This section explains the results, principles, methods and data used in quantifying the economic, social and environmental impacts associated with our operations; see quantifying our impacts for a summary of the results. This analysis was carried out with Sustain Value, and is based on established social and environmental accounting techniques.
This is the fourth year we have carried out this research to assess and quantify our impacts and the findings should be viewed in light of the following considerations:
Impacts: We have captured only a relatively limited selection of the important sustainability impacts associated with our business. There are still opportunities to expand this further to enable more comprehensive reporting.
Methods: To calculate our impacts we have used, wherever possible, recognized methodologies, models and academic research.
Data: We have used proxy data, from secondary sources and extrapolations, to address any data gaps. This means that findings in some areas are based on estimated figures.
Below we explain in more detail the results and our approach to calculating each measure.
We considered the benefits associated with our economic activities including salaries, payments to supplier partners, taxes to governments and dividends to share owners.
As for last year, our analysis shows a significant direct positive contribution to economies as well as a significant multiplier effect from the salaries and payments we make, which enable our people to buy goods and services and our supplier partners to create jobs and spend in the economy.
Gross value added: £12.4 billion economic impact
The direct contribution our activities make to the worldwide economy is measured as Gross Value Added (GVA). This is calculated as the financial value of the services we sell minus the cost of all inputs directly related to delivery of these services. The value of services we produce stands at £12.4 billion for 2016/17. This income is used to cover operating costs and taxes, and dividends.
Payroll: £7.1 billion in salaries and benefits
We are a major global employer, offering many thousands of well-remunerated positions. The £7.1 billion we spend on salaries and benefits (excluding social security costs) provides a cash injection into local economies in the 112 countries in which we operate. Our contribution through payroll is calculated based on the aforementioned items as disclosed in the Group’s audited financial statements for 2016/17.
Taxes: £1.5 billion paid to governments
Payments of taxes to national and local governments, including corporation and overseas taxes (£414 million), employer and employee taxes (£1 billion) and other taxes (primarily property taxes) (£57 million), enables them to invest in local socio-economic development. Our contribution through taxes is calculated based on tax payments as disclosed in the Group’s audited financial statements for 2016/17.
Supply chain: £2.3 billion indirect economic benefit
Our companies provide indirect benefits to economies across the world through procurement of a range of services. This spending provides many indirect benefits to the economy by supporting livelihoods and job creation. These calculations exclude our media spend on behalf of clients.
In 2016, we spent an estimated £6.0 billion with our supplier partners. This figure was derived from data from our spend analytics system which tracks direct costs (advertising production and research operations) and indirect costs (facilities, IT, telecoms, travel and professional services). Our media spend on behalf of clients is excluded from these figures.
The impact of our supply chain, our indirect economic impact, was calculated using a weighted average multiplier based on the 2014 analysis, which determined the total value of expenditure with supplier partners broken down by sector and type of spend. The spend for each sector was converted into GVA using gross value added data from relevant sectors obtained from national statistics such as the UK’s Office of National Statistics Annual Business Survey (ABS).
There are two limitations associated with this approach. Firstly, data on supplier spend was incomplete for some WPP markets. Data was extrapolated to address these gaps. In addition, GVA sector estimates are not available for all countries and in these cases we have based calculations on UK data. To reflect the impacts arising in different countries we used purchasing-power parity indices from IMF datasets.
Indirect client impact: not quantified
The communications services we provide create a further indirect benefit by helping our clients to increase their revenues, which stimulates growth and helps create jobs. However, we also recognise that the associated increase in production and consumption will also result in other indirect environmental and social costs. We are still considering ways of measuring this.
Our companies support social and charitable activities through cash donations, by undertaking pro bono work (marketing advice and campaigns for little or no fee) and negotiating free media space for charity campaigns.This has an impact by helping charities to achieve campaign objectives, raise funds and recruit new members,
and indirectly contributes to improving human health and community cohesion, and the protection of human rights and the environment.
Our companies provide internship and apprenticeship opportunities, which equip people with skills and experience that enhance their future life prospects. In addition, our companies train staff at all levels that not only improves WPP’s performance, but also enhances the human capital (e.g. skills base) within the company.
Pro bono work: £101 million social benefit
The direct value of our pro bono work was £12.5 million in 2016, based on the fees that organisations would have paid for our work. When the full potential societal benefit is taken into account, the overall benefit to society may be in the order of £101 million.
The benefits of pro bono work (primarily undertaken for the benefit of charities) are difficult to quantify. They include things such as helping to improve health and well-being in communities. Outcomes are often not measured and, if they are measured by the charity, results are not often shared with WPP. For the purposes of this assessment, we undertook a literature review of reports and papers (i.e. secondary data) to ascertain the average social return on investment (SROI) ratio generated by the same categories as those represented by the pro bono work undertaken. This includes arts, education, environment, health, human rights and local community.
The average ratio calculated for each category was then applied for each of these categories to the annual direct value of pro bono work, in line with the approach adopted over the past two years.
We believe this to be a conservative assumption, because pro bono work (costed on a time-sheet basis) is often worth more than the equivalent cash donation as WPP expertise is leveraged to create additional value above and beyond the time spent.
Charitable donations: £55 million social benefit
In 2016, the Group’s direct charitable donations were £7 million. These donations support important work in areas such as education, health, human rights, local community, environment and the arts. The overall value of social benefits resulting from these donations is estimated to be around £55 million per year.
The approach to determining the additional societal value is based on the literature review of SROI ratios mentioned above, covering the same six categories. The average SROI ratios found for each category were applied to the direct spend for each of those same categories. We recognise that individual projects can deliver very different returns. However, in the absence of project-by-project reporting, this method provides a useful order-of-magnitude indication of SROI.
Free media space: £183 million of social benefit facilitated
WPP has also helped negotiate free media space for our pro bono clients worth £22.8 million in 2016. This represents the cost saving to our pro bono clients for them not to have to purchase media space for their environmental and social campaigns. For the purposes of this assessment, we have assumed that free media space has an impact similar to that of the pro bono work and charitable donations, calculated to be around £183 million. As there is no breakdown of spend by category for this, we have applied an overall weighted average SROI ratio based on the ratios and spend for pro bono work and charitable donations.
Internships and apprenticeships: £6 million social benefit
In 2016, we provided 6,413 paid internship and apprenticeship positions across the Group. We estimate these create benefits worth £6 million annually, because some interns will be offered a position in a WPP company at the end of their internship and others are likely to find jobs elsewhere more quickly.
The value is based on the same value multiplier as developed in 2014. This assumed that a certain proportion of interns find jobs at WPP or other companies and are therefore able to earn a monthly salary faster than they would have done without the internship. The approach takes into account the number of interns worldwide and the proportion likely to find a position at the end of their internship/apprenticeship placement and with the average additional income that the person would have earned as a result of the work placement. Further work is needed to calculate these benefits more accurately and to capture regional variation.
Training: £45.1 million minimum societal benefit
In 2016, WPP spent £45.1 million on training courses for staff at all levels, with additional travel, accommodation and subsistence costs of £7.6 million also being incurred. The £45.1 million represents a lower-end estimate of overall value as it only reflects course costs rather than the overall benefit that staff receiving the training will gain in terms of their enhanced human capital value. The latter will be manifested when they leave the company, along with the human capital gained through their on the job experience. It is also recognised that this training will generate additional value (i.e. SROI) for WPP from improved staff productivity and recruitment cost savings. These should effectively be captured through future enhanced gross value added (GVA) generated by WPP. We hope to include an estimate of additional added value to staff in subsequent reports.
Climate change is our most significant environmental impact, but again this year we have also analysed impacts associated with water consumption and waste disposal.
Greenhouse gas emissions: £5.4 million net cost to society
Currently, businesses such as ours do not bear the environmental costs of mitigating their greenhouse gas (GHG) emissions. This service is provided for free by nature or at the cost of future generations. The hidden cost of our emissions was £9.5 million in 2016. This calculation takes into account our GHG emissions from energy, business air travel, and other estimated impacts such as leased cars, taxis and couriers as well as the benefits resulting from our green electricity purchasing (zero emissions assumed). With our investments in renewable energy offsets included (see below), our net cost to society is £5.4 million.
In 2016, WPP invested in renewable energy projects to offset 92,445 tCO2e emissions associated with climate change impacts of business air travel. Based on the assumed social cost of carbon, this represents a positive societal impact of £3.4 million. In addition, WPP purchased renewable energy certificates (RECs) in the US, equivalent to saving 11,867 tCO2e, with an assumed societal value of £0.4 million.
The basis of the above GHG calculations is that each tonne of GHG released into the atmosphere damages society, the environment and the economy by impacting on, for example, climate, health, and the built environment. The economic cost of this damage is called the social cost of carbon. Many studies have identified a range of estimates for the social cost of carbon. The estimates span from 0 to over £400/tCO2e as they take into account uncertainties in climate and climate change impacts.
For consistency, we applied the same approach and value as 2014 (i.e. based on the Stern Report), but adjusted upwards to allow for inflation (i.e. £36.96 tCO2e). For transparency, we split the value into the negative impact of our gross emissions and the positive impact of our carbon offsets. In addition, we assume zero emissions for the purchase of renewable electricity. We have been recording our emissions in line with international standards since 2006 and as part of our reporting process we capture scope 1, scope 2 and a number of scope 3 emissions.
Water impacts: £1.3 million cost to society
As with any other services company, our staff and office operations depend on water, which is increasingly recognised to have an unpaid-for societal cost. The societal cost of WPP’s direct water consumption is estimated to be in the order of £1.3 million.
This is based on actual water consumption data from 11 offices located in water-stressed areas (an average 11.6m3 of water per person – using 2014 data) and an average assumed consumption rate of water for all other offices (15m3 per person per year). For each of the 11 office locations and for each country with an office, a water stress ratio (total water withdrawals to total renewable supply) was established from the WRI Aqueduct Water Risk Atlas (for office locations) and from FAO AQUASTAT data (for countries). An indicative societal value for water was determined based on the PUMA (2012) water scarcity valuation approach, with values updated to 2016 values based on World Bank global consumer price inflation data. Actual market costs incurred for purchasing water are included within operational costs in the financial accounts.
Waste disposal: £0.08 million cost to society
Whilst 61% of WPP’s waste was recycled in 2016, the remainder was either sent to landfill or incinerated with or without energy recovery. The societal cost associated with the non-recycled waste is estimated to be around £82,000, which relates to GHG and other air emissions, leachate and other associated dis-amenity impacts (e.g. visual and odour).
This value is based only on the non-recycled waste data, although it is acknowledged that the recycled waste will have an overall net negative impact too. Societal costs per tonne of incinerated (with and without energy recovery) and landfilled waste have been derived from Rabl, Spadaro and Zoughaib (2008), and updated using World Bank consumer price inflation data. Societal costs are estimated to be £50,000 for landfilled waste, £5,000 for incinerated waste with energy recovery, and £22,000 for incinerated waste with no energy recovery. Waste that is disposed of that is not allocated to any of the previous categories is assumed to have the same negative cost as the incineration without energy recovery (with a societal cost of £6,000). However, these values are based on average societal costs determined for European countries. More detailed country-specific costs could be estimated in future assessments. Actual market costs incurred for waste disposal are included within operational costs in the financial accounts.