KPMG’s approach to valuing externalities: better decisions or fundamentally flawed?

by Carol Adams

shutterstock_150026453Approaches to valuing social and environmental activities have recently provided consultants with a new stream of work and academics with something to critique.  Some are genuinely horrified at the prospect of putting a monetary value or cost on something which is priceless, such as water or biodiversity.

KPMG’s New Vision of Value might be seen as an improvement to the status quo whereby managers and Boards make big decisions based only on financial information about costs, revenues and capital expenses.  To date accounting academics (and most accounting professionals) have had little involvement in developments which adapt or challenge these conventional approaches – something I would like to see change.

For the final issue of the Sustainability Accounting, Management and Policy Journal (SAMPJ) (which I edit) in 2016 I sought a contribution by KPMG and three academic critiques of the KPMG true value methodology.  Together they raise interesting discussion points for practitioners, accountants, academics and students.  They provide important insights to inform future developments.

Indeed Hendriksen, Weimer and McKenzie (2016) respectively Partner, Head of Corporate Finance and Global Head of Sustainability Thought Leadership at KPMG invite further research. They are particularly interested in research on the long term implications of integrating socio-economic and other non-financial metrics with standard financial metrics.  It is precisely this that the other authors in this issue express concerns about.

Hendriksen, Weimer and McKenzie (2016) examine the benefits to companies using the KPMG “true value” methodology through interviews with organisational participants and consultants that were involved.  But they themselves recognise the limitations of monetisation of social value stressing the importance of considering the context in which social impacts occur.  Clearly more work is needed to unravel what this means, both conceptually and in practice.

Coulson (2016) questions the morality of the premise that anything of value must be measurable in monetary terms, a position she notes is contrary to that of the International Integrated Reporting Council (IIRC) (see video below).  Whilst acknowledging the ability of the approach to offer a corporate view of accountability for social and environmental impacts, her dissection of the steps in the KPMG process raises many questions. Ultimately she sees it as (p526): “…a provisional starting point to recognise a gap between corporate responsibility and that which is currently accounted for”. Coulson calls for research investigating stakeholder engagement with the application of the approach and its findings.

Cooper and Senkl (2016) provide a feminist critique of the KPMG approach inviting us to see the prevalent phallocentric order giving the impression that “business is dealing with the greatest global threats” (p 494) thus silencing critics. Their paper presents a well-argued case that the approach, constructed in a neo-liberal economic, social and political context, might in fact make the problems in our society worse.  They finish with a quote from Hélène Cixous to provide inspiration for a feminist approach.

Barter (2016) finds merit in KPMG’s “true value” methodology in its encouragement of more systemic thinking, but challenges the notion that society well-being should be measured by monetary exchanges rather than considered through moral and ethical lenses. Barter argues (p 535) that the rationalism inherent in the KPMG approach “has little room for morals, values, ethics and purpose, and in the trade-off between numbers, the quantum of the figure becomes important and the assumptions, concerns, narratives and purpose are lost in the discussion of the desired quantum”.  Barter briefly considers the (lack of or negative) impact of the approach on leadership, management and culture.

Perhaps the biggest issue with KPMG’s approach is the label “true”.  It is arguably no more “true” than approaches which ignore non-financial externalities completely. But it is an important attempt to take a step in the right direction, which (as Coulson also argues) needs conceptualisation, if it is to do more good than harm.

Some questions for academics, their students and professionals to consider drawing on the papers in SAMPJ Volume 7 issue 4 are:

  1. KPMG argue (Hendriksen et al 2016, p 490): “the ultimate goal must be to achieve a standardised approach that will enable benchmarking…”. To what extent is standardisation a) desirable, and b) achievable?
  2. To what extent can the KPMG approach “effectively incorporate sustainability issues into corporate decision-making processes” (Hendriksen et al 2016, p 490)?
  3. Consider whether and, if so, how the approach can be improved.

References

Barter N, (2016), “A review of “A New Vision of Value” – old wine, new bottle” Sustainability Accounting, Management and Policy Journal, Vol. 7 Iss 4 pp. 531 – 538.

Cooper C and Senkl D, (2016), “An(other) truth: a feminist perspective on KPMG’s true value”, Sustainability Accounting, Management and Policy Journal, Vol. 7 Iss 4 pp. 494 – 516.

Coulson A B, (2016), “KPMG’s True Value methodology”, Sustainability Accounting, Management and Policy Journal, Vol. 7 Iss 4 pp. 517 – 530.

Hendriksen B, Weimer J and  McKenzie M, (2016), “Approaches to quantify value from business to society”, Sustainability Accounting, Management and Policy Journal, Vol. 7 Iss 4 pp. 474 – 493.

Paul Druckman, former CEO of the IIRC discusses KPMG’s True Value approach

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Comments

  1. Adrian King says:

    We value the feedback contained in these critiques of KPMG True Value and we are delighted to be making a solid and progressive contribution to this important debate. I fully understand the risks of monetising some of these metrics. Having worked in business for almost 30 years and presented KPMG True Value to many C-suites and boards, I see the most important challenge as reaching a common language for business and society: presenting an argument to a CEO in a language he or she simply does not understand will never be convincing no matter how good the argument. The language of business is $ and we as sustainability practitioners need to talk in the language of business in order to help business people make better decisions for the benefit of society as well as the shareholder.
    Adrian King
    Global Head, KPMG Sustainability Services

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