In Step 10 companies should not only ask what do the results mean for your business, but also how reliable the results are.
There are several factors that should be considered when analyzing and applying the results of measurement and valuation:
- Aggregation and Collation: To interpret and present the results, they must be collated in a way that makes sense for the company and audience. This is likely to involve some type of analytical framework such as a cost-benefit analysis, total profit and loss account, or total contribution. Some companies may take a macro picture of their performance across various capitals - social, natural, and financial - identify relative positive and negative performance for each, and, in some cases, for each part of the value chain. It is important that when aggregating and comparing results, thought is given to what can and cannot be added together. For example, care must be taken to avoid double counting between different levels of the value chain. When using non-monetary valuation methods, there can also be challenges when different denominators have been used depending on the context (e.g. current unemployment in one region compared to another). Using weighting or monetary valuation can help overcome this challenge.
- Sensitivity: Some estimation and approximation will likely be involved in any social capital measurement and valuation. As the social capital assessment field evolves, new data and methods will help improve accuracy and reliability of results. However, all companies will need to weigh up the benefits of precision with the resources required for collection of large swaths of data.
As a result, it is critically important that companies understand and clearly communicate what level of confidence they have in the results so that this is taken into consideration when applied to business decisions. For example, when using value transfer for monetary valuation, existing estimates of values in the literature can vary greatly, giving vastly different results depending on the reference value chosen. This variation should be made explicit and its implications discussed, especially if this information is being used alongside other monetary values. Furthermore, in the case of monetary valuation, the values may be sensitive to changes that are outside the company’s control, e.g. fluctuations in exchange rate, inflation, and purchasing power parity. This can mean that a company’s impact could change between assessments without the company having changed their actions. Where possible and particularly in the case of monetary valuation, companies should carry out a sensitivity analysis to test their assumptions and communicate the results of the sensitivity analysis alongside the assessment results.
- Prioritization: Companies should consider how to prioritize their findings and recommended actions. The starting point should always be tackling any risks, concerns or negative impact areas that require urgent attention.
- Presentation: Companies should present the findings in a language and format that resonates with each target audience and thus may choose to use different formats to present to different stakeholders. Some companies may choose a stand-alone report while others will integrate the findings into existing KPI reporting or measurement tools. It is increasingly common for companies to use scorecards to communicate results assessed against objectives or goals.
- Action: Most importantly, companies must take action on the results. Companies should track and monitor progress against their baseline results and use this to reinforce the business case for continuing to measure and value their social capital performance.
- Validation and Verification: Formal verification or external audit is not a mandatory feature of the Protocol, but may be required if you intend to communicate the assessment results to certain audiences (e.g. for external reporting). Verification provides both internal and external stakeholders with the confidence that the data and methods are fit for purpose and the results are sufficiently robust to be used for decision-making. Validation checks the accuracy and completeness and may be required to use the results for certain internal decisions. Validation and verification may cover the process, or the results, or both. Regardless of whether validation or verification is conducted, companies should identify and communicate any critical uncertainties, key assumptions, and important caveats that will help communicate the strengths and weaknesses of the assessment, and reliability of the results.54 The Protocol’s four principles, described in the Introduction, will help when validating and verifying results: relevance, rigor, replicability, and consistency.
- Communication and transparency: In addition to the intended audience, companies may also consider communicating results to a wider group of stakeholders internally and externally. There are a number of benefits to doing so. It demonstrates leadership in integrating sustainability into the business. Sharing the results in a clear and transparent way can also strengthen relationships with stakeholders and unlock new opportunities for collaboration to both address any identified challenges but also improve the practice of social capital measurement and valuation. With this in mind, it is important that companies disclose the process and any weaknesses in the methodology and how they plan to both respond to the results and improve the process going forward. Many companies are also including lessons learned to help advance the broader valuation field.
Putting Theory into Practice
54 This draws from the Natural Capital Protocol