Estimate value created

Organisations estimate the value created and eroded for different stakeholders to compare available management decisions

Last updated: November 23, 2021

Overview

Valuation is the process of estimating the relative value that an organisation creates, preserves or erodes for its stakeholders, expressed as a common unit.

Understanding the total value that an organisation creates requires considering two perspectives:

  • the value of an organisation’s impacts to the stakeholders that experience them (sometimes called impact valuation); and
  • how these stakeholders who experience impact, along with changes in the external environment, in turn create or erode value to the organisation and therefore affect investors’ determination of enterprise value.

By expressing performance in a common unit of value (such as a monetary value or a score), impact valuation can help to assess the relative importance, worth, or usefulness of different impacts to stakeholders in context, and as a result, can improve decision-making of organisations. It also allows comparison with performance information from other value perspectives, such as value created for the organisation and its investors.

For a full picture of the value an organisation is creating or eroding for society, the value of all significant impacts on all stakeholders should be considered. Figure 1 below illustrates the value of different impacts on one organisation’s employees: some positive (light grey), some negative (dark grey) resulting in a monetary value for the net employment impact of the organisation.

A set of calculations based on available impact data sit behind the valuation of each topic, for example: the health and wellbeing value estimate is driven by the value employees of the organisation have placed on any workplace injuries, sexual harassment, insufficient health insurance and insufficient parental leave.

The illustration also shows how important it is to share the data behind a ‘net impact’ valuation so that the organisation and its stakeholders can understand and manage the negative impacts (e.g. diversity) which could be obscured by an impact valuation that is positive overall (see net employment impact in red).

Figure 1: Using monetisation to value impacts on employees

The purpose of impact valuation

Impact valuation methodologies rely on the information collected in the ‘assess impact’ action. Impact valuation can help organisations to:

  • estimate total value and/or net impact of a project, organisation, or investment, considering its various positive and negative impacts on various stakeholders, and the degree to which stakeholders were underserved with regards to those impacts;
  • compare options, make decisions, and communicate the rationale for those decisions internally and externally; and
  • communicate performance in terms of the relative value of impacts to those who experience them, so that external parties (e.g. investors, policymakers) can make decisions based on that information.

Standard-setters that focus on valuation recognise that interpersonal comparisons of value are technically challenging and raise complex moral questions. The value of something is inherently subjective and context specific. However, given that value judgments are already implicit in any resource allocation decision, impact valuation methodologies provide a way to make the data and rationale behind these value judgments more explicit, transparent, and informed by the perspectives of the stakeholders experiencing the impact.

Methodologies for estimating value to society

There are three ways of estimating the relative value of an impact to stakeholders that experience them:

  1. Monetary (e.g. the estimated monetary value to a stakeholder of a benefit they experience, or a harm or loss that they avoid or experience. This is known as impact monetisation);
  2. Quantitative non-monetary (e.g. ratings on a scale of 1 – 10); or
  3. Qualitative (e.g. low/medium/high).

There are pros and cons for each method, and no strict rules for when each should be applied. Organisations are encouraged to be transparent about their methods, and disclose the strengths and weaknesses of the data used.

Data used in impact valuations can be:

  • primary data gathered from stakeholders experiencing the impacts; or
  • secondary data about companies, sectors, and states/countries.

Impact valuations can be undertaken on a small or large scale:

  • Geographic: From a single community in one town or village; to multiple stakeholder groups across a state or region; to national or international groups of stakeholders; or
  • Enterprise: From small start-ups; to individual business units of larger companies; to company-wide approaches spanning large multi-national corporations.

Characteristics of high-quality impact valuations

  • Rigour sufficient for the decision being made, including:
    • Relevance and completeness: all outcomes that matter to stakeholders, and only those outcomes, are included in the analysis; and
    • Accuracy: not systematically over-estimating nor under-estimating impact;
  • Stakeholders have been engaged in a way that gives confidence that the results of the valuation analysis represent their views, or the reasons for divergence are made transparent;
  • In the absence of primary data, practitioners often use the results of valuations done previously in other geographies or sectors, in which case the risks for decision-making of the limitations and potential inaccuracies of the analysis should be considered and disclosed.

Estimating value to the organisation

Understanding how an organisation’s stakeholders – and the external environment in which it operates – create or erode financial value helps organisations identify opportunities for cost savings, revenue generation and risk mitigation.

How an organisation’s stakeholders create or erode enterprise value can vary hugely according to event, firm, context and timing factors.

Many organisations already implicitly consider this aspect of value-creation when they consider the financial implications and trade-offs inherent in most business decisions.

However, the cost or benefit to the organisation may not reflect the cost or benefit to society. If taxes were introduced reflecting the value to society (e.g. carbon tax), then the value created for stakeholders would be mirrored by the value created for the organisation.

Figure 2: Using sustainability information to manage risk and identify opportunities

Resources

Estimating value to society

The Guide to Social Return on Investment (SROI)

Last updated: 2012

Guidance on conducting identifying, measuring and valuing social impact to calculate Social Return On Investment (SROI).

Use this resource to:

  • Estimate value created: Follow this methodology to monetise the social value an organisation creates, preserves, or erodes for stakeholders. This methodology guides an organisation through the process of valuing impact from the perspective of all affected stakeholders.

Impact-Weighted Accounts Initiative Research

Last updated: n/a

Research on impact valuation published in the form of case studies and white papers. Specific illustrative examples are provided for product impact.

Use this resource to:

  • Estimate value created: Use research to learn about key considerations when monetising impact, using publicly available information on companies.

Natural Capital Protocol

Last updated: 2016

Guidance that outlines a process organisations should follow to identify, measure and value their impacts and dependencies on the natural environment.

Use this resource to:

  • Set and revise objectives: Use the guidance on how to identify and engage with stakeholders in order to set objectives for a natural capital assessment.
  • Identify sustainability topics: Use the guidance on how to map the links between significant impacts and the business activities that affect or rely on them. This process helps organisations determine whether each impacted stakeholder is likely to affect their business model (and therefore enterprise value).
  • Estimate value created: Use the guidance to value impacts and dependencies on natural capital. This methodology draws on organisational data, data collected from stakeholders and publicly available country- or sector-level data.

Social and Human Capital Protocol

Last updated: 2019

Guidance that outlines a process for organisations to follow so they can identify, measure and value their impacts and dependencies on social and human capital.

Use this resource to:

  • Set and revise objectives: Use the guidance on how to identify and engage with stakeholders in order to set objectives for a social and human capital based assessment.
  • Identify sustainability topics: Use the guidance to map the links between significant impacts and the business activities that affect or rely on them. This process helps the organisation determine whether each impacted stakeholder is likely to affect the business model (and therefore enterprise value).
  • Estimate value created: Use the guidance to value impacts and dependencies on social and human capital. This methodology draws on organisational data, data collected from stakeholders and publicly available country- or sector-level data.

Standard on Applying Principle 3: Value the Things that Matter

Last updated: 2019

Standard and guidance on how to apply the third of SVI’s Social Value Principles.

Use this resource to:

  • Estimate value created: Use the guidance to value impacts from the perspective of affected stakeholders. This standard emphasises the importance of using data collected directly from stakeholders.

SDG Impact Standards for Enterprises

Last updated: 2021

Practice standards that provide a common language and a system for integrating sustainable development issues, the Sustainable Development Goals and impact management into business and investment decision-making. These practice standards also outline the ‘ABC’ classification methodology, which helps organisations assess whether an impact ‘Acts to reduce harm’, ‘Benefits stakeholders’, or ‘Contributes to solutions’ in relation to the SDGs.

Use this resource to:

Set up processes and embed practices that orient an organisation towards achieving the SDGs. The SDG Impact Standard contains practice indicators that are relevant to several actions. Use the links below to access guidance for different practice indicators. Alternatively, view the whole guidance document here.

Estimating value to the organisation

Natural Capital Protocol

Last updated: 2016

Guidance that outlines a process organisations should follow to identify, measure and value their impacts and dependencies on the natural environment.

Use this resource to:

  • Set and revise objectives: Use the guidance on how to identify and engage with stakeholders in order to set objectives for a natural capital assessment.
  • Identify sustainability topics: Use the guidance on how to map the links between significant impacts and the business activities that affect or rely on them. This process helps organisations determine whether each impacted stakeholder is likely to affect their business model (and therefore enterprise value).
  • Estimate value created: Use the guidance to value impacts and dependencies on natural capital. This methodology draws on organisational data, data collected from stakeholders and publicly available country- or sector-level data.

Social and Human Capital Protocol

Last updated: 2019

Guidance that outlines a process for organisations to follow so they can identify, measure and value their impacts and dependencies on social and human capital.

Use this resource to:

  • Set and revise objectives: Use the guidance on how to identify and engage with stakeholders in order to set objectives for a social and human capital based assessment.
  • Identify sustainability topics: Use the guidance to map the links between significant impacts and the business activities that affect or rely on them. This process helps the organisation determine whether each impacted stakeholder is likely to affect the business model (and therefore enterprise value).
  • Estimate value created: Use the guidance to value impacts and dependencies on social and human capital. This methodology draws on organisational data, data collected from stakeholders and publicly available country- or sector-level data.

Definitions

Enterprise value

Market capitalisation (shareholder value) plus the market value of net debt. It is determined by capital market participants based on their estimation of the present value of expected cash flows spanning the short-, medium-, and long-term. Essential inputs in determining enterprise value include corporate reporting in financial statements, as well as reporting on sustainability matters that it is reasonably possible will positively or negatively affect the company’s cash flows over time (i.e. affecting revenue, costs, assets, liabilities, cost of capital and/or risk profile). The term is widely used and is technically specific in capturing the notion of expected value creation/preservation/erosion over time for a company’s equity and debt investors. This expected value creation/preservation/erosion is fundamentally interdependent with a company’s creation/preservation erosion of value for its other stakeholders.

Source: Value Reporting Foundation (VRF)

Impact

A change in an aspect of people’s well-being or the condition of the natural environment caused by an organisation.

Source: Impact Management Platform; Well-being defined as in OECD Well-being Framework

Monetisation

The estimation of the relative importance, worth or usefulness of impacts to the people who experience the impact, expressed as a monetary value. Impacts can be experienced by people directly, or through changes to the planet or the economy.

Source: Consensus definition based on discussions with Capitals Coalition; Impact Weighted Accounts Initiative (IWAI); Social Value International (SVI); and Value Balancing Alliance

Stakeholder

An entity or individual that can reasonably be expected to be significantly affected by the organisation’s activities, products and services, or whose actions can reasonably be expected to affect the ability of the organisation to successfully implement its strategies and achieve its objectives.

Source: Global Reporting Initiative (GRI); OECD Due Diligence Guidance for Responsible Business Conduct; OECD Well-being Framework; Value Reporting Foundation (VRF) Integrated Reporting Framework

Valuation

An estimation of the worth of something.

Source: Oxford English Dictionary

In the context of Sustainability: a process that seeks to understand the relative value that an organisation creates, preserves or erodes for its stakeholders, which is understood by expressing sustainability performance information as a common unit of value. Estimating value to different types of stakeholders sometimes requires different methodologies. See Glossary terms Value to society and Value to the organisation.

Source: Value Accounting Network

Value to society

The relative importance, worth or usefulness of impacts to the people who experience them, expressed in a common unit of value. Impacts can be experienced by people directly, or through changes to the planet or the economy. Also known as impact valuation.

Source: Consensus definition based on discussions with Capitals Coalition; Impact Weighted Accounts Initiative (IWAI); Social Value International (SVI); and Value Balancing Alliance

Value to the organisation

How an organisation’s stakeholders, along with changes in the external environment in which the organisation operates, affect the amount and timing of the entities cash flows, including in the long-term.

Source: Value Reporting Foundation (VRF)

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