In business the purpose of measurement is to support better reporting and decision making. Although many of the techniques for measuring environmental and social impacts, such as natural capital valuation, have been around for many years, it is only in the last 5 years or so that large corporations have started to use these as management tools. Part of this might be that environmental and social costs and benefits (‘externalities’) which occur outside the boundaries of the business were previously seen to have no immediate impact on the success of the business itself. These externalities can now be seen to have quite fundamental implications for the business, from, amongst others, natural resource constraints, licence to operate issues and access to talent. As a result, a new spotlight has been placed on measurement techniques which enable environmental and social factors to be accounted for alongside traditional business metrics.
Measurement techniques need to be targeted at providing metrics to support the big decisions that businesses and their stakeholders (such as governments or investors) need to make. In many cases it will require a whole range of new measurement techniques to come up with the information to support these decisions. More effort should first be given to defining the questions that need to be answered before jumping feet first into measurement. It is too often the wrong way round, with measurement undertaken before any analysis of what it might be useful for. The decisions that need to be made should inform the focus of where measurement or valuation of environmental or social externalities should be targeted.
Some of the big decisions our clients and their stakeholders are trying to address through measurement include:
Finally, it’s also important to understand who the decision makers are and what form of measurement would be most useful in their decision making processes. If natural capital measurement or valuation, for example, is to be integrated as a matter of course into business decision making, many boards will first need convincing of its importance and then supported in how to do it.