While positioning sustainability as a core business risk or opportunity (or combination of both) is a much easier sell than it used to be, sustainability professionals are still often asked to demonstrate the return on investment (ROI), primarily by providing metrics that demonstrate the value of sustainability initiatives.
One solution is to adopt an income statement-style format to quantify social or environmental costs, savings and, critically, cost avoidance. While the income statement does not capture the complete value, it can capture cost containment and new revenue drivers, providing an initial framework for more challenging quantification of risk avoidance and intangible value.
Baxter International, a healthcare company, provides an excellent example of using an income statement model to frame the value proposition for its sustainability initiatives, as well as provide critical information on sustainability programming (http://sustainability.baxter.com/documents/baxter-2013-environmental-financial-statement.pdf).
This approach can have great appeal for the C-suite, who are familiar with income statements, estimates, and forecasts, plus they often rely on them to make sound business decisions. It is compatible and can potentially be integrated with existing financial accounting frameworks. Once compiled, the information can also be used to generate business-specific metrics to demonstrate sustainability’s value, such as:
• Absolute savings and/or revenue from sustainability
• Calculated internal rate of return of sustainability program
• Calculated ROI of sustainability program and individual projects or components
• Calculated ratios of sustainability value to corporate profits
• Revenue from new product/service areas
• Company-specific metrics
Results can be presented internally to drive sustainability efforts forward, and externally to communicate progress to stakeholders. It is another lens for viewing sustainability value, and may be a useful tool in convincing your finance group that these efforts have short, medium- and long-term benefits.
Ted Ferguson – Senior Vice President (firstname.lastname@example.org)
Alex Carr – Senior Associate (email@example.com)