Skanska

Using Skanska’s Accounting for Sustainability methodology to build real value

 

Introduction to the Company

Skanska, established in 1887 in Sweden, is one of the world's leading project development and construction companies, serving selected markets in the Nordic region, other European countries, and North America.

Sustainability is integral to its purpose, to build for a better society and provides the company with a competitive advantage, delivering profit and creating shareholder value. By providing innovative and sustainable solutions for both simple and the most complex projects, the company aims to create a sustainable future for its people, customers, and communities. This is reinforced by a continued commitment to health and safety, ethics, environment, corporate community investment and diversity and inclusion.

Introduction to the approach

In 2014, Skanska UK launched the Accounting for Sustainability (A4S) initiative to understand its total contribution to society. The company took a multi-level approach to its measurement and valuation of social capital beginning with a corporate level assessment and then a project level pilot of a social return on investment (SROI) analysis on one of its existing large-scale projects.

Key lessons

  • A strong partnership between the Environment and Finance teams not only strengthened the quality of methods and data, but also helped integrate the process and results into strategic business decisions.
  • Starting with data and methods that are already widely used in Skanska helped secure internal buy-in and ensured that the approach was based on credible methods and business realities.   
  • It was important for the company to balance the desire for a “perfect” approach with the everyday business demands of managing and improving the company’s impacts.
Stage 1: Frame

Understand social capital and its relevance to the business

At the very outset, the Accounting for Sustainability (A4S) initiative was designed as an iterative process. The company concentrated first on areas where data was available and methodologies already existed, and then planned to add to and strengthen the approach over time. At a corporate level, this meant focusing on Skanska’s direct impacts where it already had robust data, especially on topics such as health and safety, employment and the environment. The company found that the existing data was biased towards managing risks and negative impacts and so an intentional effort was made to include a broader set of issues that could capture some of its positive contributions to society. Skanska used its 2020 business plan and its annual assessment of top ten business risks to inform the identification of relevant social capital issues.

Engagement with peers and external experts such as the New Economics Foundation, helped Skanska understand existing best practice around social capital measurement and valuation in order to align with externally-recognised methods, set realistic expectations on what could be achieved, and build internal knowledge and capabilities. Mendelow’s stakeholder mapping process was used to develop a stakeholder engagement strategy based on stakeholders’ level of interest and power. When determining the right approach to engaging stakeholders, both at the corporate and project level, the company had to balance the need for a diverse mix of opinions with the time requirements of interviewing all relevant stakeholders.

Identify the business case and potential business decisions

The overarching goal of the A4S initiative is to integrate social and natural capital into decision-making alongside financial capital. Ultimately, the intention is to use the results to inform strategic decisions that enable the company to fulfil its purpose to 'build for a better society'. This includes decisions at both a corporate and project level that can encourage investment in social capital-related activities and aid communication of their benefits to key stakeholders.

In the short-term, the aim was to build a robust and credible approach for measuring and valuing its social capital impacts and dependencies while strengthening its own measurement capabilities and data collection methods. As part of the process, Skanska identified data gaps in relation to the 'triple bottom line model', which informed the creation and implementation of an action plan to improve data collection in the future.  

There were a number of other specific value drivers for the approach including:

  • Fulfilling Skanska’s purpose, values and strategic plan
  • Demonstrating the company’s value to society
  • Supporting better decision-making
  • Understanding wider risks and opportunities
  • Improving the attractiveness of Skanska as an employer
  • Helping Skanska customers understand company impacts and make better decisions
  • Complying with legislation at a project level by demonstrating a social return on investment.

Practical Guidance: Lessons on gaining buy-in and creating cross-functional teams

Communicating the concept of non-financial measurement and valuation and securing support for the project among key internal stakeholders was essential to success. Board level sponsors of this initiative were: Skanska UK’s Chief Financial Officer (CFO), Skanska UK’s Director of Environment and Skanska USA’s CFO. The A4S steering group was then established including internal stakeholders from the company’s communications, occupational health, health and safety, procurement, innovation, HR and finance teams.

Skanska engaged different department leads early on in the process by asking them what data they currently collect and what existing initiatives have a significant impact on society.

The A4S team provides regular updates on progress to key departments and collaborates with internal stakeholders to share achievements and lessons from their various initiatives.

It was particularly important to secure support from the finance department because it is familiar with credible methods for monetising environmental and social capital and has the expertise to assist in robust reporting and governance. Skanska UK’s CFO also participates in the Prince of Wales “Accounting for Sustainability”, which engages finance and accounting professionals to drive a shift towards resilient business models and a sustainable economy. See the Accounting for Sustainability website for more information.

Stage 2: Scope

Determine target audience and objectives

The primary audience for Skanska’s corporate level analysis was the company’s senior management. In particular, Skanska UK’s CFO has a keen interest in delivering social as well as financial value, in-line with the company’s 2020 business plan. The company also believes that there are significant opportunities to use social value information in external communication and as part of the regular business reporting processes. However, the intention was not to produce a public report at this stage, but to build a credible approach that could inform strategic decision-making. For Skanska, it was really about getting the architecture right in terms of systems and processes.

The company also hoped to use the results to:

  • Develop a customer impact model for use in bids
  • Produce auditable metrics for external reporting
  • Conduct A4S awareness training
  • Include A4S material in the Skanska annual report
  • Communicate natural and social capital accounts alongside traditional financial reporting

Skanska, working with Battersea Power Station Development Company’s Communities Team, also conducted a pilot study at the project level, which was intended to inform decisions by the Skanska community leads on the Battersea Power Station Phase 2 project, as well as feed into the wider corporate-wide programme. The pilot study was carried out in partnership with the London School of Economics as part of their Masters in Management programme.

Set boundaries

In developing the A4S initiative, the company wanted to develop a flexible approach that could be applied at the corporate level and adapted and/or complemented at a project or site level.

The aim of the corporate level assessment was to provide a “big-picture” view of the company’s impacts and build an internal understanding of the processes involved in valuing social capital. By equipping staff with the understanding and skills to conduct assessments, this could support key supply chain partners and customers to conduct social capital assessments in the future.

To simplify the process at a corporate level, only direct Skanska impacts were initially assessed. Indirect impacts throughout the supply chain and enabled or induced impacts on society were not considered. However, there is an ambition to extend the scope of this programme. Indirect and induced impacts were considered on a project level.

For the project level pilot, the Battersea Power Station Phase 2 redevelopment project was selected because it is a large-scale project with potentially significant social impacts. Staff time and resources were also available to assist in data collection and analysis specific to this project, whereas some smaller Skanska projects are more constrained in terms of staff resources.

Stage 3: Measure and Value

Select appropriate valuation technique  

For the corporate level assessment, the company is focused on gathering input and output level data based on credible methods. The results are currently undergoing an audit in partnership with Skanska’s Finance department.

For the project level pilot study, the company decided to use a Social Return on Investment (SROI) calculation to analyse the social initiatives undertaken by Battersea Power Station’s Communities Team and Skanska on Phase 2 of the project. This included an employment for ex-offenders initiative, training programmes for apprentices, and a cycle safety campaign.  The SROI looked at the costs incurred (through inputs) and the benefits generated to society (through outcomes). The SROI methodology followed the “The Guide to Social Return on Investment” published by the UK Cabinet Office, with certain aspects tailored to the specificities of the Battersea Power Station project.

The results of SROI revealed that for every £1 invested in social initiatives, there is a £8.29 gain to society. As an example, to calculate the SROI of the apprenticeship programme, the company captured the time and value spent by Battersea Power Station and Skanska employees on the programme and the added benefit of each apprentice to society. The methodology was based on a cost-benefit analysis of apprenticeships conducted by the University of Sheffield.

Battersea Power Station Phase 2 Inputs, Outputs, Outcomes, and Impacts

Battersea Power Station Phase 2 SROI

Undertake or commission measurement and valuation

The company encountered some challenges when undertaking both the corporate and project level social capital measurement and valuation including:

  • Data sources: Data points having multiple possible data sources.
  • Data ownership: Data owners are not necessarily aware of the importance of reporting accurate data or communicating the scope of the data.
  • Data efficiency: There is a high reporting burden at the project level to collect, collate and report environmental data.
  • Data quality: There is a high likelihood of data user/entry error since much of the data is entered and manipulated manually.

For the company to be able to use natural and social capital accounting to inform better decision making, it requires accurate and complete data. This is particularly important given that the company aims for this data to sit alongside financial metrics, which demand a high degree of confidence, especially because capital valuations add a number of multipliers to the internal (base) data. If internal data is not robust; then the addition of multipliers will increase the margin of error.

Stage 4: Apply and Integrate

Apply results to key business decisions

The assessment results were audited by Skanska’s finance department, which revealed that the quality of the social and environmental data could be improved, especially when compared with more established financial metrics. This internal audit provided useful feedback on processes that require improvement before making data publicly available.

To address data challenges, the company has developed a 2020 data strategy. Part of the strategy will bring the A4S initiative closer with the work of the IT department, in order to understand and apply principles of effective data management. Some examples of data management principles in the Skanska 2020 data strategy include:

  • Data sources and ownership: Identifying the most appropriate sources of data for the appropriate use, taking into account the quality of different sources and future risks to data availability.
  • Data modelling: Mapping the sources, flows and storage of different metrics to start to identify inefficiencies and risk of error in the data management and reporting process.
  • Data lifecycle management: Using data mapping to identify the value data assets has throughout their lifecycle (from creation, to management, use and deletion).
  • Data Governance: Appropriate governance of data creation, replication, management, usage, and deletion.

While the company continues to strengthen the approach, it is already identifying ways to use the information to boost its positive contribution to society. As an example, the A4S process is helping the company engage clients at an early stage in discussions about how to maximise the positive social outcomes of the project. Through the process the company identified 60 ideas for social initiatives that can be incorporated into projects and add the greatest value to company clients.  These initiatives are incorporated into bid cards that are used in bid workshops with clients as a way to share ideas for new projects or explore innovations to address local issues.

The Skanska Bid Card Workshop

Integrate social capital into business processes

The company aims to conduct the corporate level assessment annually, and by 2020, it has the ambition to have natural and social capital embedded into its financial reporting systems to inform strategic decision making.

Skanska also aspires to complete the SROI analysis on a yearly basis over the lifetime of the Battersea Power Station Phase 2  project, while also collecting additional data and creating specific proxies for the initiatives undertaken. The company is also considering applying the SROI analysis to other projects but is conscious of time and resources needed to conduct such an analysis. The pilot relied on data collected by external parties via academic articles and many assumptions used are specific to the local geography and nature of the Battersea Power Station Phase 2 Project. This data and the related calculation methodology would therefore need considerable tailoring to be used in other Skanska projects.

Skanska is already seeing the impact of A4S in the way different departments work together in the pursuit of the company’s vision and business plan. This is helping drive a culture shift in how information is used and how the company understands and communicates its value to employees, clients and the communities where it operates.