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Evaluating Impact, Outcomes and Trade-Offs Alan McGill – Sustainability Reporting and Assurance Partner, PwC Tom Beagent – Impact Measurement Advisor, PwC Liz Prescott, IIRC Luciana Villa Nova – Sustainability Manager, Natura Mark Gough – Head of Sustainability, The Crown Estate

Overview Impact measurement: an overview Impact measurement landscape Business benefits of impact measurement The Brewers Dilemma Wrap up

Impact measurement: An overview The drivers for impact measurement Defining impact measurement An example: PwC’s TIMM framework

The drivers of impact measurement Megatrends Megatrends – 5 global trends which: have a major influence on the economic and commercial landscape over the next decade; permeate across all sectors of the economy and society; and fundamentally disrupt industries and the way we do business.

The drivers of impact measurement: Value creation process

Building on the current model

Defining impact measurement Traditional reporting Impact measurement Input Output Outcome Impact Value of impacts What has changed as a result of the business activities? What activities have been done? What resources have been used for business activities? How much of that outcome wouldn't have happened otherwise? What is the value of impact?

Defining impact measurement Traditional reporting Value of impacts Impact Outcome $20m new income created per annum 4,000 of the 5,000 borrowers had no access to finance prior to the initiative Output Recipients generate income of $25m per annum 5000 borrowers receive funding to start or expand their business venture Input $10m invested in micro-finance for remote villages in Africa Impact measurement

Example: PwC’s TIMM Framework

How are companies using impact measurement Innovation New lens for product/services innovation New Markets More sustainable products Options appraisal Investments and capital projects Sourcing decisions Optimise impacts Reduce risk Monitoring and evaluation Setting targets and evaluating progress Simple communication Communicating complex issues in reporting or to specific stakeholders

TIMM: Supporting strategic decisions & trade-offs A mining company is conducting a feasibility study on the transportation of ore from a mine to an off-site processing plant, including an appraisal of access routes in a south- east Asian country for haulage trucks.

Option 1: Build a new road

Option 2: Widen & repair an existing road

Impact measurement landscape

Current state Sustainability is perceived to be very important by CEO´s: 93% believe that sustainability will be important to the future success of their business. 80% view sustainability as a route to competitive advantage in their industry. Situation Complication However CEO´s find sustainability difficult to implement and quantify: 38% believe they can accurately quantify the value of their sustainability efforts. 37% see the lack of a link to business value as a barrier to accelerating progress. Source: UN Global Compact-Accenture CEO study on Sustainability 2013

The effort to measure broad business impacts adds value 90% of the studies on the cost of capital show that sound sustainability standards lower the cost of capital of companies. 88% of the research shows that solid ESG practices result in better operational performance of the firm. 80% of the studies show that stock price performance of companies is positively influenced by good sustainability practices Source: From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Performance; Oxford University and Arabesque Partners, 2014

The World Business Council for Sustainable Development

WBCSD is not new to the impact measurement space Social Profit & Loss Account Feasibility Study

WBCSD Redefining Value

Current development: Natural Capital Protocol Sector guides for Food & Beverage + Apparel Pilot testing Generic Natural Capital Protocol

Some general learnings Focus Cost value trade-off Consider whole value chain Hot spot first Engage stakeholders Multi-disciplinary approach

Business benefits of impact measurement

Luciana Villa Nova, Sustainability Manager http://vimeo.com/106849300 password: 4040

Mark Gough, Head of Sustainability Total Contribution

The Brewers Dilemma

The Brewers Dilemma Case study background: A brewer is entering a new market in Africa with a 5 year investment. One of the key decisions is the sourcing strategy for cereals. The bottling plant will need to be near to the market so water for brewing will need to be sourced locally. But there is a choice of where to source the cereal. Objective of exercise: Play the role of the management team of the brewer and choose the cereal sourcing strategy for the new brewery.

The two options………….. Option 1 Import barley from global market Option 2 Grow an alternative crop locally in East Africa

Round 1: Commercials Option 1 - Import $m Comments   Option 1 - Import $m Comments Supply chain infrastructure (in Africa) Capex ($m – annualised cost) (1.0) e.g. Storage facilities Opex ($m – annualised cost) (1.5) Global distribution costs Commodity cost (barley) Cost per tonne ($/t) 170 Demand (t) 14,700 Estimated annual cost ($m) (2.5) Total (5.0) Option 2 – Source locally $m Comments Supply chain infrastructure (in Africa) Capex ($m – annualised cost) (2.0) e.g. Storage facilities, farm to storage infrastructure Opex ($m – annualised cost) (1.5) Supply chain development, community investment and local staff and offices Commodity cost (Sorghum) Cost per tonne ($/t) 140 Demand (t) 14,700 Estimated annual cost ($m) (2.1) Total (5.6)

Summary Import Source locally Financial cost Externalities: Economic $8m $6m $4m $2m $2m $4m $6m $8m Financial cost Externalities: Economic Profits Investments Wages Environmental Land use GHGs Water consumption Social Livelihoods H&S Education

Summary Import Source locally Financial cost Externalities: Economic $8m $6m $4m $2m $2m $4m $6m $8m Financial cost Externalities: Economic Profits Investments Wages Environmental Land use GHGs Water consumption Social Livelihoods H&S Education