Beyond profits: the case for social impact reporting

Garreth Hanley:
This is INTHEBLACK, a leadership, strategy and business podcast brought to you by CPA Australia.

Aidan Ormond:
Hello, I am Aidan Ormond and welcome to INTHEBLACK. Today, we'll be talking to Adam Vise about the methodology, benefits and challenges of social impact reporting. Adam is group treasurer and general manager of Strategy & Impact at Australian Unity. And he's also the chair of Birchal, Australia's leading crowdsource equity funding platform for entrepreneurs.

Today, we'll be talking to Adam about his experiences at Australian Unity where one of his key objectives is strategic clarity and financial resourcing, and building a foundation for Australian Unity to achieve its goal of real wellbeing, for both members and the broader Australian community. Adam has a deep understanding of impact investing and strategic decision-making and a passion for driving positive change. And his work at Australian Unity on social impact reporting led to the development of a methodology to systematically measure the S in ESG. Welcome to the INTHEBLACK, Adam.

Adam Vise:
Thank you, Aidan. Glad to be here.

Aidan Ormond:
It's great to have you Adam and Australian Unity was Australia's first member-owned wellbeing company when it was established in 1840 and in 2021 you launched the company's first social impact report. Now, Adam, 181 years is a long time. How does social impact reporting link to that original mission of wellbeing? And I'm also wondering, did the process of reporting change with the business values?

Adam Vise:
It's a great question and it's probably worth starting at the end. And our purpose is to positively impact the wellbeing of millions. Now, that's where we've got to. If we go back 180 odd years, our original goal was actually, it was a group of seven Australians in a brand new... It was before the Federation I guess. And they were getting together to form a mutual cooperative of people who'd put a penny in a tin week in week out to provide a social safety net for them, not for the world at large.

It wasn't like the whole government system today. It was before that. It was very early Frontier Australia. And so the goal was to look after yourself and your family if you got sick or if you died because in those days, if the wage earner died, typically the man, you'd actually end up in a thing called a poorhouse, which was basically an institution, almost like a jail. So that's a long time ago, but ultimately it's not that dissimilar if you like, to the Australian superannuation system today. It's like a savings mechanism to look after yourself as you get older and go through life.

Now over the 180 years, what we realised is it evolved as to what we did. So eventually the social safety net came into place. We started providing doctor services because the first thing you do is rather than just being sick or passing away, actually, what about a doctor? We started doing pharmacy. We started building retirement villages and aged care. So we followed people through their lives and we built a range of different services for that membership. And about 20 odd years ago, we thought about, "What are we really about?" We realised, "No, it wasn't me.

I haven't been there for 180 years. I've only been in Australian Unity for about six." But 20 years ago we invested in a thing called the Australian Unity Wellbeing Index. So we got together with Deakin University Department of Psychology and said, "Well, we think we've been doing these good things for wellbeing, but how do we measure it? Is this something?" And so we started measuring wellbeing and that's how we've got to this idea of our goal is to positively impact wellbeing of millions. Six or seven years ago when I started, the board was saying of management, "Well, you say it. But how do we know you are doing it?" You can use rhetoric really well. Words are really easy.

Numbers are a little bit harder. And so they asked the CEO, "Can you start to measure it?" They had a few false starts on it, but a few years ago we did it and we worked out these measures. We'll talk about that in a sec. But rather than it didn't change our purpose, but what it has done is it made it so clear. Now, strategically, we will only invest a group capital where we can see an improvement in our social value measurement because it's such a breakthrough.

You realise that if you think about measuring outcomes for your stakeholders and you can show you're achieving those things... Simultaneously, we are for profit and you can show that something achieves both profit and outcomes for your stakeholders in a measured way, suddenly strategic clarity becomes absolute. And so the tone of pursuing social impact measuring well-being and pursuing well-being for millions is an evolution of the fact where we're getting even more strategic clarity. So our purpose has solidified, our strategic decision-making has become analytical around it and therefore the strategic tightness has been heightened. And it's been a real surprise.

We didn't know it would be this good in terms of its information content, but it has been very rewarding because it was just an idea. It was an idea to be more accountable. But it turns out once you start measuring, you start getting technical and thinking about things analytically, it can become a very powerful decision tool.

Aidan Ormond:
And you just say rewarding. It sounds like you really feel that it's been worth the change over, I guess you could say.

Adam Vise:
Well, I'm in the middle of it, so I'm super lucky because an enterprise to invest in a system or a framework like this is not light in resources. We do it very frugally, but a company that only has one goal of maximising profit, I don't know if they'd necessarily go this pathway as a first step. So being in a mutual where we're going, "No, well, this is our purpose beyond just for profit," has meant that we're in a really lucky spot. So I feel quite privileged to be able to pursue it, and it's been quite a team of rotating through this role.

Belinda Seale was the head of strategy when we actually landed it, so she actually has more say or more a role in the construction. Chevonne who now leads some measurement was there for the whole journey as well. So it really is exciting because it's a broad team, a reasonable amount of resources, and it does work and it provides clarity that makes your job more enjoyable and more purposeful. And people are motivated by purpose. Now, I'm a finance guy and originally thought people were motivated by numbers or money and value. And actually people are motivated by value but not just financial value.

And so the moment you can enrich their lives in the same way as we've got a system of reward based on financial, you quickly see the nature of humans accelerating to achieve things in other dimensions if you start measuring them. So it is rewarding. It's rewarding in a way that is a bit surprising. The truth is the realisation of purposeful corporations is a pretty big adjustment. So yeah, particularly with less and less religion, people are looking for their businesses, their services. They're buying to actually achieve the broader set of purposes they want from life. So actually a company that's proactively thinking about it is I think starting to get competitive advantage from it as well.

Aidan Ormond:
Adam, can you share with us the origin story of that first report and maybe some of the partnerships and some of the challenges that you encountered leading up to its release in 2021?

Adam Vise:
Yeah. So the starting point was the board asked for evidence. They didn't say how, which is a pretty generous ask because it gave us a blank sheet of paper rather than, "Well, this or this." We spent the first year working, what are we going to measure? And we realized, well we came back to our wellbeing objective. So the beauty of this was we already had this wellbeing history and we'd been talking about it, but we'd never put it in the dead middle of the frame.

And once we agreed that's what we're going to be seeking to aim the wellbeing and outcomes for our members, for our customers, our employees in the community at large, we realised we really need some help. So we reached out and we found a great group called Social Ventures Australia. It's probably one of the earliest social impact organisations. It was created by Michael Trail who's a bit of a revolutionary in social impact financing ex-Macquarie guy, as well, who built a whole range of businesses including Goodstart, Australia's leading childcare educator and built it for impact rather than just purely for profit. And so they had this great methodology around social value.

And so we said, "How do we do this?" So they've lent in over the last five years helping us do it. Then as we started to do it, we realised we needed to get assurance that what we're doing wasn't crazy. So we had our assurance partners. Originally it was PwC, now KPMG. And once we got them to review our work, so we worked out our numbers and to give it credibility, we have assurance. And then we tried to take it to the capital market and we spoke to all four banks and one bank said, on a sustainability loan basis, we accept that you could have one goal of being your CSV about social impact. Some banks were saying, "Oh, we want you to have environmental goal," and that's not our purpose. We are concerned about looking after the environment and our impact, but it's not our purpose. And we said, "No, we want the goal of our objective".

And so Westpac said, "We're going to back you on that." And that was a really profound moment where they had changed how they'd always approached sustainability linked loans and said, "We will endorse you and give you capital with rewards for you to pursue your social purpose." And they also brought along a second party opinion provider called ISS. So there's all of these people or assurance providers that are looking and watching us and saying, "We'll give you capital and we want to make sure you are true to your word." And that's a very powerful tool and a lot of people in this audience, I suspect as accountants and auditors, this is actually a great demonstration that the skills can be used beyond just financial value, and it actually is really critical for credibility.

Aidan Ormond:
Why don't we delve in a little deeper on that one. In your partnership with Social Ventures Australia, you developed a community and social values framework also called the CSV framework. Adam, can you explain what this framework is and how does it work in practice?

Adam Vise:
It looks like the Australian accounting standards, but we're at year four. So my boss, Darren Mann who's the CFO is a bit of a fan of the Medici accounts that you saw at Harvard. And the realisation accounting principles and standards have been evolving for 400 or 500 years. We're at year four. So what does it look like? It is a methodology and principles based approach. And there's sort of five levels. So like accounting, I remember when I was studying accounting and teaching accounting at university, it was actually the accounting concepts, the SACS, the intellectual framework for accounting.

This looks and feels a lot like it. So, one, we identify the goal, which is to focus on social outcomes, outcomes for stakeholders, which is essential. Then we look to set clear boundaries like defined classification almost. And in central of that is a theory of change or causation of if you do this, it improves someone's life like that. Then we seek to attach value. Some valuation, and that's really from a stakeholder perspective, not from ours, but what value does that stakeholder put on that outcome? Then we, classic accounting conservatism was the old word we used to call it.

Here we call it, do not over claim. We have to attribute things that would've happened without us. We don't want to count that. That's not fair. That would've happened without us. So that's not our social impact, that's just the social outcome. We only count the things that we caused and then we also acknowledge the things that others contributed to. So we actually do attribution. And then finally we rely on quality data. So verification, data sourcing and the like. So if it sounds a little bit like accounting, I think it is. It's derived from a thing called social value.

There's an international body of experts creating social value for things like social return on investment. This is not a social return on investment per se, but it uses that methodology for those five big elements of principle. It's in the middle of our impact report, we explain it, we're accountable to it. And not only do the auditors check our numbers, but they check the construct of the measurements that are consistent with all five principles. So it's a second level of accounting if you like, second use case.

Aidan Ormond:
And you mentioned the word outcomes there. Australian Unity, they measure 226 outcomes in this framework, in the CSV framework across wealth, health and care. So on the surface it sounds like you might be managing a lot of new data. How do you measure these outcomes and do you have an example of how you can go from setting the outcome to measuring its impact?

Adam Vise:
Yeah. So the great thing about this is it starts with the stakeholder. So we sit down with each of the businesses. We have quite a few business lines or different types of products inside the business. As I said, we've got health insurance. We no longer provide doctors, but we still do retirement villages and aged care. And we sit down and go, "How do you think you're making an impact on those people's lives?" So the methodology requires a reflection on the stakeholder outcomes that the businesses think they're trying to achieve, which to me is actually strategy 101.

What do we think we're doing? How are we improving people's lives or what problem are we solving? So this is not an approach that's sort of a left of field start again. It's like what do you think you're doing that's going to make people happier or make people's wellbeing improve? And then we try to break down and how do we think we cause that, actually have a theory of change of what do we think we are doing? And then we look for drivers that would demonstrate that or evidence that and we think about value. So there is 226 lines of insight. Not all of them attract value, some of them would happen anyway.

So there's a few zeros against some of those. Some of my favourites are we think about the number of home care customers that would report an improved sense of independence. So one thing about doing care in the home is keeping people in the home makes them feel like they're in control. And this is a transformation for how healthcare is provided over the next 20 or 30 years for two reasons. So we've identified two values from keeping them in the home. One is they feel like they're in control of their healthcare. And talking earlier about men, I think this is really valuable for men.

Men do not like going to hospitals, but if you give them care in the home, they're suddenly in charge. We actually have a clinical service where we'll help people monitor their own heart so they don't have to stay in hospital for three days. So suddenly they're in charge of their own stats and that creates a sense of independence. And we actually will strive to value how would we see that showing up? And then we try to attribute value to it. How do you attribute value to that? It's like everything in accounting, it's all relative value. So we look for stack preferences, thinking about what else would that customer value? And invariably as you get older, people value social interaction, at night out or a dinner and we try to create a series of equivalences and work out what they are worth.

So we think about it from the stakeholder's perspective. And so we have turned the idea of someone feeling independence into a dollar value. And it's a bit of a leap, but the key to this is that dollar value means we can compare it to others. We know that dollar isn't exactly the same as someone being independent as say a person that has a student who suddenly has access to student accommodation.

So they avoid housing stress. It's a different, we’d measure their housing stress consequence and how would they value having less stress around that. So the dollars mean slightly different things, but they're still comparable because there's still an underlying value sense. And so really then that's the way we approach it. We get up to 220 of those outcomes that we think we make a material impact on and we put it all into a giant number bucket. But the reason we do that is we can then say, "Okay, next dollar of capital, what do we think we can make a difference on?" And we can think about student accommodation against the idea of do we put more money into providing another care space or another place where we can look after people in the home?

Some of the other ones are things like Mindstep where we can help people address mental health or anxiety issues online. We can think about hospital beds saved by our building of private hospitals or even something really simple like indigenous procurement. We know that every dollar we spend in the service economy in things that we need as a business as we go through an indigenous procurement model, we're actually delivering value to indigenous procurement business. So, we’d actually say there's a dollar per dollar.

There's probably good evidence support that might be more valuable and we'll do more work. And this is the beauty of our methodology is it requires us to continue to get better. Think about it, evidence it, show the data and look for a better measurement. There's a few examples across health, wealth, and care. You can imagine there's 220 very different examples.

Aidan Ormond:
I love what you said about independence. It's so true about feeling independent in that scenario. Let's talk about challenges, Adam, and you've spoken about some of the challenges that led to that first report back in 2021. Are there other challenges that you faced along the way and do you have any tips or solutions for those listening to this podcast who might be facing similar challenges?

Adam Vise:
Yeah, the number one challenge is where to start because I'd imagine a lot of people go, "We're not a social impact business. Why would I bother?" So that's even harder. And for some that are, they go, "Yeah, we really need to measure this, but really what are we about?" And the key is actually how to start. And so bigger businesses are incentivized to do this by the ESG community, we started a little bit like this like, "Do you pursue though, UN development goals? Do you pursue B Corp? Do you pursue employee well-being? Do you just focus on output in terms of carbon emissions?"

And that requires so much navel-gazing for the corporation because corporation, it's just an entity of stakeholders. So if the corporation is going, "Oh, what matters to me," you kind of get stuck because it's nothing to do with the corporation, it's about the stakeholders that are around it. Ans so you've got to start by thinking about your stakeholders and what does the entity think about not just corporations, it can be charities, it can be a not-for-profit, it can be a local community. What are you trying to achieve? And what are you trying to achieve for the stakeholder? Invert it.

So working out what you're about, whether you want to chase the UN development goals or something else, like you've got to start with your stakeholders. And that to me is the big message. I think for us we spent two or three years going around in circles on it and I'm sure many others have. And in big business I think there's a lot of box ticking. I need this, I need this, I need this.

Really show me the investor that cares? I was at ANZ staff super for many years. We were giving boxes for people to tick and we didn't know even our stakeholders needed those boxes ticked. So what we've got a gravy train of intermediaries creating boxes to tick, ask the stakeholder “whose money is it?” Ask the employee who's providing their labour, ask the customer or the customer's family as to what you're trying to achieve. And that's a revelation of our methodology is we start there and that's actually where we finish as well. And so it's not box ticking, it's actually thinking stakeholder.

And so the reason I'm here is that we want others to adopt a similar methodology, a universal way of measuring impact for people. Well-being at the heart of it. Well-being is just a people measure of how do you feel. And so our goal is come and copy our framework. Don't have to copy all of it. We'd encourage you to because we think as we create new methodologies, bring capital to it and the like, you can use the methodology and show that you're being accountable to your stakeholders and you get rid of the three years of navel-gazing and actually get real clarity about changing your business or changing your enterprise or your purpose to achieving something in the community in terms of delivering for stakeholders.

Now, this is not against not making money. I'd like to think. And our thesis is that we will find those places where you make profit, where you maximise social outcome, where you actually having the biggest impact on your stakeholders because they'll either pay more, they'll recommend you more, and so your growth will accelerate. So this is not a calling card of more social impact. This is a calling card of more stakeholder outcomes.

Aidan Ormond:
Adam, there are some who say we live in an era of rising scepticism where a few bad actors can really make it harder for companies who are doing the right thing. And many of the listeners of this show are feeling the pressure to measure more than just financials as companies aim to be more transparent and authentic. So we've been talking about the S in ESG today, but I'm wondering how does Australian Unity face these challenges of scepticism and increased measurement and approach ESG as a whole and have you seen positive impacts on the bottom line on top of social impacts?

Adam Vise:
So it's really early. So evidence takes time in terms of returns. So we've started with a very simple principle at the start, and that is integrity is everything. I think the world of ESG is becoming very cognizant of the importance of that. If you just make it up, you should expect scrutiny, probably litigation and definitely loss of customer belief and support because my experience is customers have really fine antenna as to BS, if I'm allowed to use that word. The math of this is I think integrity is transparency and accountability. And that's kind of how we approach it is we try to be transparent.

We've got a methodology that we've published. We're accountable for it because we're publishing the result. We've got people going through it in terms of assurance, but we invite others to go through it. We want to improve it. It is not perfect, but it is certainly a starting point. And the real testable truth is the stakeholder perspective. We like to think that we could show or be testable as to the stakeholder outcome. So if you are finding increased independence, one of the things we are trying to do is think about our wellbeing index and go, "Can we measure your sense of independence and future security?

Can we measure it in your wellbeing? Is it showing up?" And so you've got to have a discipline in how you measure and what you measure and go, "Is there an evidence that supports it occurring?" I think every stakeholder or anyone in measurement should be thinking, is there a second way of proving that it's showing up, otherwise you're not going to succeed. People go, "It's BS," going back. You have to demonstrate a truth, and truth can only be solved by evidence. It's the old scientific method and I think that's at the centre of what we're doing. Now, the beauty of our universal approaches, we're measuring a lot of things across a diverse business. It's not that diverse in a sense. We predominantly provide, I've got a portfolio of businesses in health, wealth and care services.

And predominantly that's a service economy business like obviously aged care and retirement villages. We provide the facilities, but the truth is people want to live in communities. That's a service. So a lot of our stuff we think will give us evidence on financial performance in measuring these things around services. So if you think about E, it has a very strong attraction in energy networks. So great. Woodside, you should be measuring your carbon abatement, BP, car companies, builders, and the like. For us we're services. Yep, we can measure our carbon footprint. We should be thinking, and we are thinking about how we improve and abate. But the truth is we can make a far more significant improvement in social side in terms of wellbeing, in demonstrating improving people's lives.

Our hypothesis is it will show up in financial returns we’re year four, our decisions, we have raised and spent about half a billion dollars this year and last year on investments that get good CSV scores and good financial return scores. We've got Westpac providing us capital. We've got our mutual members providing us capital, and we're saying we are backing this in as a potential pathway of demonstrating greater financial stability and sustainability. We think that it also enhances social outcomes. I think over the next three or four years we will see whether we're right.

Certainly, my view is measuring this around services based economy, this is the real gem of it, is if anywhere is going to show up of delivering more value, it's going to be in services where your whole job to make someone feel better, whether it be health or care, but wealth in terms of feeling more financial security. So our opportunity is that's prove it. And if nothing else, we'll certainly make our services more attuned to the wellbeing outcomes of the customer. So we'll get better. So we should be able to show evidence of better wellbeing. But I've got a theory and it's not central that we have to grow our profitability, but our ability to scale our impact going back to the very start.

Our purpose is to deliver wellbeing for millions. If we can create more financial value, we'll have more resources. If we're doing that in ways that are doing the highest outcomes in terms of social value, at the same time for our stakeholders, we should be able to scale our impact. And that is really why we're doing it. This is a pathway to achieve our purpose. So I feel all right at work, because I think I'm just trying to help the organisation achieve its goal and measurement is actually really central and we'll see how we go over the next four or five years.

Aidan Ormond:
Adam, thanks so much for joining us INTHEBLACK podcast today and sharing your insights with us. It's been fantastic.

Adam Vise:
Oh, thanks, Aidan. Delighted. Really not just you, anyone, we are keen to talk about it. I don't know if the Medici's were so generous, but we think we've found something that's really valuable, certainly for accountants and people who like analytical approaches to things. I think this is a really powerful tool and just really want to encourage the world to open up to it. I think there's a real opportunity here.

Aidan Ormond:
And thank you for listening to INTHEBLACK. Don't forget to check the show notes for our resources on the CPA Australia website and everything we've mentioned in this episode. Until next time, thanks for listening.

Garreth Hanley:
If you've enjoyed this episode, help others discover INTHEBLACK by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in leadership, strategy and business. To find out more about our other podcasts, check out the show notes for this episode and we hope you can join us again next time for another episode of INTHEBLACK.