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Evaluating environmental performance reporting using hybrid metrics

Corporate leaders and investors increasingly recognise that a company’s social and environmental performance affects its long-term economic results and competitive position.

Nevertheless, despite many recent advances in the adoption and sophistication of social and environmental impact reporting, it is still difficult for investors to understand and evaluate the actual financial benefits of social and environmental performances of businesses.

With this issue in mind, Enel Foundation – in collaboration with Mark Kramer, co-founder and managing director of FSG, the Faculty of Harvard Business School, members of the Shared Value Initiative and Enel Group – carried out a research: Hybrid Metrics: Connecting Shared Value to Shareholder Value.

The study aims to explore how hybrid metrics can represent a new approach able to combine companies’ social and environmental impact with standard measures of financial performance. While researching the possibility of a causal relationship between financial results and social and environmental performance, the report is an early effort to demonstrate the potential of such metrics to measure this relation. It also provides a framework to lay down the practices and enabling conditions to develop hybrid metrics and keep track of their trend.

“Hybrid metrics are still in the nascent stages but the benefits and potential they hold are promising”, states Bobbi Silten, managing director of Shared Value Initiative. “We hope this report inspires companies, analysts, and investors to experiment with this concept and bring us closer to demonstrating the causal link between social/ environmental and financial performance – underscoring the importance of creating shared value.”

Once companies approach social and environmental issues as sources of value and competitive advantage, hybrid metrics will help businesses to experiment with new forms of profitability analysis. Carlo Papa commented: “The connection between social and environmental performance and financial ones is increasingly clear. Hybrid metrics could represent a new important tool to evaluate this connection. Of course, additional research will be needed to validate this approach, but the early findings are encouraging. This is a small but significant initial step towards the future of financial valuation.”

Download the full report.

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