total value - ey value and its effects on business value can only be managed by adopting a much...

Total valueEY’s broader vision of value forreporting and decision makingin the 21st century

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Juan Costa Climent

Global Climate Change &Sustainability Leader

EY

What does it mean to value a company,an investment or a product? Existingvaluation methods have not kept pacewith the public’s increased appetite forbetter information about the way inwhich economic activities impact thecommunities and societies in whichthey occur and the extent to whichthose impacts reflect back on involvedbusinesses.

The top-100 externalities report fromThe Economics of Ecosystems andBiodiversity (TEEB) estimated thatexternality costs of the primaryproduction (agriculture, forestry,fisheries, mining, oil and gasexploration, utilities) and primaryprocessing (cement, steel, pulp andpaper, petrochemicals) industries totalUS$7.3 trillion, that is 13% of globaleconomic output. The questionemerges whether such externalities aretruly external or next in line for“internalization”, for instance, throughlegislation, scarcity, reputation, orstakeholder action.

As we develop a more detailedunderstanding of the way in whichcompanies and society interact, it isclear that we also need to think beyondthe set of indicators by which wecurrently evaluate and measuresuccess. This has consequences for theway in which risks and opportunitiesare managed.

A broader definition of value can begame-changing. As well as providingbetter information to stakeholders, itwill enable firms to think about themeaning of their work and theirsocietal contribution, and provide anew basis for dialog with theirstakeholders and a new frameworkwithin which management teams canoperate.

A clear articulation of the way in whichan organization creates social valueand prosperity will provide investorswith a fuller picture of theorganization’s activities. This will, inturn, lead to a market valuation that ismore reflective of the organization’strue value, and enhance stakeholders’confidence in the management’s abilityto deliver its strategy effectively andefficiently.

We are excited by the implications forhow we think about value and thequestions that arise:

► How can we encourage businessesto redefine their purpose and thinkabout the value that they create forsociety?

► How do we help them assess andmeasure this value, and embed itinto their market valuation?

► How do we change the way we talkabout value creation so that it moreaccurately reflects the true natureof what value means?

A new concept of value has emerged

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Rethinking the value paradigmOver the last few decades, the factors the market takes into accountwhen assigning a value to a company have adapted to reflect a shift inthe way we think about an organization and its assets. Whereas oncevalue was mostly based on tangible assets, capable of being easilycounted and measured, there is now a much greater emphasis on theimportance of intangible assets, such as brand, trademarks or patents. Inthe 1970s, intangible assets accounted for just 17% of total marketvalue; today this figure hovers close to 80%.

Expectations with regards to the capacity of businesses to addresssocietal needs have accelerated since the 2008 financial crisis. Businessleaders increasingly aim to embed purpose and societal change into theirmanagement. Stakeholders are more demanding and skeptical; theyhave increasing access to information and conduct assessmentsindependent of company reports.

There is an increasing awareness that value creation is not just limited tofinancial capital. There are multiple other dimensions in which valuecreation takes place, from intellectual capital and human capital tonatural capital and social capital. Different forms of capital regularlyinteract with each other, are influenced by external factors and affectthe capitals of other businesses as well. These links are complex and theimpacts on a company’s valuation are even more so.

Investors are facing an information deficit and do not believe sufficientinformation is provided to assess financial health. They do not receiveenough accurate, standardized, concise, and industry-specificinformation relevant to issues such as regulation, risk, business ethicsand non-financial impact assessment. Much of the critical informationthat can, potentially, impact business value is currently flowing out ofconventional reporting channels.

The need is to assess what information is critical from a valueperspective, regardless of whether it is included in conventional reports,to help the company align that information with its value creation storyand enhance the dialog with the market.

“When you start to articulate your business model in a waythat addresses the long term nature of what you are tryingto achieve, as well as the short term impacts, you start tohave a different dialog with the investment community, andthat’s when things really start to change. But at themoment, we’ve got lots of hindsight and lots of oversight.But where is the insight and foresight?”

Paul DruckmannCEO, International Integrated Reporting Council

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Social license tooperate

Embed these mechanisms into stakeholder dialog and management decisions to build abusiness model with a long-term footing

Resilience Access to capitalmarkets

Integratedstrategy

Externalities and value to societySocial and environmental capital and their effects on brand value social license to

operate, ability to manage scarcity

Intangible valueIntellectual and human capital and their effects on innovation,

competitive advantage, productivity…

Tangible valueFinancial and manufactured capital, already

commonly reported…

Businesses need to manage three embedded layers of value that regularly interactwith each other and involve an increasingly broad range of stakeholders

Understanding total value

Total value and its effects on business value can only be managed by adopting a much broader notion ofvalue creation that embraces social and environmental externalities as well as multiple forms of intangibleassets.

In the next decade, social and environmental issues will intensify, investor methods for screening risks willbecome more sophisticated and corporate transparency will increase around the true value/cost of abusiness’s outputs.

Businesses that take the lead in embedding a broader societal purpose into their planning and betterunderstanding their “drivers of internalization” will secure a growing advantage in the capital markets,reflected through enhanced intangible value and stakeholder trust.

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Why do companies engage in measuringtheir total value?

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EY’s service offering builds on four, primary business performance benefits ofmeasuring total value. These benefits are complementary, reflecting differentdimensions of a core idea that it is critical to include societal value as part of thebusiness equation.

► Better outcomes in dealings with public authorities (permitting, favorableregulatory or fiscal conditions)

► Improved competitive advantage and customer loyalty throughdemonstration of sustainable growth

► Clarity and responsiveness when dealing with controversies► Enhanced stakeholder trust (employees, investors, clients…)

► Access to financinginstrumentsconditioned on theability todemonstratepositive impactsand report themthrough time

► Rallying ofinvestors interestedin positive impactventures

► Integrated strategy framework supported by a broader set ofbusiness value drivers

► Management of impact KPIs closely linked to business performanceor long-term objectives

► Investment decisions supported by a better understanding of marketfailures and “social return on investment”

► Enhancedinformation to refinemapping of socialand environmental“hotspots” incomplexmultinational valuechains

► Elaborate riskmitigation responsesagainst potentialsocial scandals orsupply disruptions.

A platform forcredible

dialog withstakeholders

Betteraccess to

capitalmarkets

Mitigation ofreputation andscarcity risks

along thevalue chain

Integratedstrategy better

aligned with whatis reported to the

market

Benefits ofmeasuringtotal value

Total value methodologyTranslating purpose and social impacts into business value

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An approach increasingly enabled by Big DataWith ever more detailed and abundant financial and non-financial information, companies are sitting ongoldmines of data (HR, procurement, sales, product, employee performance, health & safety, naturalresource consumption). Once collected, connected and put in perspective with external data (e.g., socialrisks, environmental intensities, geospatial data), that data provides an extended vision of value, withpatterns connecting financial and non-financial performance.

This approach enables building a vision of value along the entire value chain, thereby enabling actionwhere impacts are most critical, most cost-effective to address, and with highest returns for thebusiness.

Considerations around total value

What is the purpose ofthe company?

How may purposechange society andcreate prosperity?

How will this increasebusiness value?

► Define purpose andassociated aspirationalgoals in terms ofcontribution to socialprosperity

► Raise awarenessinternally on thepotential benefits of totalvalue and define businesscases for bettercommunicating andmanaging impacts

► Assess how strategy canimpact on socialprosperity

► Determine linkagesbetween businessperformance and impacts

► Model and calculate theeconomic value of thesocial prosperity created(or deferred)

► Identify the company’sintangible assets affectedby impacts, and alignthese connections withbusiness strategy

► Identify intangibleliabilities arising fromnegative impacts, andmitigate regulatory andmarket risks

► Embed the ability tocreate social prosperityas central to dialog withthe market

A scalable and flexible methodology that can be applied at business unit,project, or product level, with a vast range of measurable impact KPIs

Examples of socio-economicimpact indicators

Examples of environmentalimpact indicators

► Employment► GDP► Fiscal contribution► Purchasing power► Health► Quality of life…

► CO2

► Water► Air pollution► Land use► Waste► Ecosystem services…

“Include a quote from theclient?”

Some key success factors of total valueEY’s view on the way forward

Companies too often produce a mere snapshot of their impacts, such as theirextended employment footprint (with direct, indirect and induced effects) or their“Triple Bottom Line” (monetization of their economic, social and environmentalexternalities). This may typically fail to obtain the most value out of the exercise (“sowhat?” would stakeholders ask), while the following success factors enable providingmore meaningful perspective.

Communicating societal footprint in comparison to a reference case and valuingone’s competitive advantage

In their dialog with public authorities, the European tire re-manufacturing (retreading) industry, undercrisis since the advent of non-recyclable imported tires from Asia, is demonstrating that though its tiresare slightly more costly, they present socio-economic and environmental advantages which, overall, makeits “net societal value” more advantageous. The dialog can thus be based on the societal value that couldbe lost if the trend were to continue.

Net societal value of retread tires sold in France in 2015, compared to a fictitioussituation of full replacement with non-retreadable imported tires

Extra cost uponpurchase

Environmental benefits ofretread tires (CO2, airpollution) compared to

imported tires

Socio-economic benefits(difference in terms of

national GDP)

Net societalvalue of

retreading


Some key success factors of total valueEY’s view on the way forward

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Enriching the dialog around the evolution of impacts (past or forecast)

A mere snapshot of extendedemployment footprint would not accountfor the societal value that is at stake. Thediagram on the left shows theemployment in tire re-manufacturing thathas been lost in Europe since thebeginning of the industry’s crisis. It alsoshows the employment which could besaved by 2020 in a « Recovery »scenario where public and privatestakeholders undertake favorablecompetitiveness measures.

Accounting for connectivity between impacts and business performance inmanagement decisions

Companies increasingly manage impact-relatedKPIs as they would with traditional businessperformance KPIs, with the followingconsiderations:• What is the true role of the business in creating

the externality? Who else is involved?• What are the company’s tangible and intangible

assets affected by the externality?• What management shift needs to be

implemented?Furthermore, companies recognize market failuresand take them into account in their investmentdecisions. The diagram on the right illustrates thecase of a multinational energy companymonetizing risks related to water scarcity andquality.

Evolution of the number of direct, indirect and inducedjobs supported by the retreading industry in UE 5

(France, Italy, Spain, Germany, UK)HistoricalBusiness-As-Usual ScenarioRecoveryScenario

5700 jobssavedin case of recovery

Since 2010

3200 jobs lost

Sector snapshotsEY’s total value experience by industry

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A large share of the value of financial institutions is based on stakeholder trust. Wesupport our clients in demonstrating their contribution to the "real" economy, forexample through employment supported by credit lending to SMEs.Other experiences include assisting our clients in structuring financial instruments(loans, bonds) conditioned on the demonstrations of positive impacts by theborrower.

Fina

nce

We advise public authorities, government agencies and development banks incomparative analyses of energy capacity deployment scenarios. We also supportenergy companies in their penetration of new markets and obtaining of permits.En

ergy

We assist manufacturers in the communication of their impacts when suchinformation is a decisive factor for gaining market shares. We also enrich our clients’dialogue and negotiation with their stakeholders so as to maintain their social licenseto operate and create favorable conditions for the development of their activity.In

dust

ry

We support retail chains and consumer goods producers in presenting theircompetitive advantages to their customers in terms of societal value. We also supportmultinationals in the implementation of their sustainable procurement policy and riskmitigation strategy related to their supply chains. We map out "hot spots" in theirsupply chain and identify trade routes to be particularly monitored (beyond directsuppliers of rank 1).

Con

sum

erG

oods

Investors and business angels increasingly seek to finance purposeful projects andproducts with a strong contribution to societal prosperity. We are involved in venturecapital projects with a role to develop arguments on socio-economic andenvironmental value, to be presented during investor roadshows.St

artu

ps

Any land-use plan or concession is based on an analysis of the societal costs andbenefits of the project. Land developers and local authorities turn to us in such casesas a neutral third party to assess criteria related to socio-economic and environmentalimpacts.We also deploy our work for stakeholder consultation, illustrating the mechanisms bywhich stakeholders contribute in return to the value of our clients’ business.R

ealE

stat

eIn

fras

truc

ture

Pub

licse

ctor

The public sector, by nature, centers its decisions around their societal impacts. Wethus carry out studies on the societal costs and benefits of public policies. We supportpublic administrations and government agencies in quantifying the effectiveness oftheir policies, in relation to the general interest missions entrusted to them.

Is this journey for you?Company boards are increasingly considering whether to measure total value andthe likelihood significant returns can be gained from the exercise. The followingmatters, in particular, should be considered:

► Does your existing report enable stakeholders to understand the societalpurpose and value delivered by your company?

► Do your stakeholders understand how your product or service differentiatesitself in terms of value creation?

► Could your report better represent you in terms accessing capital andcommunicating with investors?

► Have you quantified the “hotspots” in your value chain (working conditions,scarcity, etc.) in order to mitigate those risks?

► Have you measured your total impact on society and identified how this couldaffect your business performance?

► Are you and your stakeholders aligned on how your business strategy will delivervalue over the long-term?

For further perspective, EY details various work experiences across industriesand geographies on the pages that follow.

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EY’s approach

Socio-economic impacts were calculated bybreaking down CAPEX, OPEX and fuel costsof each energy technology into moregranular economic activities, and injectingthese expenditures as “inputs” into thenational economy, thereby supportingadded value and employment. Socio-economic multipliers were measured takinginto account interdependencies betweendifferent sectors of the economy and theshare of imports within each sector, asreflected in national input-output tables.

Environmental externalities per MWh weremeasured and monetized based onbibliographic research.

Business situationThe client wanted insight the into externalcosts and benefits of renewable energypolicy measures (job creation, GDP, taxes,energy security, …), in comparison to areference fossil fuel technology.

Value delivered► A broader view of value to enhance the

client’s social license to operate► Enhanced dialog with public authorities,

with strong arguments on social valuecreation based on quantitative metricsmeasured through a recognizedmethodology

Illustration of outputs

Jobs supported by onshore wind andCombined Cycle Gas Turbine (CCGT) in EU27

Comparative analysis of taxrevenues in different countries

Case-in-pointBuilding credible dialog with public authorities:EY’s experience with Acciona Energy and EDP

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EY’s approachThe CEO committed to shareholders that EYwould help the Bank measure and articulatehow LBG is helping Britain to prosper. Thescope of the commitment covered thewhole of the Bank’s activities, and includedthree areas of complexity:

Define the areas in whichLloyds could credibly claim tohelp Britain to prosper

Identify targets and measuresthat aligned with the Bank’sambition

Support the development ofthe definitions and controls ofthe metrics so thatperformance could be andreported publicly

Business situationFollowing the 2008 Banking crisis, bankshave been under considerable publicscrutiny. LBG launched a new strategy‘Helping Britain Prosper’. The Bank neededto develop a means of measuring how it isdelivering on this strategy.

Value delivered► Definition of KPIs that measure, track

and are used to report on performanceagainst the ‘Doing More’ LBG strategy,with focus on areas that deliver socialand economic benefit.

► Development of live metrics dictionarythat defines the KPIs, data sources,responsible owners for reporting, etc.


Targets reflecting LBG’s ambition tosupport British businesses

Defineareas of

Prosperity

1

Developmetrics

dictionary

Identifytargets

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3

Case-in-pointBuilding stakeholder trust on strategy execution:EY’s experience with Lloyds Banking Group(LBG)

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EY’s approachEY highlighted the impacts and benefits ofthe World Cup — temporary or long-lasting,direct or indirect — to different economicand social segments and identified the risksthat could prevent the full flow of benefitsto society.Some of the impacts and benefits calculatedfor the report included the additional jobcreation and income for the Brazilianpopulation, increase in GDP, the estimationof benefits per sector and per host cities,the environmental impact, etc.In order to capture all these “multipliereffects,” EY developed an Extended Input-Output model.

Business situationAs Brazil was preparing to host the 2014Football World Cup, EY and the FundaçãoGetulio Vargas (FGV) conducted a socialand economic assessment of the impact ofthe event and shed light on a number ofrelated opportunities for growth that couldemerge if they were adequately addressedby the public and private sectors.

Value delivered► A demonstration of the economic, social

and environmental impacts of the WorldCup 2014

► Risk identification and mitigationmeasures to ensure that the Braziliansociety and economy benefits most fromthis event


Impacts of the 2014 World Cup

Summary of carbon footprint

Case-in-pointValuing the social and economic impact of theWorld Cup: EY’s experience with World Cup Brazil

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Business situationThe client produces a wide array of products with suppliers located in over 100 countries. Theobjective is to mitigate the risks associated with its complex global supply chain by ranking suppliersin terms of risk with quantified metrics (as opposed to “scoring”).

Value delivered► Risk valuation of all of the company’s suppliers, and ranking of suppliers in terms of risk level

based on potential social or environmental impact.► Focus of procurement decisions on the suppliers identified as most at risk, with appropriate

mitigation measures enabled through that new lens.

EY’s approach

Collection of procurement dataand identification of eachsupplier’s spend, economicactivity and region.

Translation of supplier spend intosocial and environmental impacts(e.g. job creation, waterconsumption, etc.) using intensitydata available by economic sectorand country.

Impacts put in perspective withsocial and environmental riskstatistics, by economic sector andcountry (e.g. risk of child labor,water stress).

Identification of suppliers most atrisk (e.g., suppliers in country Awhere the company supportsmany indirect jobs, in a sectorwith gender equity risks).

2

3

4


1Risk mapping of company’s indirect waterconsumption VS water stress by country

Identification of top 5 suppliers towatch in a priority region

Case-in-pointMitigating reputation and scarcity risks in thesupply chain: EY’s experience with consumergoods industry player

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EY’s approachThe approach consisted in articulating aninnovative value creation story andquantifying potential societal benefits if theclient’s business plan were to materialize.The analysis was conducted in four stages:1) Identifying mechanisms by which

social value is created: a contributiontowards lifting the barriers weighing onthe Electric Vehicle (EV) market

2) Quantifying contribution to EV market:measuring the company’s influence oneach EV barrier, and translating it intoan acceleration of EV penetration

3) Measuring externalities: the social andenvironmental benefits accelerating EVmarket uptake

4) Embedding into the business plan, asactions for lifting EV barriers contributeto the company’s business value

Business situationThe organizer of the electric racingcompetition wanted to measure its potentialtotal value and embed a social valuecreation strategy into its business strategyand action plan.

Value delivered► Convincing arguments for gathering

sponsors and investors and therebyincreasing the value of the business

► Strategic recommendations for thecompany to reach its business objectivesthrough actions aiming to increase itstotal value and enhance the value of itsintangible assets.


An assessment and monetization ofthe company’s total value

A strategy for delivering value to society bylifting barriers for Electric Vehicle market

growth

Case-in-pointRaising capital for an emerging business: EY’sexperience with Formula E Holdings

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“We want Formula E to act as a catalyst between companies,leaders, experts, cities and policy-makers and together to drive thechange towards the greater use of sustainable mobility.”

— Alejandro Agag, CEO of Formula E Holdings

“Our research has shown the huge potential that Formula E has toaccelerate not only the technology, but also to break many of themisconceptions around electric vehicles.”

— Juan Costa Climent, EY global climate change and sustainability servicesleader

EY’s approachThe Social Return on Investment (SROI)methodology was used to forecast thesocial impact of the IMM program. SROI isan internationally recognized approach forunderstanding and measuring the impactsof a program or organization from theperspective of beneficiaries. A monetaryfigure is used as a proxy to represent thevalue of outcomes experienced bystakeholders.Social outcomes for IMM clients wereidentified through extensive stakeholderengagement on site at IMM locations and ananalysis of existing best-practice financialcapability and wellbeing frameworks.The resulting ratio has been modelled basedon primary data collection from clientsthrough customized surveys to evidencesocial outcomes articulated by IMM clientsduring the interview stages.

Business situationThe National Australia Bank wanted toassess the “Social Return on Investment”(SROI) of its Indigenous Money Mentor(IMM) program to provide a case toGovernment for adopting the model, andensuring a broader extension of theprogram.

Value delivered► Social impact metrics for the National

Australia Bank to measure theperformance of its program and monitorwhether it is delivering the expectedvalue to its beneficiaries.

► Arguments for demonstrating the socialvalue of the program to authorities andfavor its extension.


Social value across the identifiedpositive outcome domains

The Social Return on Investment of theprogram

$4.20 in social valuecreated per $ invested

As a range: between $3.40 and $5.00of social value is created.

Case-in-pointMonitoring positive impact KPIs:EY’s experience with the National AustraliaBank

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EY’s approachCollect information on thecompany’s current businessscenarios and conduct researchon best available valuationtechniques.

Identify material risks perscenario (e.g., reputation,regulation, scarcity…) anddevelop a probabilistic framework(occurrence VS magnitude) forpricing the risks.

Develop a method for assessingthe full direct and indirect costsof water throughout the wholeindustrial process (supply, use,treatment, discharge).

Develop a calculation method forassessing the future value ofwater (leaving it in the ground VSusing it now).

Business situationThe company seeks to develop anapproach for attributing a broader valueto water which enables making betterinvestment decisions for managing theresource, taking into account all water-related costs, risks, and value.

Value delivered► A new water valuation paradigm► A defensible and streamlined process

to assess business cases forinvestments in water efficiency


2

3

4

1

Taking into account all costs attributable towater

NPV analysis to appraise water efficiencyinvestments enabling resource savings for

later use

Case-in-pointDeveloping integrated management frameworks:EY’s experience with a multinational energycompany

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EY’s approach

The prototype, Optima Plus, aims tointegrate the full set of financial and non-financial KPIs which represent all relevantassets, both tangible and intangible, criticalto manage the business and create value.

The main goal is to effectively manageintangible assets, communicate theirimpacts and the social prosperitycreated/destroyed, and therefore increasethe company’s financial performance andultimately business value.

The tool developed by EY allows to estimatea business potential value, to benchmark itagainst industry peers and to effectivelymanage critical assets within a medium /long-term horizon

Business situationGas Natural, a major utilities company withpresence in over 40 countries, has assignedEY to develop a tool incorporating andquantifying the impact of intangibles andexternalities, critical to manage its businessand create value.

Value delivered► Enhanced business decision-making, risk

mitigation and performance managementthrough a driver-based managementframework, integrating historical financialinformation with key non-financial datarelevant to manage the business.

► The tool enables companies tounderstand, manage and simulate on thetotal value impact of their decisions in ashort, medium and long term horizon.


KPIs

Value chart

Illustrations of the total valuemanagement tool:

Case-in-pointDeveloping a tool that facilitates decision-making: EY’s experience with Gas Natural

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EY’s approachThe approach consisted in reviewing themanufacturing capabilities and potential inMENA countries and providingrecommendations. The analysis wasconducted in four stages:1. Mapping the competitive environment.2. Assessing the manufacturing

capabilities and potential in MENAcountries.

3. Defining an action plan to develop theregion’s potential in CSP componentmanufacturing: definition of roadmaps,scenarios and recommendations.

4. Assessing the economic benefits:modelling of the average share of localmanufacturing, valuation of the directand indirect economic, labor andforeign trade impacts.

Business situationThe World Bank has been exploring ways toscale up CSP projects in the MENA regionand make these projects cost effective. Aspart of this reflection, EY and theFraunhofer Institute were mandated toassess the local manufacturing potential ofCSP components in MENA and to measurethe associated economic benefits.

Value delivered► Strategic recommendations to develop

the region’s industrial potential andmaximize impact

► Evaluation of the different potentialeconomic benefits of localmanufacturing


Evaluation of the number of jobs(1-year full-time equivalent)

Construction andinterconnection

labor

Constructionrelatedservices

Equipmentand Supply

ChainImpacts

Con

stru

ctio

nre

late

djo

bsin

MEN

AR

egio

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umul

ated

)

Evaluation of the economic benefits of exportoutside MENA region

Econ

omic

impa

cts

(exp

orts

inU

S$,c

umul

ated

)

2012 2015 2020 2025

Case-in-pointValuing economic impacts for better decision-making: EY’s experience with the World Bank

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Analysis of the value creation potential of wind energy policiesEY presented an integrated analysis of the value creation potential of wind energy inorder to support energy policy decisions. The approach consisted in comparing twoenergy technologies, Combined Cycle Gas Turbine (CCGT) and onshore wind energygeneration, by taking into account their direct costs as well as their impacts on thewider economy, such as job creation, contribution to GDP, and taxes.

Environmental benefits of financial productsBank of America’s Environmental Business Initiative has committed $70 billion over thecourse of 16 years to address climate change by financing a wide range of energyefficiency, renewable energy and other low-carbon projects. Bank of America teamed upwith EY to create a methodology to provide a comprehensive look and calculate theenvironmental impacts of these initiatives.

Sustainable Brazil – Social and economic impacts of the 2014 World CupEY assessed the social and economic impacts of the 2014 World Cup, with the direct andindirect impacts of investments on regional GDP for each host city, as well as the impactof the event on the GDP of more than 30 economic activities.

Creating growth – Measuring cultural and creative markets in the EUEY conducted a study of the economic and social impacts of cultural and creativeindustries in Europe in terms of revenues and jobs, over 11 sectors: books, newspapers& magazines, music, performing arts, TV, film, radio, video games, visual arts,architecture, advertising. The report includes comparative, qualitative and quantitativeanalyses aimed at understanding the economic role of creative and cultural sectors inEurope, key factors that will affect the global evolution of the sectors, and ways bywhich creative and cultural activities can help encourage growth, youth employment andinnovation.

Some of EY’s publications on total value

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Shifting the carbon pricing debateIn an effort to better understand the drivers for business, and in the context ofEY’s participation in the World Bank’s Carbon Pricing Leadership Coalition, wecommissioned this survey to take a pulse on the issue and practice of carbonpricing. Our survey findings provide evidence that companies are increasinglyopen to taking independent carbon pricing action, fully expecting it will actuallyimprove overall performance.

Tomorrow’s investment rules 2.0For a second year, EY commissioned Institutional Investor Research (IIR) toindependently survey a global sample of more than 200 institutional investors. Weexplored their views on the availability and quality of corporate nonfinancial information,and on whether they used this information when making investment decisions. Thisyear’s results send a powerful message, with significant increases in the number ofinvestors embedding nonfinancial disclosures into their investment decision making.

Integrated reporting – Elevating valueThis paper gives relevant background for organizations to be able to understand thejourney of integrated reporting so far, the theory behind how it will operate and somedetails on frameworks, guidelines and even regulatory requirements that are emergingaround the world. In addition, we offer our view of how organizations can utilize KPIs andmonetization, which goes beyond the guidance of the IIRC framework.

Roadmap to robust non-financial informationNon-Financial Information (NFI) is increasingly taken into account in decision making.This holds for shareholder decisions as well as internal decision making withincompanies. Management and stakeholders want to rely on robust data for their decisionmaking and hence, data management, reporting and disclosure of nonfinancialinformation is gaining momentum. In this paper we present the ‘roadmap to robust NFI’.It covers the why, what and how of NFI data management, reporting and assurance.

Additional EY views on related matters

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Appendix: further methodological details

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Activitiesupstream

Suppliers of tier 1, 2, 3…Own activities Activities

downstream

An accounting platform for capturing the total value of a business to improve thequality of dialog with economic agents

GDP and jobs

Fiscal contribution

Health

Education

Working conditions

CO2 (emitted,avoided)Resource use(water, land…)Ecosystemdegradation orrestorationAir pollutants(emitted, avoided)

Waste and recycling

Total value

$ $ $ $

AppendixA broader vision of value along the value chain

Recent progresses in integrated thinking and data analytics enable capturing the complexity of global valuechains, and drawing patterns which capture the major interactions between business performance andsocietal value.A common scheme for identifying such patterns is to map the company’s activities (or processes, products,projects…) that particularly affect society, the parameters for measuring and monetizing theseexternalities, and the mechanisms by which these externalities affect business performance. Below is asimplified depiction of that approach, with some of the most common parameters analyzed as part of totalvalue.

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For each critical activity and impact parameter:► What is the true role of the business in creating the externality? Who else is involved?► What are the company’s tangible and intangible assets which are affected by the externality, or may

be affected in the future?► What strategic or management shift needs to be implemented?

Total value

Societal losses ($) Societal profits($)

AppendixMapping a share value model

Gecina’s 2015 integrated report, EY

Altarea Cogedim 2015 annual report, EY

IOA is a major cornerstone of research in social and environmental impact analysis. It relies on input-outputtables reported by national governments, which provide the structure of national economies, and theinteractions between economic sectors. They have been long used by economists for policy impactassessments. The principle was created in the 1930s by Nobel Prize winner Wassily Leontief.

An example of the use of Input-Output Analysis for social impact assessment

Input-Output tables enable measuring the multiplier effects of an activity on the rest of the valuechain. Applications include the quantification of indirect impacts of a company through doingbusiness with its suppliers, as well as induced impacts from employees’ consumption in theeconomy. Results can be detailed by economic activity or, as illustrated below, by geographic scale.

Illustration: employment impact of a production site

AppendixExample of a key technical component of ourmethodologyInput-Output Analysis (IOA)

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Monetizationtechniques

Cost valuation

► Market costs► Replacement

costs► Avoided damage

costs► Productivity

change

► Travel costs► Hedonic prices

Revealedpreferences

Statedpreferences Value transfer

► Contingentvaluation

► Joint assessment

► Value transfer

► Value calculatedfrom theeconomic cost ofproducts providedby the social orenvironmentalgood

► Value based onthe amountpeople alreadypay for enjoying aservice (tourism,travel)

► Value estimatedfrom what peopledeclare theywould be willing topay for theservice

► Value based onthe economicvalue of acomparablesituation

The most commonly used techniques for estimating the economic value of socialand environmental goods and services

AppendixExample of a key technical component of ourmethodologyEconomic valuation and monetization techniques

When markets are imperfect in taking into account the total value of social and environmental goods,companies are increasingly pricing such goods when assessing investments or daily operations. Forinstance, the price of water can be close to zero in regions struck by scarcity; pioneers are thus consideringa more “fair” price of water in decision-making. Another example is the increasing number of companiesthat put in place internal carbon pricing schemes, in regions where the market price is low.Monetization serves a variety of purposes, from assessing the “Social Return on Investments” of projectsaiming for the public good, to measuring and managing a company’s value delivered to society (andconversely). A range of techniques and financial proxies exist to inform such decisions.

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