently carried out indepth research among over 100 investors and analysts from 11 capital markets. Asked to rate on a scale from zero to 100 the level of assurance they would like on different pieces of information, they put the primary financial statements and notes top on 94/100, with non-financial information on corporate social responsibility way down the ranking at 28, and company strategy even lower at 24. Yet the potential for these areas to build trust makes them pivotal to long-term growth and earnings.

Looking forward, it’s increasingly clear what needs to be done to rebuild trust in business – and the tools to do it are emerging rap- idly. But it’s equally clear that there are challenges ahead. To navigate the way to higher trust through clear, credible reporting on each company’s all-round performance against its purpose, we believe that all stakeholders, including management, boards of directors, regulators, and particularly investors, need to enthusiastically embrace more innovative and transparent approaches, such as TIMM, to achieve this imperative of rebuilding trust.