Impact Measurement and Valuation

We have adopted a holistic approach in assessing the impacts of our operations, products and services along the entire value chain to inform our business decisions and communicate with our stakeholders.

We aim to create sustainable value with everything we do – together with our employees, partners and stakeholders. We take responsibility for the safety and health of our employees, customers and consumers, the protection of the environment and the quality of life in the communities, in which we operate. We have therefore adopted a holistic approach, and are assessing the impacts of our operations, products and services along the entire value chain to inform our business decisions and communicate with our stakeholders.

At Henkel, we see sustainability as a constant endeavor to make progress on present topics and keep learning about new issues, based on scientific knowledge. Global climate change is one of the greatest challenges humanity is facing today, requiring urgent and ambitious action. It is also critical to protect and regenerate life-support systems like forests, water and biodiversity, for present and future generations. We aim to understand our positive and negative impacts in this context and quantify our externalities wherever appropriate and robust data and methodologies are available.

We have identified the impacts and externalities relevant for our business as part of our materiality analysis. In the following in total nine topic areas, we want to drive sustainable development around the world and along the value chain with our business activities. Climate, Circular economy, Natural resources, Equity, Education, Wellbeing, Performance, Transparency and Collaboration.

We use a variety of methods and tools to assess our progress across the entire company and our value chain. We are continuously developing these methods and tools, which include trend and market analyses, as well as the evaluation of ratings and life-cycle analyses. In addition to the achievement of our sustainability targets, we continuously review our management processes and optimize them where needed. This includes measures in the areas of environmental protection and occupational safety, technical developments and process optimization to reduce resource consumption and costs. These measures are supported and implemented by our three business units, as well as our regional and national companies and our corporate functions. Together, they contribute to the achievement of our sustainability targets.

Our innovation process employs a variety of tools to systematically analyze, measure and evaluate our products. For the product categories, sustainability topics and metrics are considered accordingly in the innovation process. Our researchers have to identify the points in the value chain and the strategic areas in which the product offers concrete advantages. Each product receives a separate sustainability profile based on this data. To make it easier to optimize our products while they are being developed, we integrate the environmental profiles of potential raw ingredients and packaging materials into the information systems of our product and packaging development teams. This allows the footprint of a new formulation to be calculated as early as the development phase. Our business units also collaborate extensively on an overarching initiative for more transparency of sustainability-related data to meet our markets’ growing transparency requirements, drive profitable growth, and position our existing portfolio even more effectively when it comes to sustainability.

Quantification of our Carbon Footprint

The carbon footprint – the emission of CO2 and other greenhouse gases – is the most widely discussed environmental externality. It reflects an urgent global challenge and there is a consensus about the methodology which is broadly applied by academia, industry, NGOs and governments. The following table presents the CO2 emissions associated with our business activities along the value chain:

our-operational-co2-footprint-2022
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Henkel’s own CO2 emissions (Scope 1 and Scope 2 from a net viewpoint) are primarily caused by energy generation and consumption. Other sources of CO2 emissions are not relevant to our business operations. The same applies to emissions of other greenhouse gases. We present the principal Scope 3 emissions along the entire value chain.

Social Externalities

Our sustainability strategy is a direct reflection of our company’s commitment to “Purposeful Growth”. We are committed to driving transformational change by creating more value for our stakeholders, developing our business successfully, and acting sustainably for the benefit of current and future generations. This includes Henkel’s about 51,200 employees as well as the people touched by our business along our value chains. We have estimated that approximately 50 million people work for our direct suppliers and in prior levels of our supply chain. And with our products and technologies, used in million households and industrial processes every day, we reach people. In this context, we have identified safety and health as well as social progress as the most relevant social impacts.

Quantification of Health and Safety ‏(of about 51,200 people at Henkel)

Occupational safety within the company and along the value chain was a top priority for us even before the COVID-19 pandemic. We remain focused on our long-term objective of zero accidents and want to improve our occupational safety by 60 percent by the end of 2025 compared to 2010. We have anchored this overarching goal as a key performance indicator in our new sustainability strategy. In 2022, we recorded 0.7 occupational incidents per million hours worked by our employees. This is an improvement of 43 percent over the base year 2010. In 2022, there were no fatal occupational accidents involving an employee of Henkel or an external company working on behalf of a Henkel company at a Henkel site. Furthermore, we promote the health and vitality of our employees. To ensure holistic health care at all sites, Henkel works continuously to establish uniform principles for healthcare worldwide. In 2014, the first step was to introduce global health protection metrics, such as the availability of first aiders and emergency medical care, carrying out occupational health screenings, and the number of cases of occupational illness. They are reported each quarter by all Henkel sites worldwide.

The quantification of positive or negative impacts into a single metric such as “disability adjusted life years” ultimately valuing a life poses substantial challenges in terms of data availability and appears neither feasible nor an ethically acceptable indicator to steer our efforts.

To assess our impact along the value chain, we applied LCA methodologies to compare the health and safety of two products. However, it quickly became clear that no valid assumptions can be made to quantify the different steps in the value chain without disregarding the individual circumstances of for example the individual person, country or legislation. 

Quantification of Social Progress in our value chain

Our Responsible Sourcing Policy and the “Together for Sustainability – Chemical Supply Chains for a Better World” ‏(TfS) initiative involving more than 40 companies in the chemical industry form an important basis for this effort.

In addition, corporate citizenship has been an integral part of our corporate culture ever since the company was established by Fritz Henkel in 1876 and is also clearly reflected in our corporate purpose. Henkel’s commitment is based on three pillars: volunteer engagement by our employees, partnerships with charitable organizations, and emergency aid in the event of natural disasters. Our overarching target was to reach 30 million people through our social engagement activities by 2025. From 2010 through the end of 2022, we reached more than 30 million people. 

In 2022, we supported a total of about 2,060 projects and reached around 4.15 million people. Donations ‏(of cash and products, excluding additional time off work for employees) amounted to about 12.8 million euros during the reporting year.

A scientifically sound and ethically acceptable approach to not only quantify but also price the positive and negative impacts companies have on the environment and society, could certainly help to discuss, compare and manage externalities. It could support a more holistic assessment of the different externalities, help to evaluate risks and opportunities and thus allocate financial resources more efficiently.

However, the prerequisites for this are a solid valuation concept, a sound methodology, robust data and reliable and relevant prices to monetize impacts.

Most advanced and discussed in public is “putting a price on carbon” - in addition to or complementing existing energy taxes and market mechanisms such as emissions trading. Depending on the source those prices vary significantly. In general, assessing different sources (e.g. ZEW Global Carbon Pricing, Carbon Pricing Watch 2016 – World Bank Group / Ecofys, Social cost of carbon by Massachusetts Institute of Technology), climate cost estimates vary by two orders of magnitude and are subject to debate. Similarly, where carbon is already priced today, implicitly through energy taxes or directly through emissions trading schemes, it also varies substantially. In the absence of a reliable and representative price we prefer to provide a comprehensive quantification of our carbon footprint and leave it to stakeholders to choose the price most appropriate for their work. Furthermore, we believe that the additional insights gained by applying a virtual price to our carbon footprint – for example 35 euros per ton – are essentially limited to underlining that our business model is not carbon intensive and would not be fundamentally questioned by a global price on carbon. Promoting sustainable consumption that conserves resources is already an important objective of our strategy and our products are the key here. Our goal is to work with our customers, consumers and suppliers to save 100 million metric tons of CO2 over the ten-year period from 2016 to 2025.

Monetizing other externalities is even more challenging and entangled with uncertainties.
An example: Agricultural land use could be valued based on cropland lease rates, but these are subject to significant variation even within the EU, ranging from 26 to 600 euros per hectare and year in Slovakia and the Netherlands, respectively. The LCA-based valuation approach developed by van Harmelen et al. (2012) approximates the annual external cost of land use at 940 euros per hectare. Pricing the land use associated with the raw materials used by Henkel at the latter value results in some 40 million euros. Applying the pricing approach to Henkel’s ‘Abiotic Depletion Potential’ (ADP) and applying the price of antimony (Sb) which characterizes this metric - 9000 US dollars per ton – would result in some 220 million euros. This compares to Henkel’s overall expenditure of 8.5 billion euros on direct materials (2018).

Water prices generally depend on numerous political as well as regional factors including the infrastructure. Furthermore, at times of scarcity access to water is generally not controlled by price but rather influenced by political decisions or existing rights. Therefore, even a scarcity adjusted price for water would be a questionable basis for business decisions.

Following and analyzing major attempts in the last decades to develop a sound methodology that measures and monetizes environmental and social externalities, we still see limits monetizing impacts for the following reasons:

Even though the intention is good, the concept of impact valuation is only reasonable, if the prices defined for the externalities are reliable and reflect a very complex reality. This reality comprises seasonality, geographical differences that lead to scarcities, but also regulations and other political activities that do not allow for valid market prices. The situation becomes even more challenging and vague looking at social impacts like wellbeing. Current approaches reflect rather an estimation than an accurate methodology. We are not convinced that using non-market valuation techniques ‏(e.g. willingness to pay or wellbeing valuation) to put a monetary value on these impacts or using secondary data from beneficiary groups is an appropriate approach to solid measurement and reporting.

We do not consider the underlying quantification of impacts and the related science in the first place reliable enough. The data used to monetize impacts often lacks robustness, hence the signal of such monetary value is generally not reliable and relevant enough to derive good business decisions. This is especially the case, if next to seasonal and geographical characteristics also political influence is considered.

And finally, there is a consensus in society and the political debate that certain things should not be priced. When it comes to the value of a life, or the status of health, e.g. in form of the indicator “disability adjusted life years” indicator, the discussion takes place on an ethical level.