The Health Utility of Income and Taxes
Two new methodology papers (the Health Utility of Income and Taxes - Part A and Part B) fill an important gap in the field of impact measurement and valuation for organizations. Now, more than ever, the need to truly understand the value to society of our economic activities is driving companies to measure their impact, which is increasingly leveraged for both business strategy and external engagement and communication (e.g. ESG reporting). The topics of income inequalities and taxes (or the role of governments), have been rising quickly in exposure in the global media and reflects contemporary social crisis which are shaping our society, next to our environmental crisis. Any company should be able to assess quantitatively how they are contributing to solve or worsen these trends.
However, methodologies to do so in a relevant, comparable, consistent and transparent way are only emerging and sometimes inexistent. Historically, natural capital has been better understood and covered by impact methods than social and human capital. The work of the Capitals Coalition, Value Balancing Alliance and the WBCSD in this field has already established important frameworks, although with an obvious gap around methods development and standardization.
Social and Human capital impact has often been measured with their real monetary value, although their true societal value is far from being correlated to its monetary value. The same dollar of income has a very different utility to a person rich or poor, or a person in a low or high income country. Similarly, taxes has very different utility depending on the capacity of the government to use it towards its population and on the current level of development of a country.
These papers pull from research, done by Valuing Impact, that put a value to the utility of income and taxes, from a wellbeing (or health) perspective. The underlying data is coming from the UN, World Bank, World Health Organizations and ILO, in addition to specific academic literature. The papers provide, next to a theoretical framework, impact valuation factors, applicable to all countries, which are directly usable for companies to measure their impact generated by direct and indirect employment and wages, by taxes contribution at different levels (e.g. income tax, taxes on profit, value added taxes, etc) and by any other activities that have an effect on income and taxes in general.
The two papers also develop two applied case studies for two multinational companies Novartis (pharmaceuticals) and Natura (cosmetics). They also present original research on global assessments of the importance of wages in the global workforce, highlighting the current role of living wage and the importance of the pay gap that exist, and on the current global trends of taxes abuses, and its impact on wellbeing globally. This is a unique research that is being published for the first time.
Those reports without doubt push the boundaries of what can be measured and provide a useful solution for companies willing to account for their impact to society through social and human capital. The impact valuation factors are available in Excel for easier use (please send a request to Valuing Impact).