PILOT STUDY II · DECEMBER 2022

2nd Value Balancing
Alliance Pilot Study—

Harmonizing andapplying Impact Valuationin the corporate world

Fotos: Pexels / beepin; Cover: Pexels / Jack Redgate

Managing the impact
of commercial activity
on society and theenvironment is fast
becoming
a central pillarof sustainablebusiness success.

“The mission at hand is tosystematically redefine corporate
success and performancemeasurement, adding a more
holistic view of corporate value
creation.”

Fotos: Pexels / Tatiana Syrikova

Saori Dubourg

Dear reader

We live in unprecedented times – with the world facing
numerous changes and uncertainties. Extreme weather events, like the recent droughts fueled by climatechange, a loss of biodiversity, the global COVID pandemic, geopolitical tensions, and great societal and economic challenges are disrupting our way of living andhow companies conduct business. Indeed, we are all inthe midst of a fundamental paradigm shift. It’s about
smart resource use at all levels – less, but better.
Going forward, we will build back better, creating
a more sustainable society and economy to securelivable conditions on our planet – for us and for future
generations. As companies, we play a substantial role incontributing to and driving this transformation. To do so
successfully, however, we need more transparent information on the environmental and societal implications of
our activities in business. Moreover, changing expectations among different stakeholders, along with the latest
regulatory developments at EU and international level,are serving to further increase complexity in decision
making for businesses and financial market actors.
The mission at hand is to systematically redefine
corporate success and performance measurement,
adding to a purely profit-oriented perspective a more
holistic view of corporate value creation, including
all impacts. But such a transformation can only beachieved when many players are pulling in the same
direction, which is why we believe close partnerships
and alliances with diverse stakeholder groups, including
academia, financial market actors and standard setters,
are needed to create: (1) a new understanding and definition of corporate success and (2) a new approach to
how we measure corporate performance. As companies,
we should take a proactive role in this transformation
by testing new methods to improve corporate decision
making for the benefit of society, the environment, andthe economy. Essential for the success of this change isa solution built on data integrity and backed up by empirical research, that is operationally practical, scalable,
and transferable – in a nutshell: business-relevant.

With our methodology for Impact Measurement andValuation (IMV), the Value Balancing Alliance (VBA)
develops and tests new accounting solutions for theshift. As a strong alliance of large international companies – supported by strategic partners like the fourlargest accounting firms – we strive to create a methodology that can translate the social, environmental, andeconomic impacts of commercial activity into monetary
terms. Our methodology is regularly piloted by the VBA
member companies to ensure practicability and to provide feedback for further development.
Following our first pilot study in 2021, we are now
proud to introduce our second pilot study, which showcases the feasibility of our methodology across different
industries and geographies. Multiple examples illustrate
how business steering can benefit from IMV, as additional information regarding environmental, social, and economic impacts – with associated opportunities and risks– will help to guide the transformation towards more
successful and resilient business models. Our hope isthat these IMV-use cases will spark further discussion
on how companies’ contributions of value to different
stakeholders can be improved – from maximizing shareholder value to optimizing value for all.
Building on the learnings from this round of piloting,
we will enhance and expand our methodology. We havejoined forces with other players in the field of IMV, suchas the International Foundation for Valuing Impacts(IFVI), and are inviting actors from all different fields
and backgrounds to provide feedback on our methodology. In addition, we aim to harmonize different IMV
approaches to improve the comparability of reporting,e.g., by coordinating with the Global Value Commission.
We are excited to share our work and to continue ourcontribution to transforming towards a value-based
economy.
Saori Dubourg
Member of the Board of Executive Directors of
BASF SE & VBA Steering Committee Chair

Value Balancing Alliance – Pilot Study 2022 – 03»The BMW Group follows a 360° sustainability
approach along the entire value chain.
VBA’s impact valuation approach can extend
traditional reporting and taxonomies beyond apure tailpipe perspective, for a more holistic andtangible assessment of corporate sustainability
performance. This progressive way of measuring
a company’s value contribution could also
provide valuable insights for business steeringand stakeholder communication.
Jonathan Townend, Senior Vice President Group Reporting & Taxes, BMW Group»As with the first pilot, this methodology
showed the comprehensive corporate valueof our company. This will help us find theright ways to improve our corporate value
and disclose the positive and negative
impacts for all stakeholders when thedownstream methodology is established.
Nobuo Fukuda, Representative Executive Vice President, Chief Supply Chain Officer,
Mitsubishi Chemical Group Corporation»The addition of further relevant social
indicators enabled us to get a more balanced
view on risks as well as positive and negative
impacts across the supply chain. This is
another important step forward in assessing
Porsche’s sustainability performancecomprehensively.
Dr. Sebastian Rudolph, Vice President Communications,Sustainability and Politics, Porsche AG

Fotos: Pexels / Taryn ElliottTable of Contents
Introduction

09

1 – Overview of the
VBA methodology

12

2 – Continuous improvementof the VBA Methodology

16

3 – Main results of thesecond pilot

20

4 – Making better-informed
decisions26

5 – Outlook

39

About theValue Balancing Alliance40»We have founded the VBA to make impact
an integral part of corporate steering andreporting. Testing and piloting by our members
is central to ensure relevance for companies,
pragmatic implementation, scalability andfurther development of the methodology. Our
joint learning sessions with practitioners directly
show the potential of the methodology. Throughtesting and piloting, we are in the unique position
to exactly know what we are talking about.
Christian Heller, CEO, Value Balancing AllianceIntroduction

Sustainability measurement and reporting are gaining
prominence in the corporate world. Stakeholders aredemanding more, consistent, concise and comparable
information on companies’ sustainability performance.
Standards and regulations are being developed by the
IFRS ISSB, the GRI, the European Commission, the SEC
and others target a common global baseline of reporting
requirements complemented by jurisdictional supplements.
The landscape of stakeholder requirements, withthe concomitant business risks and opportunities, isexpanding, and trade-offs between these have addedcomplexity to business steering. Thus, a holistic pictureis needed that covers all impacts of business on nature,society, and the economy. Impact measurement andvaluation (IMV) – capturing positive and negative effectsof corporate activities and valuing them in monetary
terms – enables such a holistic view. IMV eliminatesbarriers between traditional financial and non-financial
information and contextualizes sustainability data usedby corporate decision makers.
Alongside corporate actors, key players in thefinancial markets are moving fast to incorporate sustainability into their decisions. The share of sustainablebonds has increased to 10% of global debt issued, andthe volume of ESG equity products doubled in the period
from 2019 to 2021. IMV can create more transparency
in ESG ratings, company valuations, and capital market
stories, as well as financial products such as bonds, andenables better connectivity between sustainability dataand purely financial information.*
An important precondition to realizing the advantages of IMV is a standardized methodology that can beapplied by companies and financial market actors alike.
The Value Balancing Alliance (VBA) – a network of large
multinational companies supported by Deloitte, EY,
KPMG, and PwC – aims to develop such an IMV methodology with its partners in order to transform companies’

approach to business steering from profit maximization
to value optimization. The methodology includes two
perspectives – Value to Society and Value to Business.
Value to Society (inside-out perspective) assesses a
company’s external impacts on society and environment, while Value to Business (outside-in perspective)assesses how external sustainability aspects like climate change impact a company’s enterprise value.
The developed methodology is regularly piloted by
the VBA member companies to ensure its feasibility
and robustness and to create input for further improvements. This publication builds on the piloting resultsof the updated methodology, version 0.2. The updates
include new indicators capturing social impacts related to Forced Labor, Child Labor and Living Wage, andadditional guidance for application of the methodology
to the downstream activities and product portfolio of acompany. Piloting took place in 2021/2022 and included
19 VBA member companies from 11 industries.
The results show that the methodology v0.2 isapplicable in practice and produces additional information which is highly valuable for business steering anddisclosures. The new indicators have been successfully piloted, and first experiences in the assessment ofdownstream impacts have been generated. In addition
to the piloting results, further collaborations with important actors from business and academia, as well as
standard setters, will drive future methodology development and harmonization to improve corporate decision
making.
In the following sections, we will (1) discuss howtransparency can be created with respect to businessmodel impacts, (2) describe the updates of the VBA
methodology in more detail, (3) summarize the main
findings of this piloting round, (4) illustrate how impact
information can be used in decision making, and (5)present an outlook for our methodology work in 2023.

* See G7 Impact Task Force Report, 2021, p. 8–9

Value Balancing Alliance – Pilot Study 2022 – 09

Fotos: Pexels / Cottonbro

What is the VBA
methodology?

1 – Overview of the
VBA methodology

The methodology v0.2 (Value to Society) covers economic,
environmental, social, and human capital impacts ofbusiness activities along the entire value chain (Upstream – Own Operations – Downstream), thus encompassing the total value that a company creates. Eachindicator is based on impact pathways (Input – Output– Outcome – Impact) developed based on scientificresearch and empirical evidence.
Why is valuing impact in monetary terms so important?
With monetary valued information on sustainability performance, decision makers of a company can:Integrate sustainability into core business: Impacts aretranslated into a language that is readily understood bybusiness leaders and investors. This enables sustainability performance to be better integrated into businesssteering.
Identify material topics: Monetary valued impacts enable a clear picture of material topics for corporates. For
instance, monetary valuation can help pinpoint which
impacts (e.g., air pollution, water consumption) are
relatively more material to business and thus impose
a higher risk to the business model and society. Basedon IMV, the whole value chain of a company can beassessed, which allows stakeholders to see consistently
where material impacts occur in the value chain.
Contextualize information: The effect of corporate
activities depends on the specific conditions (e.g., water
extraction in arid vs. humid areas), and by using different
valuation coefficients for countries and regions, decision
makers can more readily grasp the context. For example, the same amount of water consumed can create amore negative impact in a water-stressed region than ina water-abundant region.

12 – Value Balancing Alliance – Pilot Study 2022

To provide a holistic view addressing multi-dimensional aspects of sustainability, the VBA’s journey todevelop a standardized methodology requires collaboration and alignment with key players in the ecosystem.
Therefore, the VBA cooperates with partners such as
the International “Foundation for Valuing Impacts” IFVI
(former HBS Impact-Weighted Accounts), WifOR, GIST,
or Rethinking Capital. The VBA has joined forces with
the IFVI to further drive the development and standardization of IMV. The resulting methodology is based on
widely accepted work of renowned organizations suchas the OECD, Capitals Coalition, WBCSD, Impact Management Project, GRI, SASB, WifOR, governments, andthe robust studies of leading universities and research
institutions.
While the VBA methodology focuses on helping
companies make internal decisions, we aim to align our
methodology with the – upcoming – external disclosure
requirements, such as those issued by the GRI, the IFRSISSB, and the EU CSRD. Through continuous dialogue
with the standard setters, the VBA is developing its
methodology in a complementary manner and ensuresthat the data points needed to apply our methodology
are in line with the metrics demanded in upcoming
reporting requirements. As reflected in its perspective
on Value to Society and Value to Business, the VBA supports the concept of double materiality, as introducedby the European Commission, and the building blocks
approach, as advocated by the IFRS ISSB.
The EU-funded TRANSPARENT project is being led
by the VBA, together with its partners Capitals Coalition,
WBCSD, and DG Environment, and aims to develop standardized natural capital accounting for business, in linewith the direction of the European Green Deal.
The VBA also aims to help companies contributeto fulfilling global goals and targets like the SDGs andplanetary boundaries. Through the new lens provided by
IMV, companies can better identify how much progresshas been made compared to previous years and takeactions to improve their contributions.

»Contributing to the VBA, we aim to enable
companies to appropriately measureand manage impacts. Consequently, we
continuously support the development andpiloting of VBA methodology.
Robert Prengel, Head of Impact Valuation, PwC Germany»Measuring the impact of sustainablebusiness practices is becoming increasingly
important for companies due to theneed to address climate change, meetstakeholder expectations and comply with
future regulations. That's why Deloitte isstrongly supporting the VBA developinga methodology to identify and reportsustainability-related risks and opportunities.
Volker Krug, CEO, Deloitte Deutschland

Fotos: Pexels / Irina Iriser

How is the VBA
methodology updated?

2 – Continuous improvementof the VBA methodology

The VBA methodology is evolving over time and builds
on recent empirical and conceptual work by leading
universities and well-known organizations such as theOECD, Capitals Coalition, and the WBCSD. The continuous updates include the development of additional
indicators that help to deliver a more holistic view on
corporate sustainability performance and the refinement of existing elements of the methodology. The
methodology updates tested in this round of piloting
focused mainly on the social dimension and the integration of downstream activities in the assessment of thecorporate sustainability footprint.
The social dimension of the methodology has been
complemented with three additional indicators to reflect
the impacts from (1) Child Labor, (2) Forced Labor,and (3) Living Wages. Negative societal impacts due
to violations of basic human rights are captured in ourChild and Forced Labor as well as Occupational Health &Safety indicators. Impacts captured in the Living Wage
indicator can be positive or negative, depending on wage
payments above or below living wage levels. In addition
to the three new social indicators, minor adjustments of
the Training indicator have also been tested.

16 – Value Balancing Alliance – Pilot Study 2022

The second major methodology update that influenced the scope of piloting was the introduction ofindustry agnostic guidance for assessing downstream
impacts. Companies have less control over their downstream activities compared to own operations andupstream activities, and they often struggle to track the
impacts of their entire product portfolio. This makes theassessment of downstream impacts especially challenging. Our industry agnostic guidance provides initialsupport for quantifying impacts and applying the VBA
methodology to downstream, by introducing a 3-step
approach: (1) clustering of the product portfolio into
representative products and defining the scope of theassessment, (2) modeling activities related to each representative product and linking them to the indicators of
the VBA methodology, and (3) quantifying downstream
impacts by determining data needs and highlighting
possible data sources.
More detailed information on the methodology
updates can be found in the respective method papers
on Social and Economic Impacts and Downstream, which
are available with all other publications about the VBA
methodology on our website.

VA LU E C H A I N L EV E L S

UpstreamI N D I C AT O R S

Economic

Own
operations

Downstream

GVA/GDP contribution

Occupational health & safety
Training
Humanand social

Child labor
Forced labor
Living wage

GHG emissions
Other air emission

Environmental

Water consumption
Water pollution
Land use
Waste

Added in methodology v0.2
Please note: Overlaps may exist between
the GVA indicator and other indicators(e.g., Living Wage). Further methodology
work will be required to address thesepotential overlaps. Results of different
indicators are not additive.

Value Balancing Alliance – Pilot Study 2022 – 17

Fotos: Pexels / Rachel Claire

What are the main
results of our second
piloting round?

3 – Main resultsof the second pilot

The VBA methodology v0.2 was piloted in 2021/2022
to test its feasibility, robustness, and relevance forbusiness steering. 19 VBA member companies from
11 industries, some of them using the approach for the
first time, participated in the pilot. They all successfully applied the updated methodology, showing that themethodology can be readily applied in practice acrossindustries.
Based on 12 indicators and 291 sub-indicators, thecompanies assessed their overall environmental, socialand human, as well as economic impacts on society
along their value chains. The updated methodology includes three new indicators, which were successfully piloted, demonstrating their feasibility from practitioners’
perspectives. At the same time, the piloting showed thatthe maturity of the Living Wage indicator is lower thanthat of the others and its estimated impact overlaps with
the GVA indicator. It will therefore be revised in future
methodology updates.
Considering the value chain, most companies
assessed the impact of their direct operations andtheir upstream value chain. Additionally, some member
companies have started to explore the assessment ofdownstream impacts. Downstream impacts, including
the use phase and end-of-life of products, are very
important for businesses steering but still very difficult to assess due to the lack of available data and thecomplexity of product portfolios. The piloting showedthat more industry-specific guidance is needed forcompanies to assess these impacts. We will therefore
continue to work on methodologies for downstream
assessments.
Both companies piloting the second time and firsttime participants were able to successfully apply the
VBA methodology. The provided guidance and peer

20 – Value Balancing Alliance – Pilot Study 2022

learnings supported companies in promptly assessing
their impacts and harmonizing measurements. Thosecompanies piloting the VBA methodology for a second
time report that their data is more readily available forseveral indicators than in the first round. Additionally,
piloting a second time reduces the efforts required forsome indicators.
Primary data was largely used to calculate theimpacts of companies’ own operations. As expected,
data availability and quality for the 12 indicators varied,with better data available for topics that were relevant
and material for companies. For example, data on GHG
emissions is more readily available for most companies
than data on land use.
For the supply chain, primary data was generally
preferred but often not available. Accordingly, mostcompanies relied on macroeconomic modeling to fill
data gaps and to measure their upstream impacts. Even
though upstream impacts are therefore based on averages of the respective sector (e.g., average emissions),
assessing those impacts based on industry averages canprovide very insightful information to companies. Somecompanies have started to measure their most material upstream impacts based on direct data from their
suppliers. Direct measurement includes new challenges,
such as data collection processes and verification, but
has the potential to better reflect company-specificsupply chain impacts.
The figure on the right shows the results for one
manufacturing company that is located in the middle ofthe value chain. Economic, environmental, and social
impacts are displayed in monetary terms showing therelative magnitude of each impact category. Dependingon the location in the value chain and the sector, theresults vary significantly.

Indicator

Own
operations

Upstream

Downstream

Environmental
GHG emissions
Other air emissions-1,267,089-564,852-394,904-54,754-666,025-2,232-1,060,439-7,063-150,818-1,165-6,145-7,520-25,531

-62

-

487

Child labor-4,4310Forced labor-4,3030-160,341

45,1555,400.424

2,040,021

Water consumption
Water pollution
Land use
Waste

Human and social
Occupational health & safety
Training

Living wage

Economic
Gross value added(GDP contribution)

The results of the second piloting
round support the applicabilityof the VBA methodology fordownstream activities. However,the quantification of downstream
impact drivers is more complex
than for own operations andupstream, as it strongly depends
on the company's position in thevalue chain, its product portfolio,
etc.
Until now, downstream waspiloted mostly for specificproducts or business units andtherefore covers a different
scope than upstream and own
operations.
Thus, results on downstream
would be misleading in an overall
footprint and are therefore notdisplayed here.

The figure displays the estimated impacts forone manufacturing company in the middle ofthe value chain by indicator and value chain
level. Please note that the results are notadditive and the display of reults is not yet
harmonized. All values in USD 1,000.
Value Balancing Alliance – Pilot Study 2022 – 21

Monetization can help demonstrate
the magnitude of negative impacts thatneed to be addressed by a company, as
well as the positive impacts a company
should aim to further increase.

The corporate results of a company consist of environmental, human and social, and economic impacts onsociety. All components can be estimated in monetary terms. However, we want to stress that monetaryvaluation must not be used to net negative and positive
impacts. For example, higher gross value contribution
cannot balance out higher air emissions. In contrast,
monetary valuation can help to demonstrate the magnitude of negative impacts that need to be addressed by
a company, as well as the positive impacts, a company
should aim to further increase. The new perspective
enabled by monetized values can provide insightful
and actionable information for companies e.g., on
their potential business risks like future takes, or theirreputation. Additionally, business opportunities, e.g.,innovations to address these risks, can be identified andefficient resource allocations can be determined.
The aggregation of impacts at corporate level, as
displayed in the figure on page 21, typically serves asa starting point for companies to dive deeper into theirdistribution of impacts. This is particularly relevant
since positive and negative impacts do not necessarily
occur in the same regions or at the same levels of thevalue chain. For example, the figure shows that most of
the environmental impacts occur in the upstream value
chain, in comparison to the impacts of own operations.
Similarly, considering the distribution of positive andnegative impacts across countries and regions increases
the transparency of impacts a company has on society
globally. This country-specific view can provide useful
information to decision makers, especially when considering the supply chain. Since upstream impacts are typi-

22 – Value Balancing Alliance – Pilot Study 2022

cally assessed and modeled based on industry averages
from statistics, the estimated piloting results reveal
potential risks, e.g., human rights issues or occupational
incidents. Companies can use these insights to addressrisks, e.g., in supplier due diligence processes.
With respect to the environmental impacts, themethodology considers the social costs generated by
GHG emissions, other air emissions, water consumption
and water pollution, land use, and waste. Applying themethodology can thus increase transparency aroundenvironmental impacts on society due to corporate
activities and provide actionable results. For instance,in the example above, social costs are mostly generated
in the upstream value chain, especially with respect to
GHG emissions and water pollution. Both exemplary
insights are estimated based on secondary data andreflect industry averages. Thus, the results indicate potential hotspots for high negative impacts in the supply
chain. The company can use this information to consider
these risks in an efficient manner, e.g., by starting withconsidering their upstream GHG emissions and investigating which tiers, industries, and countries are driving
these estimates. Often, companies use this type of upstream information to implement due diligence processes
with suppliers. For own operations, GHG emissions andother air emissions seem to be most relevant for businesssteering.
Human and social impacts currently included in themethodology account for occupational health and safety,
training (for own operations), child and forced labor,
and living wages. In the example above, social risks ofnegative social impacts mostly occur in the upstreamvalue chain. Similar to the environmental impacts, theseestimates are calculated based on secondary data
sources such as statistics data. As a result, the information approximates the actual impact of a company andprovides insights into potential risks in the supply chain.
Analogously to the environmental perspective, this information can be used, e.g., to implement due diligenceprocesses with suppliers. Moreover, the information may
serve as a starting point for companies to demand moreprimary data from suppliers to assess their upstream
impacts more precisely and investigate the actual performance of their suppliers.
The economic perspective is often seen similar to
the financial performance of a company as publishedin financial statements and annual reports. However,other than in financial reporting, the Gross Value Added(GDP contribution of a company) considers not only theshareholder – as for example the profits in financial
reporting – but rather multiple stakeholders and builds
a bridge to the system of national accounts. The measure thus provides an estimate of the market value ofthe products and services produced by the company,
which are demanded by consumers. It is important tonote that the calculation of the GVA indicator is in linewith the national accounts. It therefore differs fromthe way we assess environmental, human and social
impacts on society and thus should be interpreted
differently. In the example above, the results indicate
that, in alignment with higher environmental impacts onsociety in the upstream supply chain (compared to own
operations), the upstream GVA contribution exceeds the
GVA contribution of own operations. The company con-sidered here is in the middle of the value chain (mostly
business-to-business operations) and requires multiple
inputs for production. It is therefore sensible that theinduced upstream impacts – both positive and negative– are higher than the impacts generated by own operations.
Considering the whole value chain is necessary
to transparently show the overall impact of corporate
activities. In the second pilot, companies therefore
tested the application of the methodology for downstream impacts for the first time. The results support
the applicability of the VBA methodology to the productportfolio, but showed that the quantification of productimpact drivers is more complex than for own operations
and upstream and strongly depends on the company’s
position in the value chain, its industry, etc. Until now,
downstream was piloted mostly for specific products orbusiness units and therefore has not the same scope as
upstream and own operations. Thus, results on downstream would be misleading in an overall footprint asthey would understate the actual impact on society.
Overall, we have seen that monetization can serve
as a powerful way to increase transparency and better
contextualize corporate impacts. It can provide very
useful information in the context of business steeringand reporting by providing a holistic overview of impacts resulting from business activities. In the future,
we aim to develop and test how information from valued
impacts should be best summarized and presented tofacilitate more sustainable decision making.

Value Balancing Alliance – Pilot Study 2022 – 23

Fotos: Pexels / Mikhail Nilov

How can this information
be used to make betterinformed decisions?

4 – Making
better-informed decisions

Most company activities are discussed, evaluated and,
finally, decided through the lens of monetary values(e.g., purchasing, providing incentives, or investing). By
valuing environmental and social impacts on society inmonetary terms, sustainability becomes more tangible
to the eyes of most business departments and naturally
embedded in these processes. VBA member companies
applied the VBA methodology to their decision-making
processes to garner a more holistic and transparent view.

To date, application of the VBA methodology has focused
mostly on upstream and own operations decisions, suchas purchasing and processing raw materials, investing in
R&D projects, or managing waste heat. These application cases are described in more detail on the following
pages.

Sustainablesourcing of raw materials

Investing in R&D for sustainablebuilding solutions

Sensible use ofwaste heatSocial impact
of medicines

26 – Value Balancing Alliance – Pilot Study 2022

»At Novartis, we are measuring and valuing
our impact globally since 2015 – our approachis aligned with the VBA methodology andresulted in 50+ business applications, ranging
from commercial strategies, policy shaping
and access discussions to impact management,
stakeholder engagement and reporting. We
continue to actively collaborate through the
VBA to further develop and advance the VBA
methodologies, including in standardizationof the methodology for the social impact
valuations of the company’s products and on
the overall economy (i.e. for a pharmaceuticalcompany the impact of its medicines and its
impact on the overall healthcare economy).
Paul Penepent, Head Financial Reporting and Accounting, Novartis

Kering
Sustainable sourcingof raw materials

BACKG ROU ND
Since 2012, Kering has measured and quantified its
progress toward becoming a more sustainable Groupthrough its Environmental Profit and Loss (EP&L) statement. Following the IMV logic, this approach focuses on
the environmental aspects and aims to reduce the environmental impact of both Kering and its supply chain.
Kering has also developed a visualization tool toanalyze the environmental impact in detail, enable
scenario modeling and estimate the expected impact of
future projects. With this analysis, Kering also searches
for innovation in manufacturing processes to reduce
impact by developing ground-breaking technologies.
KEY Q U ESTIO N S
Kering aims to reduce the environmental footprint of
its entire value chain by asking: “Where do we have themost negative environmental impact?”, “Which environmental topic (e.g., water consumption, GHG) had thegreatest impact in our value chain, processes, materials,
brands, or products?”, “What would be the appropriate
approach to mitigate these environmental impacts?”

28 – Value Balancing Alliance – Pilot Study 2022

RE SU LTS
Monetizing environmental impacts has enabled Kering
to better capture and understand the drivers behindthe environmental impacts generated by its activities.
Almost 80% of all environmental impact was fromupstream supply chain and raw materials production;
processing alone accounted for 66% of the total impacts,
especially through GHG emissions and land use related
to the use of leather and animal fibers. This detailed
information on the environmental footprint led Kering
to optimize its choice of materials and the processing ofthese materials.
DE CISIONS
Having recognized the sources of its impacts, Kering
decided to act upon priority impact areas in processes.
For example, the development and implementation of
Kering standards for raw materials and manufacturing
processes has guided the Group towards more sustainable sourcing practices and innovative, low-impact
manufacturing processes.
Through these efforts, Kering reduced its environmental footprint per unit of revenue (EP&L intensity) by
14% in 2021, compared to 2020. Based on the EP&L
intensity, Kering additionally monitors the true progress
on its impact reductions against its 2025 environment
goals and targets.

Change in Group EP&L intensity 2015 to 2021,
comparable1 basis (€EP&L/€1,000 in revenue)

17,645
15,884
13,665

13,10010,796
7,865

8,469

50

55

48

40
37

2015

2016

2017

2018

2019

34
2020

30
2021

Revenue: €m
EP&L intensity: €EP&L per €1,000 in revenue
Targeted reduction in EP&L intensity to achieve the 40%
reduction objective by 2025

(1) Comparable basis: excluding use and end-of-life phases,
which were added to the scope of the EP&L in 2020.

Value Balancing Alliance – Pilot Study 2022 – 29

HolcimInvesting in R&D forsustainable building solutions

BACKGROUND
Holcim has made investments in R&D to push forsustainable building solutions, recognizing that innovation is key to reaching sustainability goals like net
zero emissions. As a result, innovative technologies
like 3D concrete printing have been developed. Now,by establishing the joint venture “14Trees” with British
International Investment (formerly CDC), Holcim has facilitated the use of its innovative construction solutions
for building affordable housing in Africa.
In 2020, the first house and school were constructedin Malawi using 3D printing technology. The technology
helped optimize material use, increased the speed of
construction, and reduced CO2 emissions in the construction process. Using the technology requires a higher
education level, and local people in Malawi were trained
to operate the 3D concrete printers.
KEY QUESTIONS
Holcim needed to define the rollout plan of the “Affordable Housing – 3D Printing” solution piloted in Malawi.
Strictly quantitative data on the results of the project
could not give decision makers transparent information
on impact. Before monetizing, the costs and benefits ofenvironmental and social impacts could not be directly compared to assess the effectiveness of the R&D
project.

30 – Value Balancing Alliance – Pilot Study 2022

RESULTS
Through the lens of IMV, Holcim was able to determinethat the project created positive economic impact of
CHF 5.8m, prevented environmental impact of CHF 230k
and delivered positive social impacts of CHF 43k. By
providing local people with training on 3D printing, theirpurchasing power and earning capability were increased.
Furthermore, by using 3D printing, 70% of CO2 emissions
were avoided in construction compared to a businessas-usual approach. The project also enhanced the social
well-being of the local people by providing access toaffordable housing.
DECISIONS
By applying IMV, Holcim was able to calculate the social
return on investment of the R&D project. Thus far, theproject has created a social impact 6 times larger thanits investment costs. Holcim decided to keep investingin the affordable housing project to create even moresocial value in the future. Further plans are being developed to scale up 3D printing solutions in other regionsof Africa, and the 3D printing solution is expected to
grow to cover 30,000 classrooms over ten years.

»The second pilot helped us develop
even better understanding of the impact
management topic. We look forward tocontinue our engagement with the Value
Balancing Alliance in this promising andimportant space.
Daniel Schmid, Chief Sustainability Officer, SAP»We are proud to be VBA founding members.
We believe business performance has to bemeasured beyond financial. The knowledge
within VBA members and network, enrichedwith the learning shared by businessthrough piloting, is heading toward the right
direction: a standard method to measurebusiness value to society.
Eugenia Ceballos Hunziker, Group Head Sustainable Procurement
and Impact Valuation, Holcim

SK
Sensible use ofwaste heat

BACKGROUND
A subsidiary of SK that refines and produces petrochemical products (SK Incheon petrochem) generates
approximately 280,000 GCal of waste heat per year
during the operation of its plants. Because it creates nonegative impact on the environment, SK has in the past
simply released the waste heat out of the factory.
At the same time, the local community where
the SK factory is located faces a decreasing supply ofenergy and increasing prices for cooling and heating as
it becomes more and more populated. As a result, environmental degradation has become a significant issue.
KEY QUESTIONSSK began to rethink how it deals with waste heat andraised questions like: “How can SK treat the waste
heat in a smart way?”, “Is there any way that SK canefficiently use waste heat while contributing to solving
challenges of the local communities?”, “What would be
the most sustainable approach in economic, social, andenvironmental terms?”, “As nobody has criticized SK for
releasing the waste heat so far, is there any need for SK
to implement any improvement?”
RESULTS
Two options were discussed internally:
The first option was to build new facilities at the SK
factories to reuse the waste heat. This was expected tocost USD 2.5m over two years. With this facility, the additional energy cost would be reduced, but the approach
would not create any additional social or environmental
value for SK and other stakeholders.

32 – Value Balancing Alliance – Pilot Study 2022

The second option was to provide the waste heat tothe nearby residential complexes at a low price in collaboration with the local energy provider. It was expected to cost USD 10m to build a new system for energy
distribution, but SK would be able to generate sales of
USD 2.9m per year by selling the heat. For the nearby
residential complex, where about 40,000 households
live, the cost of cooling and heating would be reducedby 70% compared to the existing price. Using the waste
heat would eliminate the need for energy generation
based on fossil fuels. Around USD 6m (USD 4.7m in
GHG, USD 20k in SOx, USD 1.2m in NOx and USD 63k inPM) in environmental cost would thus be avoided.
DECISIONS
Even though the second option is expected to costmore initially, SK decided to go for the second optionof providing the waste heat to the nearby residential
complexes.
From a purely economic perspective, the first option
looked to be a safe approach with less economic burden. But, when taking a holistic view covering economicand environmental aspects and comprehending theimpact on SK and the local communities, SK concluded
that the second option is more sustainable because it
creates economic and environmental value beyond SK’s
own operations.
The monetized result unites economic value andenvironmental value in a single picture and enables
SK to transparently assess the pros and cons of each
option.

»We hope the VBA methodology willkeep upgraded via pilot running and themonetized information based on the robust
methodology can be used for company
stakeholders’ investment and consumption.
Hyung Hee Lee, President, SK SUPEX Council SV Committee»At Michelin we integrate a carbon shadow pricein the financial analysis of major investment
projects since 2016 and we started valuing
externalities in 2020. To take this approach to thenext level, we joined the Value Balancing Alliancein 2021. The Alliance is dedicated to developing amethodology capable of translating environmental
and social impacts into comparable financial data.
With the piloting we contribute to the validationof the methodology and we generate progressively
standardized, easily understandable metrics
covering every aspect of our own sustainable
performance.
Carine Damois, Deputy CFO, Michelin GroupNovartis

BACKGROUND
As a global pharmaceutical company, one of the mostmaterial impacts for Novartis is the value its medicines
provide to society at large (social impact). Measuringsocial impact is important not only for internal decision making on product development and strategy, butalso for external dialogue with key stakeholders, likegovernments. Using IMV, Novartis has begun to identify,
explore, and assess the impact of its products.
KEY QUESTIONSIn the process of measuring the social impact of medicines, Novartis raised questions such as: “What is the
key social impacts of medicine?”, “How can we capture
the improvement or decline in patients’ quality of life?”,and “How can improved health and well-being patients
contribute to the economy?”
RESULTS
The science-based approach developed with WifOR
Institute provides the value of a medicine by measuring social impact not only in terms of health but also interms of productivity. The improvement in health dueto the medicines was calculated using QALYs* and thentranslated into monetary contributions to the national* Quality-adjusted life years: developed in the late 1960s primarily
for cost-effective analyses (CEA) to determine the effectiveness ofdifferent medical treatments, technologies and interventions

34 – Value Balancing Alliance – Pilot Study 2022

GDP. In 2020, the social impact of Novartis’ productportfolio – Innovative Medicine and Sandoz – in 131 countries was estimated at USD 242 billion.
The result also initiated a disease and product-related
dialogue with the public authorities (national/regional
policy makers or budget holders). Between 2021 and2025, Novartis’ breast cancer treatment in Argentina,
Brazil, and Mexico could reach up to 10,299 patients by
year 2025, leading to a cumulative social impact of USD
1.5 billion. The results expand political and scientificdiscussions on the inclusion of social impact aspects
in the Sustainable Development Goals (SDG) and allow
Novartis to build market strategies based on monetizedsocial impact.
DECISIONS
Several of Novartis’ country offices have used social
impact forecast analysis to support product registration, access, and reimbursement, further validating
the health benefits demonstrated in clinical trials. For
example, in one country, the government authorizedNovartis to continue selling a range of products after thecompany’s overall contribution to the country’s economy
was demonstrated.

I N D I C AT O R S

Social impact
of medicines140,000$1,400,000,000

120,000$1,200,000,000

100,000$1,000,000,000

80,000$800,000,000

60,000$600,000,000$400,000,000

40,000$200,000,000

20,000

$0

2021

2022

2023

2024

2025

QALYs gained

Cumulative QALYs

Social Impact

Cumulative Social Impact

In the methodology v0.3, downstream impacts, especially in use phase of products and services, will be further
developed. Measuring and valuing downstream impacts
is very industry-specific, and widely applied data sources,
concepts, and statistics of the respective industry will be
used. Some companies like Novartis have already started
experimenting to measure the social impact of theirproducts. Their methodology is very much aligned withthe conceptual thinking of the VBA methodology but goesbeyond our current scope demonstrating the sectorspecific needs to assess downstream impacts.

Q A LY S G A I N E D

S O C I A L I M PAC T I N U S D$1,600,000,000

0The described cases show the wide range of potential
applications of the VBA methodology for business decision making. Assessing societal impacts enables moresustainable business steering, e.g., by minimizing environmental impacts in procurement, promoting innovative
approaches, and communicating with key stakeholders.
The methodology will be further developed and enhanced
through ongoing cooperation with academia and discussions among companies in the same sectors to further
drive sustainable business models.

Value Balancing Alliance – Pilot Study 2022 – 35

Fotos: Pexels / Saad Alaiyadhi

What are weplanning next?

»While knowing about the relevance of
our ESG topics before, the pilot of the
VBA methodology provided us withan even better understanding and aconfirmation of the materiality of oursocietal impacts.
Dr. Klaus Hufschlag, SVP, Sustainability Reporting & Controlling, DPDHL»Since 2019, POSCO has been measuringsocial impact created through corporate
activities. Since joining VBA in 2021, we
have been upgrading our measurementlevel by applying a global methodology
and establishing a standard model forthe steel industry.
Youngwook Choi, Manager, ESG Management group, POSCO

5 – Outlook

Developing the methodology with our partners andtesting the methodology in day-to-day business with anincreasing number of VBA members is a work in progress. To achieve this, we collaborate with interested
companies and initiatives in the IMV field. Similar to ourfirst piloting of methodology v0.1, learnings from thepiloting of v0.2 have been consolidated and will feed
into our next version of the methodology.
The current methodology version covers key environmental and human and social sustainability topics
that are relevant along the full value chain. The piloting showed that the indicators within the scope of thecurrent methodology can be applied for upstream andown operations. But there are still challenges whenassessing downstream impacts due to the lack of data
available and the large variety of product portfolios. The
VBA will therefore continue to work on the methodology
for downstream impacts by focusing on industry-specific views. Through deep dive discussions among companies of similar industries, industry-specific impacts will
be prioritized in development of the next methodology.
In addition, the VBA is constantly working to improveexisting indicators and is eager to add new dimensions
to the assessment.
Apart from ongoing methodology development toimprove the Value to Society perspective, the VBA is also
working on Value to Business. This area will be further
developed with more specific categorizations of impact(e.g., quantitative and qualitative, direct and indirect),and clear interrelations between Value to Society andValue to Business to provide valuable information toinvestors. In 2021, the VBA published a disclosure
concept comprehending Value to Business and Value toSociety as well as past performance and future strategy.
This concept will be further supplemented along with ourwork on the Value to Business perspective.
To combine forces in developing a standardized
methodology, the VBA has established a partnershipwith the International Foundation for Valuing Impacts(IFVI), a newly formed spinoff from the Impact-Weighted Accounts Initiative at Harvard Business School.
IFVI will provide academic robustness in methodology
development while the VBA provides a practitioner’sview to ensure the methodology is applicable and usefulin business steering and decision making.
The Value Balancing Alliance is convinced that
impact measurement and valuation is a highly effective
tool to integrate sustainability into core business andstrengthen the resilience of companies in our hyper-connected society.
By embedding collaboration into the nature of theVBA, the alliance will make its methodology publicly
available and encourage more companies of various
industries, sizes, and geographies to join and contributeto this journey.

Value Balancing Alliance – Pilot Study 2022 – 39

About the
Value Balancing Alliance

The Value Balancing Alliance e.V. (VBA) is a non-profit
organization with the ambition to change the way company performance is measured and valued. The alliance’s
objective is to create a global impact measurement andvaluation (IMV) standard for monetizing and disclosing
positive and negative impacts of corporate
activity and to provide guidance on how these impacts
can be integrated into business steering. VBA wasfounded in June 2019 and represents several large international companies, including Anglo American, BASF,
Bayer, BMW, Bosch, Deutsche Bank, DPDHL, Dräger,Contact
Visit us at value-balancing.com
Contact us at info@value-balancing.com
Value Balancing Alliance e.V.
Bockenheimer Landstraße 2260323 Frankfurt am Main, Germany
Phone: +49 (0)69 153 29 36 - 10

40 – Value Balancing Alliance – Pilot Study 2022

Holcim, Kering, Kirchhoff, L’Oreal, Michelin, Mitsubishi
Chemical, Novartis, Otto, Porsche, Posco, Roche, Sana
Kliniken, SAP, Schaeffler, Shinhan Financial Group, SK, ZF.
The alliance is supported by the four largest professional services networks – Deloitte, EY, KPMG, and PwC– as well as by the OECD and leading academic institutions. Furthermore, in partnership with the Capitals Coalition, the alliance receives funding from the EU throughits LIFE programme for the Environment and Climate
Action and is member of the EU Platform Sustainable
Finance.

»The methodology was successfully tested
by Sana Kliniken for the first time. And thepiloting proves that it works and is feasible ina healthcare environment. Now, all members
and Sana Kliniken will profit from the results
and the expertise generated.
Dr. Clemens Jüttner, Chief Sustainability Officer, Sana Kliniken AG»It was valuable to share notes andexperiences with VBA team and othermember companies for this pilot. We are
all moving together toward consistentand harmonized methodologies for
impact analysis.
Kyungeon Kim, Senior Manager, ESG Planning Team, Shinhan Financial GroupFotos: Pexels / Cottonbro

www.value-balancing.com