Impact Measurement and Valuation of corporate activities

How can social, environmental, and economic impacts of corporate activities be measured and evaluated? In a joint study with the Stiftung Arbeit und Umwelt (Foundation for Work and Environment), WifOR presents various initiatives and organizations, as well as their draft methods, for Impact Measurement and Valuation. This article provides insights and background on the study results and shows how the approach can enable employees to make more sustainable decisions and create more transparency for stakeholders.


Impact Measurement and Valuation

Greenwashing is ubiquitous. The problem: there are no global standards for measuring and evaluating the social, environmental, and economic impact of corporate activities. It is true that the EU's Corporate Sustainability Reporting Directive (CSRD) is placing more and more obligations on companies to report on sustainability. However, there is a great deal of leeway especially with regard to critical ecological emissions meaning corporate data is largely incomparable. As a result, corporate sustainability is often seen as an image or reporting issue rather than a key factor in decision-making.


ICGBE CTAWhat is Impact Measurement and Valuation?

Impact Measurement and Valuation encompasses the approaches used to measure and evaluate the social, environmental, and economic impacts of business activities. Many approaches include not only the impacts that companies create through their direct operations, but also the effects that occur in the supply chain and downstream through the sale of products and services.  

Impact Measurement refers to the ways in which non-financial metrics can be measured. But the impact of business activities can vary depending on location information that cannot be gleaned from communicating physical measures such as kilograms, liters, or hectares. Impact Valuation therefore takes the next step of evaluating the impacts collected through Impact Measurement. With the help of coefficients, the physical values can be converted into a uniform measurement unit. Monetary units such as Dollars or Euros have become established enabling effects to relate to one another and to financial indicators. Monetization also makes it possible to integrate sustainability indicators into financial reporting.

What are the aims of Impact Measurement and Valuation?

Impact Measurement and Valuation primarily create a better understanding of the impacts of business activities along the value chain according to three sustainability dimensions social, environmental, and economic. This evidence-based foundation supports organizations in going beyond purely financial considerations to include social and environmental risks in decision-making.  

The sustainability indicators derived also contribute towards achieving greater transparency in stakeholder dialog. Alongside the media, NGOs, and customers, the issue of sustainability is gaining in importance among investors. For example, more and more investors want to base their investments on social and environmental criteria. This is not just about ethical principles, but also about the future viability and resilience of companies. After all, organizations that credibly integrate sustainability into their strategy are considered more attractive investments over the long term.

Another goal of Impact Measurement and Valuation is to prepare companies for the increasing legal requirements in the area of sustainability reporting as well as social and environmental due diligence. For example, the Supply Chain Due Diligence Act creates a legal framework that requires certain companies to comply with social and environmental standards in their supply chain. Companies can only achieve the climate targets of the Paris Agreement if they are able to quantify the impact of their business activities on the environment and thereby address it through a targeted approach.

How is impact measured?

There are various methods and frameworks for measuring impact. The theoretical basis for quantifying social, environmental, and economic impacts is usually formed by “impact pathways”. These describe the flow of inputs, outputs and activities – identifying the environmental and social changes and their consequences for society. The social, environmental, and economic dimensions are expressed by various indicators:


Social indicators

The social impact describes the effects of corporate activities on society. It includes various aspects such as occupational safety, fair wages, gender pay gap, workforce diversity, employee training, risk of corruption, child labor or modern slavery. In addition, the impact on people's health can be included.

Environmental indicators

Environmental impact refers to a company's impact on the environment. This can be measured by various indicators, such as greenhouse gas emissions, water and energy consumption, land use, waste, and impact on biodiversity.

Economic indicators

Economic impact measures Gross Value Added (GVA). This indicates the contribution of a company to the Gross Domestic Product (GDP) of a given country as well as contributions via taxes and wages.

While environmental impacts are usually negative and economic impacts positive, the social dimension can include both positive and negative impacts. Products and services can also have ambiguous impacts. For example, medical innovations lead to improved public health and trigger positive economic impacts, but also cause greenhouse gases and additional waste.

Currently, organizations take different approaches to measure and evaluate these impacts. Therefore, it is important to unify the different methods into one standard to enable comparability of data.

How is the data for Impact Valuation collected?

Impact Valuation first uses primary data, for example from income statements and measured environmental and social metrics. Secondary data sources include input-output modeling, life cycle analysis, and industry or country averages, usually based on purchasing and sales data, to map impacts in the value chain.

Secondary and primary data can also be combined to provide a more accurate assessment of impact. Official data and academic publications that set coefficients for various indicators are used to monetize the measured values.

What are the limitations of Impact Measurement and Valuation?

When using Impact Measurement and Valuation, it is important to keep in mind that it is not possible to capture the entire contribution of a company to society. Metrics and methodologies are constantly evolving, so currently some indicators, such as greenhouse gas emissions, are more established than others, such as corruption.

Transparency in the definition and measurement of indicators is therefore crucial for the acceptance and credibility of the method. Ethical issues also arise, for example in the monetization of social indicators such as human life or child labor, or in weighing negative environmental impacts against financial gains.

In addition, there are currently a variety of labels and methods that define the scope and measurement of sustainability differently. Therefore, WifOR is committed to setting global standards in the field of sustainability measurement in order to solve the problem of lack of comparability of social, environmental and economic impacts of companies in the long term.