For the fourth year, we’ve used our unique Total Impact Measurement & Management (TIMM) framework to monetise our economic, tax, social and environmental impacts. It’s one of the ways we’re strengthening our annual reporting to provide greater transparency for our stakeholders, and improving the information we use for decision making.
It’s helping us to understand the relative importance of different aspects of our business, and where to focus our efforts to decouple business growth from our environmental footprint.
We estimate that our impacts this year total £4.55 billion. This is 32% more than our revenue, and an increase of 8% this year. A breakdown by indicator can be seen in the diagram above. It shows that we have a significant positive economic (£2,701m), tax (£1,760m) and social (£231m) impact, with relatively limited negative environmental impacts (£141m). More details on our 2016 impacts across each of the four quadrants can be found in the corresponding tabs on this page.
We’ve again split our impacts into the three categories of ‘direct’, ‘indirect’ and ‘induced’ (shown by the shading on each bar). This shows that our indirect and induced impact, together, amplify our total impact by 67%.
TIMM is a relatively new framework, and doesn’t yet account for all of our impacts1. For example, our social impact calculation still only estimates some of our direct impacts, where we’re confident in the robustness of our data and assumptions. And, we don’t currently include any impact for the actions our clients take as a result of our engagements.
Nevertheless, our total impact analysis has already permeated the business, helping to embed integrated thinking. It’s given us a concept and language that helps ensure consideration of the social, environmental, and tax implications alongside the financial business case as we manage our day to day operations. And, it’s helped us to focus our activities to decouple business growth from our environmental footprint.
1 2016 results include all direct, indirect and induced impacts for all economic, tax, and environmental indicators. Social impact calculation currently limited (see social impact section). All figures refer to impacts before any estimates of the ‘counter factual’ (i.e. what the impact might have been if PwC didn’t exist).
Our economic impact is driven largely by the jobs we create and profits we make, with 62% of our total economic impact being attributable to payroll and 31% to profits. Over half of this is derived from our direct operations, shown by the dark green shading on the economic indicators. The rest arises from our procurement (our indirect impacts), or as induced impacts – spending by our people, or by the employees of our suppliers, in the economy (known as the ‘multiplier effect’).
Impact: £1,678m (+10.7% cf. 2015)
Direct: £879m; Indirect £260m; Induced £539m
As a people-business, our single, largest contribution results from our direct spend on our employees. This was 12% higher in 2016 as we increased the number of our employees (by 8%) and their skills to meet growing market demand, and our people’s pay and remuneration flows through to the economy at large. Additionally, we estimate that our spending with suppliers resulted in them paying their employees £260m. The induced impacts associated with our payroll totalled another £539m.
Impact: £826m (+3.9% cf. 2015)
Direct: £447m; Indirect £179m; Induced £200m
Our business has continued to grow, and its success makes a contribution to the economy through our direct profits, which are distributed to our partners. Significant investments in our people and our technology have had an impact on our direct profitability, reducing it 2% to £447m. While changes in the mix of goods and services we purchased in 2016 increased our supplier profit impacts slightly, whilst our induced profit impacts added another £200m.
Impact: £148m (+10.2% cf. 2015)
Direct: £39m; Indirect £37m; Induced £72m
A smaller part of our economic contribution comes from the investments we make in physical assets such as real estate and IT equipment. This year significant investments in new technology and software to aid the delivery of our work drove up direct investments by 13%. The indirect and induced impacts have also increased.
Impact £50m (+8.5% cf. 2015)
Direct: £9m; Indirect £16m; Induced £25m
This year saw a 2% increase in our direct ‘intangibles’ impact as we invested in new computer software, needed to deliver the high quality of work our clients expect of us. At the same time our indirect and induced impacts have increased by £4m (10%) as a result of spending more with our suppliers and paying our people more.
The final area shown in the framework is intended to capture any potential macro-economic cost or benefit that might result from the impact of an organisation’s activities on a country’s balance of payments. In the case of PwC LLP's operations in the UK, no such impact is expected.
As a business, we make a positive contribution to the UK economy through the taxes arising from our business. For several years, we’ve aggregated the taxes we pay and collect on behalf of government, using PwC’s Total Tax Contribution (TTC) approach, and have reported them in our Annual Report. To arrive at our total tax impact, we add the taxes our suppliers pay, relating to the goods and services we purchase from them (indirect taxes); and the taxes that our people and the employees of our suppliers pay through spending their personal incomes in the general economy (induced taxes).
In 2016, our total fiscal impacts totalled £1,758m, up 6.3% on 2015. This corresponds to an additional 65% contribution on top of our economic impacts. The increase has largely been driven by the enhanced financial performance of our business this year, which flows into each of our impact indicators.
Profits taxes and people taxes
Profits Taxes Impact: £387m (+2.9% cf. 2015)
Direct: £303m; Indirect £28m; Induced £56m
People Taxes Impact: £740m (+10.6% cf. 2015)
Direct: £452m; Indirect £119m; Induced £170m
A large proportion of our fiscal impact comes from the taxes we pay and collect on behalf of our people – including PAYE and national insurance – as well as the taxes our partners pay on their profits. Shaded dark green in our chart, these taxes total £755m, and represent 43% of our total tax impact. Our indirect and induced contribution from people and profit taxes constitute a further 21% of our total tax impact; with most of the rest arising from production taxes.
We’ve seen an 11% increase this year in the overall amount of tax our people pay as we’ve hired more staff, and increased the number of senior staff in the business. While reduced profitability from these increased investments reduced our profitability, and our direct profit taxes increased marginally to £303m.
Impact: £538m (+3.1% cf. 2015)
Direct: £346m; Indirect £69m; Induced £122m
We also contribute through taxes relating to the services we provide (production taxes). These include the net VAT collected as a result of the services we sell, and insurance premium tax and air passenger duty on our purchases. We’ve seen a 3.1% increase in our production taxes this year, as our business strategy continues to deliver growth.
Impact: £90m (8.0% cf. 2015)
Our operations also incur property taxes (Stamp Duty, business rates), although at relatively low levels in comparison to other tax impacts. This year, they’ve risen 8% as we renewed the lease of our Embankment Place head office, leased or purchased five new properties, and moved to more landlord controlled properties which have a higher tax impact for our business, but lower environmental impacts.
Impact: £4.5m (5.2% cf. 2015)
Given the nature of our business, we use relatively little natural capital, and our environmental taxes (Vehicle Excise Duty, Carbon Reduction Commitment, and Congestion Charge) are very small in comparison to our other tax impacts. Our direct environmental taxes decreased 20% this year as we continue to streamline our property portfolio, invest in more energy efficient offices, and switched to a 100% renewable electricity tariff which is exempt from the governments CRC Energy Efficiency Scheme. However increased payroll for both our own staff and our suppliers’ staff due to changes in the pattern of our spend with suppliers - with less in construction related spend, and more on business services - have caused our indirect and induced impacts to increase by 9% to £4.1m.
At present the only social impacts which we’ve quantified are our contribution to education in the UK, and community livelihoods through our social enterprise Brigade. We currently don’t have the data required to measure and value the other impacts reliably. But, we continue to advance our methodology for evaluating our community impacts: we’re now measuring the outcomes of our programmes, although establishing how much is due to PwC’s activities remains challenging.
Impact: £231m (+18.5% cf. 2015)
As a leading professional services firm, large numbers of people join us for the excellent education opportunities we offer. Acquiring and developing talent is key to our business model and the quality of our services, so we place a lot of emphasis on training our people. In particular, we have large intakes of students from universities and schools each year. They undergo professional skills training with us, gaining technical knowhow as accountants, actuaries and other advisors. Over 600 people gained accounting qualifications with us this year.
We aim to retain as many of them as possible, but some use their skills as a springboard for a career in finance or other functional roles in companies across the UK and the world. Typically, our alumni have an increased earning power due to their professional qualifications which, in turn, generates incremental earnings over the course of their working lives.
In 2016, the education impacts we’ve measured for our accountants amounted to almost £231m, up £36m compared with 2015 as a result of the higher number of graduates we successfully trained in 2016.
Not all of our people are accountants, though. Our consultants and other professionals benefit from development opportunities too, but we haven’t valued them yet.
Impact: £0.5m (-20.5% cf. 2015)
We contribute to the livelihoods of our communities in which we operate in a number of ways. We can’t currently quantify all of the impacts we make in the livelihoods category. But, this year, we’ve included the impacts generated by the social enterprise Brigade, which can be attributed to PwC’s involvement as a major partner.
Brigade is a bar, restaurant and venue, based in central London, and is the home for a series of programmes that Beyond Food runs with people who are homeless or at risk of homelessness. It generates social value through the time these people - who were previously homeless, out of work, in prison and/or on various State-supported benefits - spend on the programmes, and the subsequent qualifications and employment they gain.
An example programme is the United Kitchen Apprenticeship, which provides six months’ work experience in the kitchens at Brigade, an NVQ Level 2 qualification and a further seven months on a work placement, where the apprentices can hone their skills and get ready for a career in the food industry.
In April 2015 we published an assessment of the social impacts generated by Brigade in its first three years of operation (2011 to 2014), including an estimate of the social return on investment (SROI) generated in monetary terms.
In calculating the total impact of Brigade we’ve updated the SROI analysis, to focus only on the impacts occurring as a result of the activity during the current financial year. Not all of the benefits are attributable to PwC alone, as we are just one of a number of partners involved. So, we apportion a percentage of the impacts, based on our proportion of Brigade’s overall funding.
In 2016 our impact from Brigade decreased by 22% as we saw less benefit caused through the apprenticeship scheme per apprentice. This was primarily driven by fewer ex-offenders in the apprentice cohorts, who have a higher benefit from the avoided costs to the state of re-offending.
As a professional services firm, our direct environmental impact is small when compared to many other industries, but we make a concerted effort to minimise it all the same. It’s part of being a responsible business.
Historically most of our focus has been on decoupling the impacts directly associated with our operations from the growth of our business. Our total impact analysis, however, emphasises the scale of our indirect and induced impacts – 20.9% and 79% of the total respectively – and we’re working to positively influence these too.
Impact: £60.8m (+12.1% cf. 2015)
Direct: £0.1m; Indirect £14.2m; Induced £46.5m
As a service-based business, it’s little surprise that greenhouse gases (£61m) account for the majority of our environmental impact. It’s calculated using a social cost of carbon, which measures the full economic cost of an incremental tonne of carbon dioxide (or GHG equivalent) over its whole lifetime in the atmosphere. In our own operations, most of this comes from the energy we use in our buildings and from travelling to work with our clients. So, we have programmes in place to help us to reduce our footprint from both, and are on track to meet our targets. We pioneer new, low carbon technologies where feasible, and pass on what we've learned to our clients and other organisations. You can find examples of how we're innovating in our environmental focus area. But, as our indirect and induced impacts are far greater than our direct, we want to influence these too, and are running an active supply chain engagement programme, which involves engaging our key suppliers on greenhouse gases through our ongoing membership of the CDP Supply Chain programme.
Impact: £27.8m (+57.7% cf. 2015)
Direct: £0.004m; Indirect £5.4m; Induced £22.4m
For our business, air emissions are generated largely from the same activities that cause greenhouse gases – burning fossil fuels for energy, transportation etc. so they are tackled as part of our environmental and supply chain programmes. Indirect and induced impacts increased paid our people more, and spent more with our suppliers, while also shifting our spend from environmentally intensive sectors such as construction towards more office administration/business services sectors which have a lower environmental impact in total, but higher air emissions.
Impact: £6.5m (+9.5% cf. 2015)
Direct: £0.03m; Indirect £2.3m; Induced £4.2m
Waste is our smallest environmental impact but we’ve still set ambitious targets to address it, because it’s the right thing to do, and as a responsible business, our people and other stakeholders expect it of us. We’ve already rolled out recycling in all our offices and are now collaborating with our suppliers to further reduce our waste and get as close as possible to our aspirational 2017 target of 100% recycling.
Impact: £37.3m (+9.5% cf. 2015)
Direct: £0.001m; Indirect £4.9m; Induced £32.4m
Most of our land use impact occurs outside our operations, but we still want to do the right thing in the land we have influence over. That’s why we built green spaces to support biodiversity at our More London office, and a living wall, herb garden and insect-friendly borders on the terraces of our Embankment Place headquarters. We continue to monitor their biodiversity impacts with the help of experts.
Our indirect land use impact is primarily driven as a result of the footprint of the food we consume when in our offices, or staying in hotels while working for our clients. Our induced impacts arise largely from the food that our people, and our suppliers’ people, consume in their personal lives.
Combined, these mean that land use is our second largest environmental impact, so we’ve worked with our carbon offset provider to update our offset portfolio so that it includes projects which focus on protecting rainforest in biodiversity hotspots, and continue to evaluate how we might further address our land use impacts in the future.
Water use and pollution
Impact: £8.6m (+9.3% cf. 2015)
Direct: £0.01m; Indirect £1.2m; Induced £7.3m
Our business doesn’t require large amounts of water, with most of the little impact we have occurring as induced impacts. We focus our efforts to reduce consumption through our office investment programme, as we enhance our real estate portfolio.