Where We Come From: Putting a Value on Non-Financial Performance Indicators
At SAP, we put a monetary value on how selected non-financial indicators have impacted our operating profit. For example, how well we engage with our employees and inspire them to commit to our purpose and strategy, support a healthy business culture, and succeed in reducing our carbon emissions.
To achieve this, we created cause-and-effect chains that show how specific actions we take at SAP lead to shifts in behavior. This behavior impacts on our business and has a financial consequence. By doing so, we established more than just a correlation between non-financial and financial indicators. It also reveals why and how something such as employee engagement ultimately leads to gains or losses in business performance. We believe that such insights are a prerequisite for fully modeling the financial impact of non-financial performance.
Magnitude of Financial Impact
From 2014 to 2018, SAP used techniques such as linear regression analysis to document the financial impact of four non-financial indicators: Business Health Culture Index, Employee Engagement Index, Employee Retention, and Carbon Emissions. In the past, we assessed each indicator to see what a change of one percentage point (pp) (or 1% for carbon emissions) would mean for our operating profit. The results for 2018, for example, showed that a 1pp change in the Business Health Culture Index affected our operating profit by €90 million to €100 million (non-IFRS).
Having illustrated this impact with concrete numbers, we are now turning our focus to a broader perspective of impact (for example, see Our Contribution to the UN Sustainable Development Goals and The Next Logical Step). We still strongly believe in the fundamental conclusions of the analysis, but do not see a need to continuously update specific monetary values on the well-established connections, since the values have not been subject to any large fluctuations over the years. Instead, they have increased steadily, as expected.