Measuring our impact on human, social, and natural capital

The use of this approach began in 2014 with a pilot project aimed at studying the impact and benefits of our business across financial, natural, human, and social dimensions, or “capitals,” with full profit and loss accounting – also called four dimensional (4D) accounting.

Emma Ringström, Sustainability Manager, Pulp and Performance Chemicals, explains, “Organizations rely on a diverse set of ‘capitals’ to function effectively. Through their business activities, companies make use of and convert these capitals into outputs, for example goods they can sell. These outputs lead to outcomes, which in turn affect the stock of the various capitals as well as a company’s long-term viability.”

Nouryon already had extensive experience in environmental accounting through lifecycle analysis, but this new approach was applied to get a fuller understanding of the effect, both positive and negative, that the company’s operations have on society, Ringström explains. “By measuring the impact of our operations on human, social, and natural capital, we are able to identify our biggest positive and negative impacts; this helps us find ways to make the most impactful improvements and ultimately increase business value.”

The results of the pilot showed that the contribution of financial capital to society was substantially higher than a traditional profit calculation; this is because in addition to the traditional profit it also includes salaries, interests, and taxes, which have a substantial effect on wealth in society. However, the natural capital impact was largely negative, due to the use of fossil-based energy across the value chain.

Capital drivers in the assessment

Financial: value added to all stakeholders via profits, taxes, and salaries

Natural: impact mainly from the use of fossil fuel and CO₂ emissions

Human: value added to employees due to training and career possibilities

Social: 20 indicators reviewed; 19 resulted in a very low to medium risk

Meanwhile, Ringström explains, “The human capital impact was positive, particularly due to the future effect of employee training programs and expanded career opportunities. The social impact was much smaller, however. This is mainly due to the nature of the specific operations covered in the pilot; these have larger production volumes and involve fewer people compared with industries such as agriculture, food, or textiles.”

The pilot results pointed to opportunities to make improvements. “These include increased use of renewable energy and improving the use of both energy and raw materials for ourselves as well as for suppliers and customers,” Ringström says. “Looking more closely at human capital brought more emphasis on training and developing capabilities, while analyzing social capital resulted in additional community programs being started.”

Nouryon has now applied this approach in an assessment of its entire business, and it now carries out extensive economic, social, and environmental reporting. The technique can also be used in risk assessments for investments.

Ringström says, “This technique really expands the boundaries of impact assessment and gives us a much better understanding of our influence across the whole value chain. By attaching an economic value to the positive and negative aspects of each dimension, we can gain valuable insights into how we can drive longer term business value and help with our strategic decision-making.”