Lucie Anderton and Matthew Watkins explore methodologies that aim to help businesses assess their impact and dependency on people and society.
The value of intangible enabling resources such as social and human capital has skyrocketed during the past 50 years. Today, only 20% of market capitalisation relates to financial assets, meaning intangibles are now responsible for up to 80% of a company’s total market value. Investors understand this, and businesses must strive to make better decisions when they consider the full picture of value.
Measurement and valuation of social and human capital helps companies understand intangible value and deliver solutions that will contribute to better performance, as well as resilient and sustainable communities. RSSB’s work, for example, highlights the intangible value of the UK rail network. Stations are more than places for people to get on and off trains: they are community hubs that provide spaces for other businesses or community facilities. They regenerate areas and affect housing markets.
This relationship goes both ways, though – organisations are dependent on social and human capital. No business can be profitable without a skilled, engaged and productive workforce or supportive communities, and they must build trust with customers and suppliers.
Once an organisation understands the value of its relationship with social and human capital, it can make more informed decisions to maximise positive impacts for people, communities and society. Organisations that include measures on social value when tendering can demonstrate value for money. Contracts managers can include social performance measures in contracts, incentivising good work that benefits society. Through risk assessment that includes a robust valuation of community effects during construction and operation, an organisation can better understand where the greatest hazard lies and concentrate efforts to mitigate it.
The lay of the land
There is little consensus on the standards and tools for measuring businesses’ impacts and dependencies. As such, companies are applying different and often incomparable methodologies, leaving the landscape for measuring and valuing social and human capital fragmented. Decision-makers consequently lack confidence – leading them to undervalue and under-invest in people and relationships. The WBCSD’s Social and Human Capital Protocol and the RSSB’s Common Social Impact Framework (CSIF) aim to consolidate and converge existing methodologies.
The Social and Human Capital Protocol aims to enable businesses to measure their impacts and dependencies. It is the result of three years of collaborative development based on input from companies, leading academics, a public consultation and contributions from a range of expert partners. The Protocol consists of four stages – Frame, Scope, Measure and Value, and Apply – which help companies understand, measure, value and improve their social and human capital performance, and provide a consistent process for decision-making.
To support the Protocol, WBCSD founded the multi-stakeholder Social and Human Capital Coalition (SHCC) – a global collaboration that convenes leading organisations and initiatives to help companies recognise the importance of people and communities to business decision-making and sustainable growth. The SHCC aims to build a community around the topics of social and human capital and is free to join.
RSSB’s role and skills are in research and standard-setting, and as an organisation that works across the whole industry, it is well placed to bring about a consistent standard for valuing social impacts. As a member organisation, RSSB reacted to member demands for a common, consistent basis for understanding and measuring social impacts across British rail industry organisations, projects and programmes. It responded by producing a Common Social Impact Framework for Rail, which:
- Identifies 10 key social impacts of rail
- Provides a library of goals, indicators, metrics and monetised values for each impact, from which stakeholders can select measures to best report their activities
- Outlines approaches that can be used for qualitative reporting.
RSSB and its delivery partners Action Sustainability, Symetrica and Arup were able to draw on existing literature, frameworks and peer experience, as well as consultation with stakeholders.
It is possible to value business impacts and dependencies on people and society in terms of qualitative descriptions and quantitative data, in addition to monetary valuation. Different valuation methods are appropriate for different circumstances.
Monetary valuation can be useful; it allows an organisation to determine the relative worth of impacts and/or dependencies in a common unit of measure, such as US dollars, which makes it easy to compare with financial values such as business revenue. However, assigning monetary value to social or human impacts requires the consideration of certain issues, such as:
- Practicality and reliability. Monetary valuations only capture a limited proportion of the economic value of a company’s impact and/or dependency on people and society. It is impossible to ascribe a monetary value for every aspect of change experienced by all stakeholders impacted.
- Ethics. Some stakeholders may find it difficult to accept or interpret monetary valuation of certain issues, such as serious injury or loss of life.
- Consider the culture of the company and make it consistent with ‘doing the right thing’.
- Aggregation. A single net impact figure can obscure the context behind the data, and may hide significant negative impacts. For example, there may be situations where employment and wage payments create value for workers, but working conditions are unfavourable.
It is important to examine the individual elements of the assessment, including different groups impacted, to ensure key risks are not overlooked.
If monetary values are estimated using robust and consistent techniques, they can provide reliable economic values for direct comparison and integration with financial information in business decision-making.
Social and human capital measurement and valuation has progressed exponentially in recent years, with interest from both business and civil society. However, experimental methodologies are still not widely used or comparable. We recommend trialling methodologies such as those contained in the Social and Human Capital Protocol and RSSB Common Social Impact Framework for Rail.
Join the Social and Human Capital Coalition to discuss these topics with likeminded organisations, and work with us to help bring this approach into the mainstream.
Cae study: Wessex capacity alliance
The Wessex Capacity Alliance (WCA) is responsible for increasing capacity at London Waterloo and carrying out improvements along the Wessex route.
The WCA includes Network Rail, Skanska, Colas Rail, AECOM and Mott MacDonald.
WCA took part in piloting the CSIF and its lessons have fed back into the final version. WCA selected five of the 10 topic areas – accessibility, health and wellbeing, employment and skills, staff engagement, as well as local and sustainable procurement – and within them, 25 sub-impact measures. These measures were a combination of best practice monetised valuations in line with government guidance and qualitative measures. The CSIF allowed WCA to structure a report that demonstrates the social value of the project, with both monetised values and the narrative to accompany the figure.
Example of one of the calculations in one of the impact areas
- Download the CSIF on SparkRail at bit.ly/2BWJ5IX
- Watch the 16-minute guidance film on Buto at bit.ly/2BW9p5S
- Download the Social and Human Capital Protocol at: www.social-human-capital.org
Lucie Anderton PIEMA is senior sustainable development specialist at RSSB
Matthew Watkins is manager, redefining value, at WBCSD