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.
- Our long-term goal – triple the value we create for the footprint made by our operations, products and services – reflects our ambition to contribute to a world where a growing global population is able to live well and within the resource limits of the planet.
- 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.
- The basis for measuring our impacts and our contribution to people’s quality of life are our sustainability targets and our six focal areas. We are continuously refining our reporting and measurement systems so that we can evaluate and steer our progress toward the 20-year goal for 2030 in an integrated way.
- Whenever robust data and reliable methods are available, we quantify our externalities along the value chain. We report our CO2 footprint (Scope 1-4) in our Henkel Sustainability Report. We also test and evaluate the methodologies available to quantify our water and material footprint. However, up to now they do not yet sufficiently reflect a very complex reality in order to be used as a basis for business decisions. Looking at the evaluation of social impacts, the challenge is even higher.
- 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. We showcase such monetarization below using an exemplary price for carbon applied to our CO2-footprint.
- However, the lack of reliable market prices, robust data and reliable methodologies to quantify externalities could foster misleading implications. And finally, also due to ethical reasons in the context of valuing social factors – such as the value of a life – we currently refrain from monetizing externalities.
- Approach to impact measurement and valuation
- What we do: Identification of our impacts and externalities
- What we do: Quantification of Impacts
- Monetization of externalities and limits to it
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.
Our long-term goal – triple the value we create for the footprint made by our operations, products and services- reflects the global challenges of sustainable development and our ambition to contribute to a world where a growing global population is able to live well and within the resource limits of the planet. 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.
The basis for measuring our impacts and our contribution to people’s quality of life are our sustainability targets. We are continuously refining our reporting and measurement systems so that we can evaluate and steer our progress toward the 20-year goal for 2030 in an integrated way. Not only within the scope of our operations but along the entire value chain – from sourcing raw materials to the use phase of our products and the shared value we create in the communities we operate in. In pursuing this aim, we are focusing on data coverage as well as quality.
We have identified the impacts and externalities relevant for our business as part of our materiality analysis. These are summarized by six focal areas that reflect the challenges of sustainable development as they relate to our operations.
Three focal areas are dedicated to delivering “more value”:
- More social progress and better quality of life
- Safer workplaces and better health and hygiene
- More value for our customers and more value for Henkel
On the other hand, we aim to drive a “reduced footprint” in the following three areas:
- Our energy consumption and carbon emissions
- The resources necessary and the amount of waste produced
- As well as the use of water and wastewater
Henkel works with various measurement and evaluation methods to identify the measures that have the greatest influence along the value chain. Viewed across our entire portfolio, improvements in input materials and in the use phase are the most crucial factors when it comes to our water and carbon footprints.
Our Henkel Sustainability#Master® is a key analysis tool for visualizing improvements and optimizing our contributions to the “value” and “footprint” dimensions. The core element is a matrix in which changes in both dimensions and along the value chain can be analyzed. With the help of the tool, measurement and valuation is systematically undertaken on enterprise and on product level. It is integrated into our innovation process. Hence, every new product is systematically analyzed, measured and valued.
Process to define our targets:
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.
Henkel’s own CO₂ emissions are primarily caused by energy generation and consumption. Other CO₂ emission sources are not relevant for our business operations. The same applies to emissions of other greenhouse gases. They account for less than one percent of our Scope 1 and Scope 2 emissions. We calculate the Scope 3 emissions along the entire value chain, whereby the biggest contributions emanate from the production of raw materials and the use of our products by our customers and consumers.
At the core of our sustainability strategy we aim to contribute to people’s quality of life and to make them live well within the resource limits of our planet. This includes Henkel’s about 53,000 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 around one to two billion 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 53,000 people at Henkel)
Occupational safety within the company and along the value chain is a top priority at Henkel. We remain focused on our long-term objective of “zero accidents.” Our interim target is to become 40% safer per million hours worked (by 2020). We measure this target with the indicator “occupational accidents per million hours worked”. 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
Together with our partners, we want to improve labor standards for one million workers in our supply chain by 2020. Our Sustainable Sourcing Policy and the “Together for Sustainability” (TfS) initiative involving 22 companies in the chemical industry form an important basis for this effort. The EcoVadis assessments of the sustainability performance of more than 12,000 suppliers carried out as part of the initiative since the formation of TfS and more than 1000 audit reports help us to track our progress.
In addition, we want to reach 10 million people through our social engagement activities and help girls and women create a positive future for themselves, for example, through our “Million Chances” initiative. Furthermore, we aim to reach 200,000 children with our education initiatives.
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 € 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 aim is to save 50 million metric tons of CO2 emissions by 2020 through our products and by helping our customers and consumers with our expertise.
Monetizing other externalities is even more challenging and entangled with uncertainties.
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 € 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 € per hectare. Pricing the land use associated with the raw materials used by Henkel at the latter value results in some 40 Million €. Applying the pricing approach to Henkel’s ‘Abiotic Depletion Potential’ (ADP) and applying the price of antimony (Sb) which characterizes this metric - US-$ 9000 per ton – would result in some 220 Mio €. This compares to Henkel’s overall expenditure of 8.5 billion € 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.