O C T O B ER 2008
Quantifying the value of the knowledge gained by students and teachers in Intel’s Teach Program takes innovative accounting prowess.
Corporate execs steal accounting secrets to measure more than money
Traditional financial accounting practices guide
companies making decisions about how to spend,
invest and allocate resources among competing
demands. Today, companies are trying to use
lessons from accounting to make similar decisions
about corporate social responsibility (CSR). But is
triple-bottom-line accounting really possible?
In 2008, carpet maker Interface Inc. (NYSE:
IFSIA) announced its best second-quarter
performance ever. Sales were up, profit margins
were up, and the company was gobbling up
Courtesy Intel Corp.
market share. In large part, the impressive
quarterly results were due to the company’s
market-leading focus on modular carpets, which
were first embraced by the green-building
community and are now landing in mainstream
commercial and industrial buildings.
But scan through earnings statements the
company has filed—both recently and in years
past—with the U.S. Securities and Exchange
Commission, and page after page, there’s little
indication that behind the 10-Q and 8-K filings
Interface has undergone a major transformation
in its approach to doing business.
Interface’s story is well-known in sustainable
business circles. A leader in the global rug and
carpet business, Interface went public in June
BY CELESTE LECOMPTE
1983; 11 years later (1994) the company’s founder
and chairman Ray Anderson had what is famously
known as his “spear in the chest” moment after
reading Paul Hawken’s “Ecology of Commerce.”
In the years since, the company joined the
nonprofit Global Reporting Index to track its triple-
bottom-line performance along 70 metrics, and
continues to publicly report its progress: Waste
reduction efforts have helped it avoid more than
$372 million in costs since 1995; energy-efficiency
initiatives dropped energy consumption 45
percent since 1996; and the company has
increased training, slashed on-the-job injuries by
60 percent and steadily increased its donations to
nonprofit organizations.
Sustainable Industries 21
 FOCUS ON
MONEY
So, if a company such as Interface is able to
identify clear success—even demonstrating
material-cost savings from its activities—why
doesn’t its financial statements reflect its
achievements?
BLIND LEADING THE BLIND
Businesses use detailed frameworks for
decision making, evaluation and understanding
corporate performance in terms of financial data.
The Global Accounting Standards Board, Financial
Accounting Standards Board, the Securities and
Exchange Commission and other regulatory
bodies have established standardized, legal
frameworks for what to measure, how to measure
it, how to report it and how to interpret it.
“Accounting is a way of creating a picture of
something that’s real,” says Darrell Brown, a
professor of Accounting Information Systems at
Portland State University. Financial accounting
selects data points from a sea of possibilities and
manipulates them through mathematical
equations; someone else looks at the output and
interprets it. Throughout the process, companies,
accountants and investors all make implicit
assumptions about value and priorities.
Thanks to the oversight of regulatory bodies,
these assumptions are driven by decades of
22 Sustainable Industries
negotiation and consensus about what
information the numbers provide regarding the
current and future performance of a business.
And there are tangible consequences when
companies fail to meet those standards: They fail
to find investors, perhaps, or to turn a profit.
Ultimately, unfavorable results will shatter a
company’s business.
But for companies that aspire to maintain a
“triple bottom line,” there are no such guidelines
for metrics beyond money. “The notion of triple-
bottom-line accounting assumes or incorporates
the idea in the nomenclature that there’s a
standard,” says Jonathan Storper, an attorney and
owner of Hanson Bridgett. “The reality is, there
isn’t.” When it comes to crunching the numbers
and interpreting the output on social and
environmental data—no one has quite figured out
how to do it yet. Unlike economics, which rely on
a standard unit of currency across all categories,
neither social nor environmental attributes are yet
being described by a single standard unit.
This poses a significant challenge to
operationalize the data contained in most CSR
reports. “Until we find a unit of measure that is
fungible across all those attributes, we can’t do it,”
says Brown. “In economics, we can say our goal is
this: maximize profit,” says Brown. But when
companies get to environmental or social arenas,
O C T O B ER 2008
what, exactly, is it that they’re trying to maximize?
For many companies, carbon is becoming the
environmental version of “debt”—many
companies can track and attempt to reduce carbon
using agreed-upon accounting standards and
practices. To some extent, the ongoing
development of carbon-accounting systems
mirrors the decades-long development of today’s
financial standards; but so far there is no
equivalent to the “Generally Accepted Accounting
Practices” that govern financial markets.
In part, carbon has gained currency as a proxy
for environmental performance because of the
nascent carbon markets developing worldwide.
While the U.S. market remains largely voluntary,
regulatory markets in the United Kingdom and
elsewhere have helped create a clear cost-benefit
scenario for measuring and managing carbon.
“Once the price is set, it’s very easy for companies
to get their heads around it and manage it,” says
Dave Stangis, director of corporate social
responsibility for Intel (Nasdaq: INTC).
Setting a price, says Paul Herman, CEO and
founder of HIP Investor, is critical to making
sustainability part of how companies do business.
“Companies are most inclined to do things that
line up with traditional financial performance,” he
says. “The code to crack is what is the short list of
meaningful measures that also drive profitability.”
O C T O B ER 2008

Minneapolis-based utility Xcel Energy (NYSE:

PUTTING A VALUE ON
XEL), prompted by a suit led by New York Attorney
General Andrew Cuomo, announced in late
August 2008 it would begin reporting the potential

‘SOCIAL’ GOODS
financial impacts of its carbon emissions. Xcel
already files such information with the fast-
growing Carbon Disclosure Project, a voluntary
reporting initiative for businesses that recognize
Environmental markets, while still nascent, are an emerging tool for companies attempting to
the potential costs of their emissions should the
put dollar values on their “green” initiatives. Water quality trading markets, conservation
U.S. adopt a cap-and-trade carbon market under
easements and other emerging markets try to quantify the value of the “ecosystem services”
the next federal administration. In its most recent
provided by undisturbed habitat, uncontaminated water and
report Xcel estimates, at the bargain rate of $9 per
wildlife corridors.
ton of carbon, its cost burden from carbon could
But when it comes to the “social” variables in the triple-bottom-
top $603 million—more than the $577 million
line equation, the idea of creating markets makes some
profit it reported in 2007.
practitioners squeamish, says Intel’s Dave Stangis. “There are now
Most of the people interviewed for this article
prices set for carbon,” he says. “But there isn’t a price set anywhere
agreed the environmental issues that have gained
except in actuary tables for the price of a loss of life.”
the most traction across corporate reporting are
For Portland State University’s Darrell Brown, social issues are
those that, like carbon, can be easily expressed in
the poison pill for most attempts at triple-bottom-line accounting.
monetary terms. Maximizing profit requires
Where most businesses can largely agree that reducing pollution,
minimizing costs, and most environmental
cutting carbon, and maximizing profit are good goals, in the social
initiatives tackled by companies at the outset of a
realm it’s hard to even find a common goal upon which anyone
CSR program aim to reduce costs (including Dave Stangis
can agree.
speculative carbon costs) while also reducing
Intel’s Stangis says he asks managers of the Intel Teach Program to identify specific goals for
energy, water and solid waste. Carbon is just the
their program and begin measuring their performance from day one. Less broadly writ, it’s an
most visible example.
approach that jibes with Brown’s assessment: “If we can identify the social good proposition, we
“Anything that falls in the conservation space,
can find an economically efficient way to achieve it.”
when you save money on transporting waste,
packaging—reducing waste, energy use—those

Time to start tracking the

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Sustainable Industries 23
 FOCUS ON

MONEY O C T O B ER 2008

are all great Finance 101 ROI stories,” Stangis says.

Skip Lamb, vice president of finance at
Interface, says his company is now focused on
identifying new, innovative technologies that do
more than reduce waste—that “close the loop” or
“reinvent commerce” (two of the company’s
“Mission Zero” goals). He cites the example of
new machinery that shaves carpet fibers from their
vinyl backings, allowing the company to collect
waste from other manufacturers’ operations and
incorporate it as raw materials into the
manufacturing process. Such technologies are
typically untested, with little data to support ROI
estimates. Lamb says the company looks for
projects that will create positive returns within
three years—after all, you have to justify such
efforts to shareholders, Lamb notes.

APPLES TO APPLES
Where companies have several needs—say, a
new office facility in Southern California; a new,
more efficient boiler system at a manufacturing

Courtesy Interface Inc.

plant in Ohio; and a lighting-retrofit for offices in
Detroit—how can triple-bottom-line metrics help
them set priorities and make decisions about how
to allocate resources?
For years, Intel struggled to get energy-
Interface invested profits into cutting-edge technology that allows the company to recycle even more carpet components. efficiency projects approved through the budgeting

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24 Sustainable Industries
O C T O B ER 2008

process—even if they showed a positive return on

investment (ROI)—when they were competing
with capital building projects. “We would lose
every single one,” says Intel’s Stangis, who notes
that conservation measures always result in
positive ROI and should therefore be measured
against one another. Today, Intel has a special
capital-funding model that pits energy efficiency
projects against each other, rather than against
other investments. It wasn’t an easy process,
though. Stangis says it took “a couple years of
arguing” to establish a process that included buy-
in from the executive level and the budget team.
While Stangis won’t say what percentage of the
company’s overall budget is set aside for such
projects, he says the model has enabled the
company to undertake cost-effective efficiency
projects. It’s been so successful that the company
has now moved beyond just creating new budget
categories to figuring out how to create similar
models that weigh additional “sustainability”
investments against each other.
In the end, the company created a “framework”
for evaluating projects, such as the Intel Teach

Courtesy Intel Corp.

Program that helps K–12 teachers integrate
technology into their lessons, across six priorities.
The priorities are weighted based on a survey of 44
Intel managers involved in such decision making.
The rubric gives weighted scores to: Having trained millions of teachers in more than 40 countries, Intel’s Teach Program aims to nearly triple its impact by 2011.

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Sustainable Industries 25
 FOCUS ON
MONEY
environmental impact (24%), leadership
positioning (20%), government regulations (17%),
media visibility (15%), employee impact (14%) and
return on investment (10%).
Evaluators give proposed projects scores of 0, 1
or 2, depending on the category. To earn 2s across
the board, a project would: provide a greater than a
five percent reduction in waste, water or energy;
position the company in the Top 10 of global
businesses; position the company to “shape future
governmental relations”; produce positive
recognition from a media outlet (the model cites
The Wall Street Journal as one example); make
employees feel “proud” of the accomplishment;
and have a 15 percent or greater ROI.
Using the framework, Intel’s green-power
purchasing program (which earns the company
the title of the largest green power purchaser in
the United States) earns a score of 80, with
negative ROI and 2s in every other category but
leadership, in which it earns a 1 (“positions the
company among the Top 10 of all U.S. firms”).
The program’s high marks give Intel targets for
assessing renewable energy installations that could
provide some of that green power on site.
But the model doesn’t help Intel decide which
projects to pursue when the projects are extremely
different. For example, when comparing a water-
efficiency system in India with a solar PV
installation in Arizona, “all of the sudden the
model starts to fall apart,” Stangis notes. “You’re
making subjective judgments. And you’re outside
of comparing ROI and ROI.”
JUDGMENT DAY
At Interface Inc., it’s not just CSR projects that
have to pass a triple-bottom-line evaluation. All
projects that are going to cost more than $5,000 get
routed through the company’s Capital Expenditure
Authorization system. In addition to general
background information on what the project is and
what it will cost, applicants complete an
environmental assessment section with 17 different
environmental criteria; a financial assessment rate
of return payback period and cost savings; and a
“narrative” section, which Lamb described in an
e-mail as “a section on environmental justification
that includes the seven steps to sustainability
(eliminate waste, benign emissions, renewable
energy, closing the loop, resource efficient
transportation, sensitivity hookup and redesign
commerce).”
Environmental compliance teams review the
evaluation before it’s routed through the finance
department for number crunching. As a finance
professional, Lamb is one of the last people to
review an evaluation. “If it doesn’t past muster with
our environmental group, it doesn’t get to me.”
The approach sets a baseline, stops “bad”
26 Sustainable Industries
GENUINE
METRICS
In sustainability metrics, it’s impossible to
avoid the impact of two major initiatives:
The Kyoto Protocol and the Global
Reporting Initiative (GRI).
The Kyoto Protocol is the better known
of the two, and it’s played a critical role in
giving teeth to largely theoretical triple-
bottom-line accounting practices. But the
GRI could become an equally toothy
initiative if Massachusetts-based
environmental consulting firm The
Cadmus Group has anything to do with it.
In May, the firm acquired Portland-based
energy industry consulting firm Quantec,
which has created Genuine Metrics, an
open-source, Excel-based software tool
designed to help companies translate the
social and environmental impacts of
business into the language of business:
dollars. The GRI provides a good foundation
for such analysis. While it is fundamentally
qualitative, the GRI framework also
attempts to quantify the risk involved in
each metric. Genuine Metrics pushes those
numbers to the next level.
It ties a wide range of databases for
categories such as wood, water and
employee training to explicit values. In
many cases, the model uses the economic
concept of “rents,” which are essentially
values estimating how much a resource
(oil, employees, e.g.) depreciates (say,
corporate travel) or appreciates (say,
training) through normal business. The
Genuine Metrics tool then helps
companies crunch this kind of complex
data into metrics that mean something. Jim
Thayer, senior associate at Cadmus, says
the tool showed Cadmus that its own
sustainability programs (such as buying
green power and providing subsidies for
hybrid vehicles) couldn’t compensate, even
if maxed out without regard for cost, for all
of the company’s own resource-use
impacts.
Disappointing as it may be, that kind of
feedback is a big win for the team, as it
proved the benefit of statistical modeling
for making business decisions.
More info:
www.cadmusgroup.com/strategic_environmen
tal_consulting
O C T O B ER 2008
projects before they start and encourages planning
for “good” projects from the get-go. Lamb warned
against relying too heavily on the number-
crunching aspects to understand the company’s
approach to decision making. “I wish I could tell
you that we have a totally automated scientific
capital expenditure selection modeling tool, but we
do not,” he wrote. “We really prefer the involvement
of our associates in our capital requests.”
CREATING THE MOLD
At Intel, associates take a team approach to
decision making. Content experts bring different
perspectives to the table and help the rest of the
team ask better questions. Stangis points to the
“cross-functional team” dedicated to the renewable
energy program as an example. While the person
responsible for buying all of Intel’s power brings a
cost-sensitive perspective to the table, team
members from the Intel Capital Group can
advocate for riskier projects that may support one
of its cleantech investments.
The group approach may have long-term
benefits. In the case of CSR reporting, bringing
accountants, lawyers, environmental engineers,
operations personnel and other employees to the
table could help move the triple-bottom-line
accounting theory closer to regulatory standards
that can be embraced across the market.
But what about smaller companies that don’t
have access to multiple in-house experts across
various disciplines? Jim Thayer, senior associate at
The Cadmus Group, acknowledges that the detail
involved in making sophisticated triple-bottom-
line assessments can make the task overwhelming
for most small businesses. The Cadmus Group is
working to develop an open-source tool for
calculating financial implications of the way in
which companies use human and natural capital
(see “Genuine metrics”).
Triple-bottom-line accounting can be simplified
by establishing, and limiting, the scope of what
companies will measure. Are social impacts going
to be measured in terms of employee satisfaction
(which Herman of HIP Investor notes is often tied
to overall performance), community impacts and
contributions, or broader public-policy indicators?
Environmental impacts can be assessed by
examining direct resource use, overall supply-
chain use, or even lifecycle assessments on the
company’s products and services.
Choosing the right approach means that
companies have to decide what they want out of
their sustainability declarations. “Why is it that
you’re actually doing this?” Thayer says. “Is it part
of the branding process, the ability to attract
employees, an honest concern about
sustainability? All of these things come into
question.” ●