Social valuation – Questions and answers

I recently responded to a questionnaire from Copper8 on “social valuation” and thought that some of the answers might be of general interest, so I share them here:

1. What is your definition of social valuation?

We normally speak of social assessment, where assessment is the full study including human activities, their interaction, the externalities and their cause-effect chains (as in ‘Life cycle sustainability assessment’), while valuation is only the last step in the impact assessment where the relative severity of different impacts are valued by individuals in order to make comparisons and trade-offs.

We normally speak of social in the sense of ‘aggregated at the level of society’, which is the common usage in economics since Marx (1885), but acknowledge that it can also be used in the more narrow sociological sense of ‘pertaining to the interactions between people’; see also reply to question 4. Maybe it would be best to talk only of social in the societal sense and call the rest inter-personal?

 2. What is the scope of social valuation in current methodologies?

 The scope for our assessments is the full product life cycle, i.e. the system of interlinked activities that change as a consequence of producing and consuming a product. We may additionally assess the impacts of the supply chain (the system of interlinked activities that contribute one or more specified and intrinsically linked physical properties to a product), or the value chain (the system of interlinked activities that contribute added value to a product). The three types of systems are described in our article at http://lca-net.com/p/2919.

3. What is the status of quantifying social impacts currently? We want to measure social impact on a product or material level, how would you do this? What is the best way to link social impact to (components of) products or materials?

First, social impacts are quantified per product at the organizational level and these are then aggregated over the analysed product system, using the standard life cycle assessment methodology.

4. Is there an overlap between economic, environmental and social valuation and how do you deal with that?

The social assessment (=Life Cycle Sustainability Assessment) includes the internalised costs and benefits by the use of Life Cycle Costing, as well as the social (inter-personal) externalities, the economic externalities, and the biophysical externalities by the use of Life Cycle Assessment. At the level of pressure indicators, it is possible to distinguish between the social (inter-personal), economic and biophysical pressures (see http://lca-net.com/p/3289), but at the level of midpoint impacts it only possible to distinguish socio-economic and biophysical indicators, and in the end all impacts contribute to a single indicator of social (sustainable) wellbeing.

The same human activity or the same pressure indicator (such as toxic substance emissions) or the same midpoint impact indicator (such as unemployment) can contribute to more than one impact pathway, where some impact pathways may be classified as economic, some as social (inter-personal) and some as biophysical. However, this classification is irrelevant for the actual assessment, which will proceed in the same way, disregarding the classification. Each impact is assessed individually and then aggregated at the societal level, taking into account synergies and dysergies as well as the (dis-)utility to the affected population.

5. Could you give an example of social value that you have measured?

We assess indicators quantitatively at different levels of detail. The most generic level (for simple screenings) is what we call the ‘Social footprint’, which is composed of three elements: the income redistribution impact, the productivity impact of missing governance, and the potential credits for positive action. This can then be broken down into quantified contributions from more specific impacts, such as the impacts from insufficient education, insufficient health care, insufficient clean water, or undernutrition, as described in http://lca-net.com/p/2858.

We have two crowdfunded projects that contribute to further detailing and improving these impact pathways, their indicators and their characterisation factors; one specifically addressing social (inter-personal) impacts (https://lca-net.com/clubs/social-lca/) and one addressing each of the SDG indicators (https://lca-net.com/clubs/sdg/). The latter includes all impacts that contribute to sustainable development. Both crowdfunded projects are based on the same top-down approach to valuation.

6. How do you assess the value of ambiguous social impacts, e.g. child labour can normatively be seen as a negative social impact, but it also adds to income and employment.

An activity (or a pressure such as child labour) can have several impacts. When one is detrimental and the other is beneficial, they may counteract each other. In practice, each impact is modelled separately and from that the net result can be calculated.

7. How to deal with feedback loops?

Generally, we deal with loops as a standard part of the models. Our models are system of linear equations, and when solving these, either by iteration or matrix inversion, the effects of loops are implicitly a part of the solution.

8. We want to make choices based on the right metrics, not only the measurable ones. How can we make this happen? How do you deal with this?

Our approach is top-down, starting from an assessment of the current annual level of impacts on human wellbeing (people), species loss (planet), and the productivity gap (prosperity). The causes of these impacts are then traced backwards to human activities. To avoid that something is left out due to missing knowledge or missing metrics, we always identify one impact pathway as ‘default’ to take care of the residual impact that is not explained by any of the other impact pathways.

 9. What social impact data should/could be collected?

The analysed system will normally be divided in a foreground system for which activity-specific data are collected, and a background system where data come from average statistics for an industry and/or a geographical area. The minimum data that are required per activity or industry are work hours and value added.

10. How do you collect social impact data?

Companies usually supply data for the foreground systems, sometimes these may be verified by an external accountant. Background data are collected from statistical data sources. In the best case, data are available from several independent sources, allowing for triangulation.

11. What is the reliability of social impact data?

Reliability of social impact data is very variable. We use uncertainty estimates that include an assessment of reliability.

12. How to deal with a lack of benchmark data? And what data collection questions are relevant without benchmark data?

The global averages can always be used as benchmark. National and industry averages are also often available. For specific companies, the data for the previous years can be used as benchmark, giving a time series of impact, e.g. per unit of revenue. Using competitor’s performance is more difficult, since these data will seldom be publicly available. An option is when companies cooperate in industry associations.

13. For environmental impact absolute quantitative thresholds have been defined, i.e. the planetary boundaries. Can product social impact be linked to absolute thresholds and would that be meaningful? And can these thresholds be expressed in a monetary value?

In general, the socially relevant threshold is where marginal abatement costs are equal to marginal damage costs. Both these metrics are expressed in monetary units. In our top-down approach, monetary valuation is applied to the endpoints (human wellbeing measure in quality-adjusted person-life-years, species loss measured in numbers, and the productivity gap measured in productivity-adjusted person-life-years). All other contributing indicators – and therefore also thresholds – can then implicitly be expressed in monetary values.

14. Would it be possible to attribute organisational social impact to separate products?
15. Can organizational social impact indicators be translated in product social impact data?

Organisational impacts are attributed to individual products by the standard allocation procedures (for combined production by modelling the changes when producing more of one product and no more of the others; for joint production by modelling how the dependent co-products affect the markets they supply).

Final question: What is the best way to quantify qualitative indicators? E.g. could we use 12 yes/no indicators, of which 8 are scored with a “yes” which accounts to 8/12 = 66.7%?

By nature, qualitative indicators are used when possibility for quantification is insufficient. Quantifying these indicators therefore would be violating the nature and purpose of these data. The purpose of qualitative data is to identify missing perspectives and indicators, and to provide richer local context and a deeper understanding of the motivations, culture, values, power relations and change potentials of the affected societal groups.