Valutus.

Article

Submerged value is usually most of the value.

Robert K. Merton, one of the founders of modern sociology, split consequences into two kinds. Manifest, the ones you planned for. Latent, the ones you did not.

Most of the business value of a sustainability project is latent. Never seen, never planned for, and never entered in the win column of the proposal.

01Three that were missed

Every one of these was found after the decision was made.

01

LEED

Built for energy, paid in customers

A retailer built several LEED stores to control energy costs. The energy saving was the planned consequence. What turned up afterward was more customers, because people felt better in those buildings without knowing why.

02

Waste

Two lines, a dozen underneath

A manufacturer cut industrial waste expecting lower purchasing and disposal costs. There were at least a dozen further benefits nobody had counted: warehousing, processing, insurance, and working capital freed by material that was never bought.

03

Medicine

Health, and then school

A pharmaceutical company donated medicine in Africa and expected health outcomes to improve. They did. The UN reports that when someone in a household is sick, a girl usually stays home to care for them. Fewer sick people meant more girls in school, and gender equity moved.

02How much is down there

Across two decades of valuation work, there has never been a case where significant submerged value could not be brought to the surface. Not one.

The share is large and it is consistent. Submerged value has never come in below 25 percent of total value, and it is usually 50 percent or more. Often it runs to three times the visible value, and sometimes past that.

Why "submerged" and not "intangible"

Every item on this page is concrete. Warehouse space, insurance premiums, working capital, attrition. Submerged does not mean soft. It means nobody looked.

The floor

25 percent of total value, in the leanest case measured.

The usual case

50 percent or more, which makes the unmeasured half the larger half.

Not a rounding error

One municipality adopted green building policies for its own facilities. Private sector green building in that jurisdiction rose about 90 percent, close to double.

Even sophisticated organizations miss it. We read the public reporting of companies running large, longstanding medicine donation programs. Not one of them mentioned an effect on gender equity.

03When it is the majority

A hospitality company with tens of thousands of employees had run sustainability and CSR programs for years. They knew employees liked the work. They had never put a number on it, so the business case rested on energy savings, where the figures were good and the total was modest.

What the executive estimated
About $3 million a year in talent-related value. She added that her own C-Suite would put it nearer $300,000.
Assumptions used
Deliberately conservative. Published research shows social responsibility leadership cutting attrition by 25 to 30 percent or more. The model used 10 percent.
What the work found
About $30 million a year from talent-related benefits alone. Ten times her estimate. A hundred times the figure she expected from her leadership.

The first reaction to a number like that is rarely delight. It is "we must have entered something wrong." That reaction is reasonable, and it is why the calculation is run live, in the room, with an open invitation to change any input.

Change one number
$30M to $28M
Lower. Still many times what anyone in the building had assumed.
Change three
$30M to $25M
Three reductions applied to numbers that were already conservative. Still eight times her estimate, and eighty times what she expected her C-Suite to accept.

The total moves. The conclusion does not. That is what a defensible number looks like: one that survives the objections of the people who most want it to be smaller.

04Why it stays down there

"We don't know" cannot be entered in a spreadsheet. So the value that nobody can quantify gets the one number it cannot possibly be worth. Zero.

More on the unpriced zero →

The second reason is timing. Latent consequences are called unintended, which invites the conclusion that they cannot be planned for. They can. Every effect on this page could have been asked about in advance, and priced in the proposal rather than discovered years later.

It is a matter of asking the right questions before the decision, not after it.

If you don't measure it, you are not valuing it at nothing. You are valuing it at zero.