This is second of three parts of this article which was originally published with Arie Polichuk on LinkedIn. The full pdf of the article can be found here: ESG_Business_Value_Model

Value Model Development

The model essentially consists of identifying benefit levers, associated benefit metrics, cost levers and associated cost metrics.

Benefit Levers

The figure below illustrates the actual ideas that were generated as part of the benefit lever identification exercise. Using an affinity clustering exercise, we clustered all of the ideas into the following six benefit levers:

Employee Engagement: Benefits related to improved employee engagement, hiring and retaining top talent, etc.
Recycling Economy: Benefits accruing from using and developing circular centers.
Facility and Resource Management: Benefits related to develop carbon neutral facilities and resources.
Safety and Operating Conditions: As a result of ESG initiatives, safety and operating conditions improvements will be a benefit.
Shareholder Value: Improvement in share price and bottom-line valuation of the company from ESG initiatives.
Innovation: Innovative activities related to zero waste operations, carbon tracking, etc. that will result in additional business value.

To ensure that these benefit buckets are indeed representative of actual company priorities, we conducted a textual analysis of about 25 different companies with established ESG track records. The figure below shows a high correlation between the textual analysis (shown as a word cloud) vs. the levers discovered in the design thinking exercise.

Based on the above value levers, we came up with the following benefit metrics that will help to quantify the benefits:

Benefit Lever	Benefit Metric	Calculation
Employee Engagement	Reduced employee turnover because of better perception of the company	Calculation: (cost of hiring + cost of firing + cost of onboarding) * annual turnover of employees * expected reduction in turnover
	Increased productivity due to more engaged employees	# of employees * annual fully burdened salary * % improvement in productivity
Safety & Operating Conditions	Improved perception in the market	Annual revenue * expected increase due to positive perception * net margin
	Reduced Wastage	Average cogs * percentage waste today * expected reduction in wastage
	More Efficiency	Annual revenue * % improvement in efficiency * net margin
	Reduced Energy Consumption	Energy consumption costs * expected reduction in energy costs
Recycling Economy	Improved Designs	(lifetime value of asset * expected increase in lifetime). Lifetime value = # of widgets produced per year * # of years * profit margin
	Decreased COGS (not related to wastage)	COGS today * expected reduction in cogs due to less materials, recycling, refurbishments, cheaper materials
Shareholder Value	Customer Loyalty	lifetime value of customer * expected increase in lifetime value * # of customers
	New Customers	lifetime value of customer * # of customers * expected increase in new customers
Innovation	Accelerated Innovation resulting in leading edge ideas	time to market * # of ideas * revenue/idea * % acceleration * margin
	Innovative products	# of ideas * new revenue/idea * % net new ideas due to sustainability initiatives * margin
Facilities	Reduced cost because of reduced carbon footprint due to less usage	facility cost/year * % reduced maintenance due to improved materials
	Downgrade facilities and encourage hybrid work models	Facility usage cost/person/year * reduction in office usage

Cost Levers

As mentioned earlier, we used five cost dimensions to reflect all potential costs typical in an ESG initiative.

Cost Lever	Representative Cost Metrics
Technology	Information Technology Development & Maintenance
	Operational Technology Development & Maintenance
	Upstream and downstream partnership integration
Process	Development of new Governance Models
	Re-engineering current processes
	Development of new processes
People	Adoption and Change Management for Employees and Partners
	Training
	Talent Management
Customer	Attrition of some customers
	Acquisition of new customers
	Adoption and Change Management for Customers
Regulatory	Reporting Dashboards
Regulatory	Additional Auditing Costs
Other	Organizational Culture Development
	ESG Marketing & Brand Management
	Company specific costs
	Industry specific costs

In part 3 of this article series, we will showcase the value model through an illustrative use case.

DOWNLOAD & REUSE VALUE MODEL TEMPLATE

Here are the steps to use this customizable ESG value model template for your own organizational needs:

Go to https://valufy.net and click on “Get Valufy from Windows Store” from the top menu. It is free for individual usage.
After you download and register to use the tool, click on “Download Templates”.
In the ensuing drop down dialog, select “Valuso ESG Template”.
You can use it as is or customize it to your needs by adding your new metrics, benefit and cost levers.