The limits of putting numbers to things we care about

In his excellent Reith Lectures, Mark Carney describes how the pandemic has jolted us into a shared awareness of a rift between what society values and market value. “In recent decades, suddenly but relentlessly, we’ve been moving from a market economy to a market society. Increasingly, to be valued, an asset or activity has had to be in the market, and this crisis could help reverse that so that public values help shape private value”.

Another way of putting it is that we need to move from an economic system optimised for growth and profit to one optimised for human well-being and a sustainable ecosystem. Profit and growth still matter, but not for their own sake – we need growing and profitable businesses oriented to solving the problems of people and planet without adding to them.

In his final lecture Carney makes a powerful case for how this new mobilisation of the private sector can and must be marshalled at a political level now to accelerate tackling climate change. Through carbon pricing, creating markets in offsets, mandatory TCFD reporting and other means he says, “we can unleash the dynamism of the private sector to put value in service of values. If society sets a clear goal, it will become profitable to be part of the solution and costly to remain part of the problem.”

One of the CEOs we work with said to me the other day that they were shocked when the company first did the exercise of calculating its carbon footprint. They had no idea that their company alone was responsible for 0.5% of UK carbon emissions. Knowing the number and making the commitment to reduce it has been a spur to innovation and creativity, and is reshaping strategy now. As momentum builds through the mobilisation of the private sector, and given the crucial fact that it will be increasingly possible to monetise direct and indirect carbon emissions and for investors and policy makers to set meaningful targets, it is indeed plausible to imagine that rapid progress will be made through market mechanisms to meeting these urgent environmental demands.

But what about people? There are other features of the deep chasm between what society values and market value that are much harder to bridge through using the price mechanism to internalise costs and benefits - in particular those relating to a just transition, respect for the dignity of people, the quality of human relationships and meaningful work.

Can the same approach work by monetising values previously ignored? An influential group of leading academics and practitioners promoting purpose-led business think the answer is yes. They have together produced an elegant framework based on motives, metrics and money. This clarity of approach is extremely helpful. They rightly recognise the vital importance of motives - the mindset in running a purpose led business, and the need for attention to purpose, mission, vision and values through narrative reporting. Beyond this, they also believe purpose can and should be measured, and the key is to find a way to monetise everything:

“In the context of corporate purpose, it is as necessary to attach values to human, social and natural capital employed in the delivery and fulfilment of purpose as it is to their material and financial counterparts. While concerns are sometimes raised about monetary values, especially in relation to nature, on the grounds of ‘knowing the price of everything but the value of nothing’, a failure to do this leads to the more serious problem of not valuing anything that is not priced, and consequently misallocating scarce and valuable resources.”

The yearning for an inclusive way to measure impact along multiple dimensions using the same monetary units is appealing. It also seems to offer an escape from the fraught complexity of competing goals and interests, enabling business to return to the psychological security of financial numbers rather than decisions requiring value judgements between incommensurable goods.

But is it really possible or desirable? Another insight Mark Carney draws out is the corrosion of values from pricing things that have traditionally been outside the market, and the ‘flattening’ of values “by forcing decisions to be made according to utilitarian calculations”. He points out too the economic error of treating civic and social virtues as scarce commodities, when in fact they grow through the quality of relationships created and sustained in every dimension of life, including business.

Businesses do not sit in some hermetically sealed world called ‘the market’. They are part of society and the values which shape behaviour permeate both worlds. The gap between ‘what society values’ and ‘market value’ can only partly be closed by redefining ‘market value’ though monetising more of what society values in what a business does. It also needs businesses to accept their untidy reality as social entities, where people are at the heart of business success. Whilst we can put a price on carbon, we can’t so easily price the quality of relationships, and should not create mechanisms which are likely to reinforce the very problem we are trying to solve. A risk of the ‘Motives, Metrics, Money’ framework is that it inadvertently promotes a mindset of ‘Money, Metrics, Motives’ if monetisation is perceived as the ultimate good.

Resisting monetisation does not mean no measurement is needed or possible. For a range of material human and social outcomes and impacts relevant to business success it is necessary of course to have a range of measures - qualitative and quantitative - and to set some key non-financial goals. These goals should be outward facing so that the company can be clear about the benefits for society they are seeking and the stakeholder beneficiaries can judge for themselves the value of those outcomes. Monetising what the company believes is of value is not the same as delivering on what society values. Very often a business’s contribution to achieving complex social outcomes are almost impossible to measure fully, and the best any business can do is report on activities done, together with the rationale as to why these are seen to be the most effective. Too much focus on the proxy measures carries a constant risk over time of skewing activities and effort to hit the target but miss the point.

At the core of the welcome shift to purpose-led business is a recognition that a business is a network of human relationships founded on respect for the dignity of each person. With this mindset the growth and development of people through these relationships becomes an integral part of what the business seeks to achieve through profitably providing goods and services that benefit society. The true aim of such a business is to create value for society, and it is a mistake to think this can ever be wholly measured in monetary value. To resort to doing so is in the end a symptom of the very problem Mark Carney identifies rather than the solution to it.

Charles Wookey, 26th February 2021