Sustainability Accounting & TheMultiCapital Scorecard · Sustainability Accounting &...

SustainabilityAccounting &The MultiCapital Scorecard

Workshop Conducted atUVM’s SI-MBA ProgramBurlington, VT

by Mark W. McElroy, PhDCenter for Sustainable OrganizationsMarch 20, 2019 (Updated March 24, 2019)

Agenda

• Part 1: Sustainability Accounting 1:30–2:20

– Break 2:20-2:30

• Part 2: Materiality Determination 2:30-3:20

– Break 3:20-3:30

• Part 3: MultiCapital Scorecard 3:30-4:20

– Q&A 4:20-4:30

Copyright © 2019 Center for Sustainable Organizations

Part 1: Sustainability Accounting

1

The Triple Bottom Line

• Coined by John Elkington in 1994– Social– Economic– Environmental

• Also “capitalized” by Elkington– Social: social capital– Economic: economic capital– Environmental: natural capital

• What is capital?– A stock of anything that yields a valuable flow of goods or

services … well-being (Daly, Costanza, Porritt and others)


2

Vital Capitals and the TBL


3

This is the reference model we currentlyrely on for the MultiCapital Scorecard

Susty Accounting vs. Impact Valuation

• Distinction between Sustainability Accounting (SA) and Impact Valuation (IV)– SA addresses sustainability performance relative to

thresholds and allocations – non-incrementalist– IV does not: focus is on value creation and

valuation – incrementalist

• A content validity test for SA– If it is possible to perform or “score” well according to

the principles or dictates of a particular SA doctrine and yet still be putting the sufficiency of vital (capital) resources or the well-being of people who rely on them at risk, then the SA doctrine fails on its face and should be rightly rejected!


4

e.g., the <IR> Framework


5

The <IR> Framework “focuses on the ability of an organization tocreate value in the short, medium and long term …” (<IR> Framework)

The GRI, by contrast …


6

• Explicitly calls for use of Sustainability Context principle in reporting (since ‘02):

“… the aim is to present the organization’s performance inrelation to broader concepts of sustainability. This involvesexamining its performance in the context of the limits and

demands placed on economic, environmental or socialresources, at the sectoral, local, regional, or global level.”

In practice, most GRI reports have tended to excludecontext and are not SA in scope or function at all

GRI 101: Foundation

Context-Based Sustainability (CBS)


7

• A general approach for complying with the Sustainability Context principle ..– But which does a better job of not just taking

background circumstances into account, but which also …

• Does so in a way that is explicitly capital- and TBL-based, and which …

• Makes it possible to identify organization-specificstandards of performance against which impacts on capitals can be assessed

• Features use of context-based metrics!

Context-Based Metrics (CBMs)

General Specification for CBMs


S = A/N

Sustainability performance (S) can be quantitativelyexpressed as the quotient of actual impacts (A)

on vital capitals over normative impacts (N)

8

Part 2: Materiality Determination

9

Materiality & Stakeholders in CBS


10

• A thing is material if:– It consists of a direct impact on a vital capital of

importance to a person’s well-being, and– It corresponds to a non-discretionary duty or

obligation owed to a person to have (or not have) such an impact, either because:

• It’s already happening• A relationship calls for it (roles, contracts, etc.)

• Such persons, in turn, are stakeholders:– Anyone to whom a duty or obligation is owed to

manage one’s impacts on vital capitals in ways that can affect their well-being

Material Areas of Impact


11

• Once identified as material, sustainability standards of performance must be defined (e.g., Greenhouse Gas Emissions):

Climate (GHGs in tCO2e) 2015 2016 2017 2018

Susty Norms Baseline Year

0 0 0

Trajectory Targets 22,500 20,000 17,500

Actual Impacts 25,000 23,000 20,000 21,000

Next: Let’s Create 3 Hypothetical AOIs


12

Social Area of Impact 2015 2016 2017 2018

Susty Norms Baseline YearTrajectory Targets

Actual ImpactsEconomic Area of Impact 2015 2016 2017 2018


Actual ImpactsEnvironmentalArea of Impact 2015 2016 2017 2018


Actual Impacts

Assumptions for Purposes of Workshop

• Lets assume we’re talking about an agricultural food producer – a farm setting

• You are the managers of the business and are attempting to specify material areas of impact (AOIs) for inclusion in the company’s MultiCapital Scorecard

• 3 such AOIs have already been identified (Safe Food, Owners’ Equity and Climate Impacts); now you are attempting to specify 3 more for purposes of our workshop


13

A Social AOI (not Safe Food; already ID’d)



Actual Impacts


AOI Name: __________________

Materiality?

• Stakeholder ID: ___________________________• Non-discretionary D/O: ____________________

14

Let’s choose an

example for each

of the 3 bottom lines

and then fill in an

AOI table for each as

shown on this slide

An Economic AOI (not Return on Equity; already ID’d)

Economic Area of Impact 2015 2016 2017 2018


Actual Impacts


AOI Name: __________________

Materiality?• Stakeholder ID: ___________________________• Non-discretionary D/O: ____________________

15

Let’s choose anexample for each

of the 3 bottom linesand then fill in an

AOI table for each asshown on this slide

An Environmental AOI (not Climate/GHGs; already ID’d)

EnvironmentalArea of Impact 2015 2016 2017 2018


Actual Impacts


AOI Name: __________________

Materiality?• Stakeholder ID: ___________________________• Non-discretionary D/O: ____________________

16

Let’s choose anexample for each

of the 3 bottom linesand then fill in an

AOI table for each asshown on this slide

Module 3: MultiCapital Scorecard

17

Scoring Progression Performance (1/3)


18



Actual ImpactsProgression Scores N/A

Now let’s addProgression Performance

scores to each tablewhere shown, usingthe scoring schema

provided below



19

Economic Area of Impact 2015 2016 2017 2018





provided below



20

EnvironmentalArea of Impact 2015 2016 2017 2018





provided below

Your MultiCapital Scorecard


21

Next we need tofill in the 3 blank

rows of the company’sScorecard with the

AOIs you developed(adding them to the

other 3 already there),and then analyze the

scores that follow

Results

22

- The 3 AOIs You Developed

23



24

Social AOI: Workplace Safety (# injury days lost) 2015 2016 2017 2018

Sustainability Norms Baseline Year

0 0 0

Trajectory Targets 12 5 N/A*

Actual Impacts 15 10 5 0

Progression Scores N/A 2 2 3

*Trajectory Targets discontinuedWhen they match the SustyNorm for the year. Thus, a +2 score is not possible in 2018; all other references to Trajectory Targets (TTs) in the scoring schema should be understood as being applicable only If such TTs actually exist for a given year.



25

Economic AOI: Livable Wage ($/hour) 2015 2016 2017 2018


20 20 20




*Trajectory Targets discontinuedwhen they match the SustyNorm for the year. Thus, a +2 score is not possible in 2018; all other references to Trajectory Targets (TTs) in the scoring schema should be understood as being applicable only If such TTs actually exist for a given year.



26

Environmental AOI: Water Quality (in nutrient ppm) 2015 2016 2017 2018


500 500 500


Actual Impacts 1200 1100 1000 800



ppm = parts per million

- The 3 AOIs Earlier Developed in Advance of the Workshop

27



28

Social AOI: Food Safety (# illness events) 2015 2016 2017 2018


0 0 0

Trajectory Targets 7 5 3





29

Economic AOI: Return on Equity (%/year) 2015 2016 2017 2018


7 7 7







30

Environmental AOI: Climate System (tCO2e) 2015 2016 2017 2018


0 0 0

Trajectory Targets 22,500 20,000 17,500

Actual Impacts 25,000 23,000 20,000 21,000

Progression Scores N/A 1 2 -1

ppm = parts per million

Your Final MultiCapital Scorecard!


31

Note: Weights shown in column B are on a scale of 1-5 and are all the same in this case for the sake of simplicity.

Thank You!

Mark W. McElroy, [email protected]

www.sustainableorganizations.org

mailto:[email protected]

http://www.sustainableorganizations.org/

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