Natura has been a leader in developing and implementing an Integrated P&L accounting for driving change internally and engaging a range of stakeholders externally, including investors. Valuing Impact has been leading for Natura the IP&L development and integration.
Natura is one of the only company on earth that has set a commitment based on the impact valuation metric, setting an objective to deliver $4 of societal value for each $1 of revenue. Currently, they stands at 1:2.7. This type of commitment incentivize teams to consider societal value as a holistic challenge, rather than continuing working in silo. It also empowers the teams to use the IP&L as a management tool whereas the majority of companies tend to use it more for reporting and communication (or even reputation). This is a clear disruption from the status quo in that field.
To support the communication of its vision this year, two new reports have been published. The first one summarizes the progress made on the development of the IP&L while sharing the updated results for 2023.
The results updated for the year 2023, as shown below, are split per capital type and main themes along the full value chain of Natura. Natura delivers a net positive impact of 39.5 billion BRL, while it generate 12 billion BRL of negative impact on natural capital. The SROI indicator (social return on investment) allows us to identify activities with the highest societal value compared to its related financial indicator from the P&L.
Two key innovations for this year cover the utility of products and the natural capital accounting method. Most of the impact valuation cases throughout the world are focusing on value chain impact and omit most of the time to value the purpose of the company itself through its products or services (like the use of concrete material for cement companies, or the value of nutrition of food companies, etc). This represents a big gap in the overview of the value delivered by companies to the society and we decided to tackle it for Natura.
We developed a model accounting for three types of value to society from cosmetic products: the hygiene or health benefit, the comfort and finally the value of integration (psychological well-being). We were able to calculate that overall this value delivers 4.5 billion BRL per year across all products categories, split relatively equally between the different value types. This type of model are critical to account for societal value of any investment or business. We expect to see a lot of development on this topic in the coming years.
The second innovation we brought this year to Natura IP&L is the natural capital method, which was traditionally based on a relatively old (roughly 15 years without major update) approach adapted to IO models (top down models of the economy). Instead, we based our approach on a much more granular and bottom up method, aligned with Life Cycle Assessment (LCA) methods which is a widely used approach across all businesses and investors to assess the environmental impact of businesses, products or services. This allows us to be have much more granular results per impact driver (17 of them in total) and per activity of Natura, supporting more effective decision making.
The method based on Valuing Impact eQALY method (published here) connect all impact drivers to three main areas of protection (similar to LCA): human health, ecosystem quality (or biodiversity) and resources (i.e. abiotic). It then connects, as shown in the figure below, those three areas of protection to a change of well-being for the society, using a single impact indicator bringing consistency, comparability and relevance to the final results.
This innovative method leverage the entire field of LCA, building on its strengths (granularity of the modeling, in terms of activity and impact indicators), while bringing the strategic lens of impact valuation to express the results in a single monetized indicator.
Natura results shown below can be split per main activity along its value chain and across categories of impact drivers (aggregated for the purpose of the communication). The key value of this approach is also its capacity to not only measure the negative environmental impact, but also the change of practices and investment in regenerative practices and businesses as illustrated through the results lines of carbon credits and supplier communities. We assessed as well a range of positive impact generated by products' innovations for specific brands of Natura, or the value of a recycling and material circularity program, among other program. These assessment support the development of a regenerative business model which can be measured through the objective results of an IP&L to achieve the target of delivering $4 of value for each $1 of revenue.
Overall, the IP&L approach and tool, developed based on the eQALY method from Valuing Impact, is driving a change of culture, awareness and knowledge, as well as of strategy and engagement, which is amplifying the value to society and to business generated by Natura.