Guest interview: How companies measure the positive impact of their products and services

Companies’ reporting of the positive sustainability impacts of products and services has improved dramatically since WHEB produced its first impact report in 2014. We spoke to five portfolio companies about the evolution of impact reporting in their own organisations.

Interviewees

Karen Drozdiak - Head of ESG and Sustainability, First Solar

Daniel Adolph - Senior Communications and IR Manager, Fisher & Paykel Healthcare

Andrew Carlsen - Vice President Head of Investor Relations, Genmab A/S

Tamara Brown - Vice President Sustainability ESG, Linde PLC

Juan Pelaez - Vice President Investor Relations, Linde PLC

Amit Bhalla - Head of Investor Relations, Schneider Electric

 

Distinguishing between manufacturing and product impacts

In planning these interviews, we had not intended to talk about the ESG credentials of companies’ manufacturing processes. Nonetheless, it became clear that several of our interviewees had come prepared to talk primarily about this, with the actual product impact somewhat of an afterthought. For many, the distinction between manufacturing and product impact is not a clear one. For example, First Solar are rightly proud of their Series 6+ Plus panels receiving the EPEAT ecolabel. The label applies to the product, but also the entire lifecycle including manufacturing criteria like the carbon footprint, use of recycled materials and hazardous chemicals.The same is also true for many of Schneider Electric’s product certifications. These products are bought, in part, because of the positive characteristics of the manufacturing process.

For most companies, measuring and reporting ESG has been the overwhelming focus of the sustainability team. In several cases, the positive impact of the product or service is often just a given. This is certainly true in healthcare but also in areas like renewable energy. Consequently measurement and reporting of the positive impact generated by the use of the product is not something that has received much attention at these companies.

Current approaches to measuring and reporting product and service impacts

It was also clear from the interviews that the companies are all at very different stages of their product impact-reporting journey. Some of the companies we spoke to have only a very basic level of impact data, and some none at all. Fisher & Paykel Healthcare is a manufacturer of respiratory care systems for use in home and healthcare settings. They report on the overall number of people that receive their ‘Optiflow
nasal high flow’ oxygen therapy. Genmab, a pharmaceutical therapies business, have yet to report any product impact data. This is in large part due to the company’s business model. Genmab focuses on the R&D of pharmaceutical products relying then on other companies to lead the commercial development of the products. Quite often they do not have any visibility into the number of people receiving their treatment.

Other companies that we spoke to have a long history of reporting on the positive impact of their products and services. Linde, an industrial gases business, has for some years reported on the proportion of the company’s revenues coming from products that generate a clear social
or environmental benefit. They also report specific impact data in terms of, for example, the amount of avoided carbon emissions and the number of people benefiting from safer and clean water.

Schneider Electric is probably the most advanced of the companies we spoke to when it comes to product impact reporting. They have developed a suite of 32 indicators to cover all aspects of product impact. First and foremost is the energy (and CO2e) that is saved by their products. But this information is supplemented by other data covering, among other things, the percentage of recycled content and the
presence of hazardous substances, as well as third-party product certifications.

Who is this information intended for?

Perhaps not surprisingly, investors were not the primary audience for product impact information. Instead, customers – and to a less degree regulators – were typically seen as a more obvious audience. For Fisher & Paykel Healthcare, the product’s role in supporting better healthcare outcomes is a key focus for customers. ‘Our sales team use clinical studies and clinical practice guidelines to demonstrate that Optiflow is a better technology than incumbent technologies’, said Daniel Adolph the company’s Head of Investor Relations. Investors can access much of this information themselves, but the company is increasingly keen to help investors understand how the company’s products deliver better health outcomes’.

While this type of product impact data is clearly important to investors¹, impact investors also want aggregated impact data across a company’s product portfolio. This type of information is not typically of interest to customers and so relies on other stakeholders to encourage corporate reporting. Companies see impact investors, particularly in the EU, as one audience, but regulatory initiatives are also becoming important. The EU Taxonomy, while not requiring actual impact data, requires European companies to report the amount of product/service revenues that are taxonomy eligible and aligned. Equally, while not a regulation, the UN’s Sustainable Development Goals (SDGs) also encourage companies to assess how their products and services support certain social and environmental targets.

How do you quantify positive impact?

The companies tend to see investors as the primary recipients for aggregated company-wide performance data. The process for providing these numbers varies dramatically across different companies. For example, high-level estimates of market size and market share are still used for estimating overall patient numbers. At the other end of the spectrum, the process for quantifying individual product-level environmental impacts is often subject to lengthy methodology development and testing. This is then aggregated to provide overall company-level data. Linde, for example, collect and publish data internally for a couple of years before releasing it externally. Where revenues are directly related to product sales, they are also often used as a way of generating aggregate impact data. Where companies
sell to distributors or other third parties in the value-chain they may not have visibility to the end consumer. In these cases proxies or estimates may need to be used in place of revenues.

A key question to answer is also to establish what the correct performance baseline is to compare a specific product or service against. Both Linde and Schneider Electric pointed to the importance of having good-quality baseline data, usually derived from life-cycle analysis studies, as a key foundation for calculating product impact.

Genmab however cautioned on some of the dangers of quantification. Some medical interventions save people’s lives, while others enable a more comfortable lifestyle. Just measuring ‘numbers of patients’ does not capture the difference in these outcomes, they argued.²

So what is the future of product impact reporting?

Some of the more experienced impact reporters expressed some frustration at the urgent need for standardisation. Schneider Electric think investors should help ‘fight for transparency and standardisation across the industry’. For them, the lack of a global framework on how to measure and report product environmental impact is already ‘creating a lot of confusion in [their] customers’ minds’.

First Solar too, highlighted the importance of using a wellrecognised methodology (like EPEAT) for quantifying product impact metrics. Too often however ESG ratings focus exclusively on manufacturing and don’t consider the positive impact from the use of products. At one point (now thankfully rectified) First Solar’s CDP climate change score did not take account of the fact that the company’s products help to
dramatically reduce greenhouse gas emissions.

But overall, most were upbeat about the future of impact reporting. The measurement of avoided emissions was seen as being the closest to becoming standardised. Several companies see this as an opportunity to show the positive impact of their products and balancing the more negative aspects of the ESG agenda. Everyone we spoke to believed that product impact reporting will become more important.

A final cautionary word from Juan Pelaez, Linde’s Vice President of Investor Relations: ‘There is a danger that our sustainability report is going to be the length of a bible before too long because everyone has their own issue that they want us to focus on.’ We also see this danger but would argue that often the largest impact that a company has is through the impacts of its products and services. In our view this data is
crucial – not just to investors, but for other stakeholders too.

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¹ For example, WHEB utilises this type of information in our impact engine analysis.
² These distinctions are also captured in WHEB’s impact engine.