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DISCLAIMER
The main purpose of our Value Added Statement (VAS) is to illustrate the relative importance of our
externalities, which will allow us to address them regardless of whether they affect our business. Since
this assessment reflects the order of magnitude of our added value in monetized terms, it will help us
to increase our corporate and societal value over time. The calculations contained in this statement do
not reflect our past, present or future income nor are they part of our financial reporting.
Our VAS results should be considered as indicative, as they are calculated through a customized model
based on a set of assumptions. Current approaches could be refined further as new studies become
available. In the coming years, results from former VAS assessments could be re-expressed according
to further methodological refinements.
Although we strive to provide accurate and timely information in this statement, there can be no
guarantee that it represents an exact description of reality. Thus, no actions should be taken based on
the information disclosed in this report without previous appropriate technical advice and a
comprehensive analysis of the specific situation.
Value Added Statement 3
CONTENTS
Introduction1 4
Page
62 Impact valuation over time
73 Methodology
8Interpreting results4
Externalities5 9
Value Added Statement 20156 10
7 Value Added Statement 2016 12
8 Internalization and risk management 14
9 Applications 15
Appendix: assumptions and details on indicators10 16
Value Added Statement4
INTRODUCTION
At Argos we believe in working with others to
become part of the solution to many of the
global challenges we face today. This is why
we strive to create value for our stakeholders
through responsible operations and effective
management strategies.
The value we create for society is reflected in
our financial statements, yet we create
additional intangible value through the
economic, environmental and social effects
of our operations. These effects represent
costs and benefits that the society unwillingly
assumes, which are also known as
externalities (see Box 1).
Conscious of this, we launched an initiative
that allows us to assess and actively manage
each one of the main externalities associated
to our operation.
Using KPMG’s True Value methodology, we
developed the Value Added Statement (VAS),
a tool that provides important insights on the
ways through which we retain, add or reduce
value for the society as a whole.
With this approach we aim to achieve the
following three objectives, contributing to our
ultimate purpose as a company, which is to
build dreams that foster development and
change lives.
THE VALUE ADDED
STATEMENT (VAS),
IS A TOOL THAT PROVIDES
IMPORTANT INSIGHTS
ON THE WAYS THROUGH
WHICH WE RETAIN, ADD OR
REDUCE VALUE FOR THE
SOCIETY AS A WHOLE
Figure 1: VAS objectives
To make better informed
and more responsible
business decisions
To be able to manage our
risks in a more accurate
way
To enhance our
transparency by properly
informing our stakeholders
Co-processing, Rioclaro plant, Colombia
Value Added Statement 5
Box 1: what are externalities?
Every industrial, commercial or administrative
process brings along positive and negative
effects for the society. At Argos, the processes
that allow us to produce and commercialize
cement, concrete and aggregates, as well as
the management activities inherent to our
operations, are not the exception.
For instance, when Argos produces cement,
the process involves the emission of different
components to the atmosphere, which might
affect the health of communities, who may
have to incur in medical expenses in the
future in order to address possible health
issues derived from such emissions. The
extent to which we reduce air emissions has a
direct effect on the cost that society
unwillingly assumes.
However, the sale and use of cement also
generates value that is distributed among
stakeholder groups such as employees,
suppliers, providers of financial capital and
the Government.
In addition, as a result of the economic
activity of the company, Argos invests in the
surrounding communities in a way that
represents benefits for them in the short
and long term (e.g., investments in
education infrastructure will increase a
given community’s average wages, which
results in their increased overall wellbeing).
The concept of positive and negative
externalities takes into account these
monetary costs and benefits (see Figure 2).
Our objective is to account for all such
effects and calculate the net value that the
society receives from our activity. This
assessment allows us to acknowledge how
to increase this value through strategies for
optimizing benefits, as well as reducing
costs for the society as a whole.
Figure 2: example on how a negative externality (orange) and a positive externality (green) translates into costs and benefits for
society
Value Added Statement6
IMPACT VALUATION OVER TIME
To this date, quantifying and monetizing
intangible impacts does not result from a
worldwide accepted and standardized
methodology. For more than two decades, a
number of companies and initiatives have
participated in the development and
refinement of conceptual frameworks,
models and methodologies to achieve
comparable results that reflect reliable
approximations of reality (see Figure 3)*.
Therefore, our VAS results to date are
calculated through a customized model
based on a set of assumptions (see Appendix)
and our current approaches could be refined
further as new theoretical developments
become available. Nevertheless, they reflect
the order of magnitude of our added value in
monetized terms, which can help us to
increase our corporate and societal value
over time.
In addition, through our VAS our company
aims to contribute in the discussion and
definition of methodological approaches to be
applied and standardized across regions and
industries, leading to comparable results and
calls for action in areas critical for sustainable
development.
Figure 3: impact valuation over time. Based on KPMG analysis 2016
*: Acronyms from figure 3 include ESIA (Environmental Social Impact Assessment); FMO (Netherlands Development Finance Company)
NS (Dutch Railways); TCO (Total cost of ownership); TNC (The Nature Conservancy); DJSI (Dow Jones Sustainability Index); WBCSD
(World Business Council for Sustainable Development); SE P/L (Social and Environmental Profit & Loss).
Value Added Statement 7
METHODOLOGY
During 2016 we went through the following steps:
Defining the scope:
Company-wide
identification of positive
and negative externalities
and boundaries
Building the model:
Data collection and
monetization based on
research of most
accurate multipliers
available to date
Gathering insights:
Analysis and public
disclosure of key findings
and planning of next
steps
> >
Figure 4: main stages for building Argos VAS
Our VAS began with a scoping phase that
involved experts from all areas of the company,
who identified the most significant economic,
social and environmental externalities to be
considered. As a result, we defined 11 material
externalities, as well as insights on how the
costs and benefits derived from them could be
internalized by the company in the future (see
page 14).
Afterwards, we gathered economic, social
and environmental information required to
quantify and monetize the externalities in
scope. This implied searching not only for data
captured and tracked by the company, but also
quantitative references (i.e. multipliers) and
methodologies that allowed building a model
to translate the company data into financial
costs and benefits assumed by third parties.
Thanks to the active engagement of diverse
parties and teams, we developed a model
that not only allows us to obtain an accurate
approximation of the net value we create to
society, but also to infer the main impact
drivers of our operations and perform
comparative analyses over time. All areas of
the company were also involved in the
validation of the final methodology, as well as
the key conclusions behind 2015 and 2016
results.
Value Added Statement8
INTERPRETING RESULTS
Box 2: reading a bridge chart
Waterfall charts, also known as bridge
charts, are widely used in financial analyses
to compare how a magnitude evolves after a
set of positive or negative changes. In our
case, the bridge shows how our retained
benefit translates into societal value after
all positive and negative externalities are
taken into account.
The bridge chart consists of two columns
representing the initial and final values, and
a set of intermediate columns that appear
to float, rising when the amount is positive
and falling when it is negative. These
columns are also differentiated by colors, in
order to ease the interpretations of each
impact.
The VAS model is designed to calculate the net
value we create to society during a given fiscal
year. Final results are portrayed as a financial
bridge chart (see Box 2), which begins with the
value we retain in the form of earnings. This
amount is denominated retained benefit and
can be tracked in our annual financial
statements.
The positive or negative amount in each of the
subsequent bars shows the societal value
created or reduced by Argos’ most material
externalities. The procedure to quantify and
monetize each externality is different and
responds to specific contexts and theoretical
frameworks, requiring singular data and
multipliers for their calculation. Also, the
positive or negative result of each bar responds
to the nature of the impact itself (e.g. ‘negative
consequences of affecting biodiversity’),
adding up other drivers that may counteract
or mitigate the magnitude of this result (e.g.
‘biodiversity rehabilitated by the company’).
The final bar represents the net value added
to society, which is the societal value created
by Argos after all externalities have been
accounted for. In addition, we calculate the
ratio between our retained benefit and the net
value to society, in order to obtain a clear
understanding on the relation between
corporate and societal value creation.
Further details on assumptions, frameworks
and calculations can be found in the Appendix
(see page 16).
Retained
benefitExternalities
Net value
to society
Figure 5: basic bridge chart
Value Added Statement 9
EXTERNALITIES
Greenhouse gas (GHG)
emissions
Climate change impact
through Greenhouse gas
emissions
(Scope 1 & 2)
Air emissions
Air pollution impacts
associated with Argos’
emissions of NOx, SOx and
Particulate Matter
Water consumption
Impacts on water scarcity
caused by our water
consumption
Biodiversity
Impacts on biodiversity via
extraction operations and
facilities as well as offsets
and rehabilitation programs
Environmental externalities
Alternative materials and
fuels
Impacts of replacing raw
materials and fuels with
alternative ones, which
results in avoided CO2
emissions
Health & safety
Impacts on workers and
communities associated with
occupational incidents
(injuries & fatalities) and
illnesses
Talent development
Impacts deriving from human
capital development
enhanced by training
programs
Community Investment
impacts of projects on
housing, community &
educational infrastructure,
Scholarships and others
Social externalities
Salaries & benefits
Impacts in the economy
deriving from the
remuneration of our
employees
Interests & dividends
Impacts in the economy
related to interest and
dividend payments to
financial institutions and
investors
Taxes
Impacts in the economy
associated with tax payments
done to the governments of
the countries in which we
operate
Economic externalities*
*The data used for calculating both Retained Benefit and Economic Externalities include Martinsburg Plant in West
Virginia (USA) from December 1st, 2016. This is in line with our financial statements.
The following externalities were included in our Value Added Statement, after an identification
and prioritization process in which several areas participated through workshops and
interviews.
Figure 6: Argos externalities in scope
Value Added Statement10
THE NET VALUE ADDED TO
SOCIETY IN 2015 WAS USD 842.5
MILLION, 2.96 TIMES THE
BENEFIT WE RETAINED DURING
THE SAME PERIOD
ECONOMIC EXTERNALITIES
We generate economic impacts by ensuring
the profitability of activities, the expansion
and consolidation of businesses, compliance
with laws and regulations, and a strong
relationship with our suppliers and
customers.
These effects create monetary benefits
through increased demand and spending
from households and sectors in the economy,
and arise from the payments regarding
salaries and benefits, taxes, interests and
dividends. In 2015, the net benefit to society
derived from economic externalities
accounted for USD 820.5 million.
Through our business activities, we contribute
directly and indirectly to the development of
local economies.
Figure 7: Value Added Statement 2015
VALUE ADDED STATEMENT 2015
Value Added Statement
KEY FINDINGS 2015
ENVIRONMENTAL EXTERNALITIES
SOCIAL EXTERNALITIES
We develop the skills and capabilities of our
employees through training provided by the
EDUCA model. In 2015, talent development
accounted for USD 2.7 million in external
benefits for our employees.
In addition, occupational incidents and
illnesses represented a social cost of USD 5.2
million. We proactively manage our guidelines
and commitments regarding occupational
Health and Safety through the I Promise
project.
One of our main priorities on sustainability is
to manage our impact on the planet, while
seeking profitability and social development.
Therefore, Argos promotes eco-efficiency,
biodiversity protection, mitigation of climate
change effects, sustainable construction
initiatives and a corporate culture oriented
towards using resources responsibly, in
compliance with our Environmental Policy.
In 2015, environmental externalities
represented a net cost of USD 294.6 million.
GHG emissions are currently the most
significant environmental externality,
accounting in 2015 for 78% of the overall
costs to society derived from environmental
impacts. However, during this year the
increasing use of alternative materials and
fuels allowed us to prevent 10.5% of societal
cost of GHG emissions.
IN 2015, 10.5% OF THE SOCIETAL COST DERIVED FROM GREENHOUSE
GAS EMISSIONS WAS PREVENTED DUE TO THE USE OF ALTERNATIVE
MATERIALS AND FUELS
Community school, Panama
The net benefit associated to social
externalities accounted for USD 32.3
million, which resulted mainly from
Community Investments in the lines of
low-income housing, community and
education infrastructure, as well as
electricity provision in Haiti. In 2015,
community investment accounted for
USD 34.8 million, representing 93% of
total benefits derived from social
externalities.
11
Value Added Statement12
VALUE ADDED STATEMENT 2016
IN 2016, THE NET VALUE ADDED TO
SOCIETY WAS USD 929.3 MILLION,
3.43 TIMES OUR RETAINED
BENEFIT, AND IT INCREASED BY
10% COMPARED
TO 2015
The benefit represented by the payment
of salaries and benefits alone increased
by 15%, while the one associated to the
payment of taxes increased by 13%.
Finally, there was a 6% increase in the
positive effect associated to the
payment of interests and dividends.
ECONOMIC EXTERNALITIES
In 2016, economic externalities accounted
for a net benefit of USD 920.2 million and
increased by 12% compared to 2015.
Figure 8: Value Added Statement 2016
Value Added Statement 13
The net benefit from our social externalities in
2016 derived mainly from community
investment. Thanks to the active engagement
of all employees in the I Promise project, the
societal cost associated to occupational
incidents and illnesses decreased by 47%
compared to 2015. In addition, benefits for
employees created by talent development,
showed an increase of 56% compared to
2015.
The environmental effects of our operations
accounted for a net cost to society of
USD287.5 million in 2016. This amount is 2%
lower than the net environmental cost in 2015.
Our climate change strategy, which is one of
our Environmental Policy pillars, aims to
identify opportunities through increasing
operational and energy efficiency, reducing
costs, reducing our clinker-to-cement ratio and
using alternative materials and fuels. As a
result, in 2016 there was an 8% decrease of
our GHG emissions. Also, 11% of the societal
cost derived from our GHG emissions was
prevented through the use of alternative
materials and fuels during 2016.
Another significant reduction was the societal
cost derived from our water consumption,
which decreased by more than 13% due to
an efficient water use and enhanced
reporting practices. There was an additional
reduction of almost 2% in the net cost
associated to biodiversity with respect to
2015, associated to increase in rehabilitated
areas.
Overall, the decrease in the societal costs of
our environmental impacts is linked to the
implementation of our BEST strategy
(Building Efficiency and Sustainability for
Tomorrow), which promotes operational
transformation, implementation of new and
lean technologies, alternative fuels use,
administrative synergies and optimization of
non-operational assets, having as a result
cleaner, more efficient processes without
affecting our production capacity in the
longer term.
KEY FINDINGS 2016
SOCIAL EXTERNALITIES
THANKS TO THE ACTIVE
ENGAGEMENT OF ALL
EMPLOYEES IN THE I PROMISE
PROJECT, THE SOCIETAL COST
ASSOCIATED TO OCCUPATIONAL
INCIDENTS AND ILLNESSES
DECREASED BY 47% COMPARED
TO 2015
ENVIRONMENTAL EXTERNALITIES
Co-processing, Roberta Plant USA
Value Added Statement14
INTERNALIZATION AND RISK MANAGEMENT
Internalization is the process through which a
company may eventually assume its
externalities. This means, that either the
company starts benefitting from its positive
externalities, or pays a higher cost for the
negative impacts of its operations.
Overall, an optimal societal value creation is
one in which social benefits are completely
delivered to stakeholders and in which the
company mitigates negative impacts rather
than paying a higher cost for them.
Some of Argos’ externalities are likely to be
internalized, due to development in
regulations, changing market dynamics and
increasing stakeholder awareness*. This
could lead to decreased revenues or higher
costs. Hence, internalization represents a risk
that should be assessed well in advance.
Regulations –government
legislations, tax
instruments or disclosure
requirements, which can
represent extra costs in
case of non-compliance.
Market dynamics –resource scarcity,
extreme weather events related to
climate change, or new markets
disturbing supply & demand patterns,
which can affect competitive edge.
Stakeholder action –
NGOs, civil society
groups, communities and
workers acting to protect
their interests, which can
affect the company’s
license to operate.
Figure 9: types of internalization risks
*For more information about drivers of internalization see KPMG 2014 ‘A New Vision of Value’
https://assets.kpmg.com/content/dam/kpmg/pdf/2014/10/a-new-vision-of-value-v1.pdf Retrieved 20 April 2017
Value Added Statement 15
APPLICATIONS
Figure 10: VAS applications
Rioclaro Plant, Colombia
We value our impacts in order to serve our ultimate purpose as a company. In the near
future, VAS results could be used to achieve the following objectives through specific
applications, which we are further exploring.
Potential applications
To make better
informed and more
responsible business
decisions
Integration of sustainability criteria into management processes
Integration of sustainability criteria into investment appraisal
processes
To be able to
manage our risks in
a more accurate way
More accurate risk identification and quantification
Understand correlations between sustainability, strategic and
emerging risks
Insights for assessing risk scenarios
To enhance our
transparency by properly
informing our
stakeholders
Accountability and advocacy within and outside the sector
Improvement of responsiveness regarding sustainability
performance
Enrichment of stakeholder engagement mechanisms
Objectives
To build dreams that foster development and change lives
Our ultimate purpose
Value Added Statement 17
RETAINED BENEFIT
The value we retain is calculated by subtracting income tax, as well as interests and dividends
paid by the company from EBITDA. This information can be consulted in our Financial
Statements, which can be found in our Integrated Reports 2015 and 20161. EBITDA: USD 553.049.467 (2015) / 540.996.215 (2016)
Income tax: USD 46.206.494 (2015) / 35.161.588 (2016)
Finance costs: USD 117.126.989 (2015) / 132.730.503 (2016)
Dividends: USD 105.426.602 (2015) / 102.294.559 (2016)
ECONOMIC EXTERNALITIES
Supplier spend
Suppliers spend was monetized, but was excluded from the overall VAS report, in order to
ensure consistency on scope, as the rest of the monetized externalities do not include impact
from suppliers, but are limited to our own operations.
Salaries & benefits, taxes, interests and dividends
Stakeholders payments consists of all disbursements effectively paid during the year by Argos
to employees, governments, investors and financial institutions2.
The value created through stakeholder payments is calculated by using and indirect effect
multiplier, i.e., the spin-off effect generated by increased demand and consumption in a local
economy. This indirect effect consists of:
• GVA (Gross Value Added): percentage of initial expenditures that is injected into
different sectors of the economy via increased consumption and spend from
stakeholders. VGAs are taken from OECD input-output tables3.
• Backward linkage: multiplier effects created by triggering supply and demand among
interdependent sectors in the economy. A proxy for backward linkages are the inverse
Leontief functions derived by OECD input-output tables.
Due to limited data availability, we use the same GVA and backward linkage multipliers for
Colombia, Caribbean and Central America, as well as the Corporate.
Initially, all amounts regarding economic externalities are calculated assuming fully efficient
local economies regarding resource distribution and economic impact. Therefore, a correction
for economic inefficiencies is applied to take into account external corruption-related activities
in the countries where we operate and of which we are not part. This correction is calculated
using figures extracted from the survey-based Corruption Perception Index per country and
reflect how external conditions may affect the company’s societal value creation.
SOCIAL EXTERNALITIES
Occupational Health & Safety
Monetization for OH&S was calculated by taking into account work-related incidents (serious &
moderate severity, and fatalities) of employees and contractors, plus occupational diseases of
employees and third party fatalities (e.g. road incidents).
1) Argos Integrated Report 2016 http://reporteintegrado.argos.co/?lang=en, Argos Integrated Report 2015
https://www.argos.co/ir/Media/Default/images/IntegratedReport2015+notes.pdf . Figures from our financial statements are reported in COP and
were converted using end-of-period exchange rates for the accounts of the Statement of Financial Position: 3,149.47 (2015) and 3,000.71 (2016),
and using average rates for the accounts of the Comprehensive Income : 2,749.47 (2015) and 3,053.16 (2016).
2) For more information about taxes paid, please visit (http://reporteintegrado.argos.co/pdf/impuestos_pagados_por_pais_en.pdf) (2015) and
http://reporteintegrado.argos.co/pdf/EthicsAndCompliance.pdf (2016).
3) http://stats.oecd.org/Index.aspx?DataSetCode=IOTS
Value Added Statement18
Incidents are then multiplied by the social costs of injury or life losses (Safe Work Australia
2012)4, which are estimated as an average cost for the employee and the community in
rehabilitation and healthcare expenses, administrative fees and loss of current and future
income. Costs for the employer are not taken into account, since it is assumed that they are
already reflected in our financial results. Given that monetization factors are given in AUD for
2012, currency and GDP adjustments were made to reflect the total costs for each region.
Talent development
We assume that the effects of training result in increased productivity and efficiency for the
company, and hence they are already internalized in our financial results. Effects of talent
development become an externality once employees leave Argos and earn a higher income as a
compensation for their increased set of skills. We designed an approach that allows us to
monetize such externalized effects of talent development in the form of the economic impact in
the local economy that is derived from an increased salary for the employee. This is obtained by
multiplying the social return rates of education for a given training level (Montenegro and
Patrinos, 2014)5 times the total training hours of our employees per year, as well as our annual
turnover rate.
Community investment
We monetize the impacts of community investments by differentiating low-income housing,
community infrastructure, education infrastructure and scholarships. The approach selected for
monetization is based on the Social Return of Investment (SROI) methodology, which consists
in selecting multipliers that represent the effects of monetary investments for each specific
investment line. SROI multipliers are location and country-specific. When no local multipliers
were available, we selected the closest reference to local conditions. The following are the
studies from which SROI multipliers were extracted:
• Low-income housing: for Colombia, Caribbean and Central America we selected the
average multipliers from 4 different studies6, whereas for United States we used
calculations by Mitchell and McKenzie (2009)7.
• Community and education infrastructure: for Colombia we chose Clavijo et. al. (2014)8
as a reference, whereas for Caribbean and Central America we take the average
multipliers of Brazil, Mexico and Argentina from Standard & Poor’s (2015)9. Calculations
for United States are based on Cohen et. al., (2012)10.
• Scholarships: we use the internal rate of return for investment in education from OECD
(2016)11. For Colombia, Caribbean and Central America, the multiplier for Chile was used.
4) Safe Work Australia, The Cost Of Work-Related Injury And Illness For Australian Employers, Workers And The Community: 2008-2009, 2012
https://www.safeworkaustralia.gov.au/system/files/documents/1702/cost_of_work-related_injury_and_disease.pdf
5) Claudio E. Montenegro and Harry Anthony Patrinos. Comparable Estimates Of Returns To Schooling Around The World, 2014, World Bank Policy
Research Working Paper #7020 http://documents.worldbank.org/curated/en/830831468147839247/pdf/WPS7020.pdf
6) i) Acumen Fund. Property Rights: Ensuring Well Being Through Low-income Housing, 2009 http://acumen.org/wp-
content/uploads/2013/03/Property-rights-for-low-income-housing.pdf
ii) MacKinnon, Lesley. Alolo, Sahada. The Social Return On Investment Of Multifaith Housing Initiative’s Housing Program: Demonstrating Social
Value In Affordable Housing, 2015 https://carleton.ca/3ci/wp-content/uploads/MHI-Social-Return-on-Investment-23022015-v3.pdf
iii) Kliger, Beverley. Large, Jeanette. Martin, Amanda. Standish, Jane. How An Innovative Housing Investment Scheme Can Increase Social And
Economic Outcomes For The Disadvantaged, 2010 http://soac.fbe.unsw.edu.au/2011/papers/SOAC2011_0109_final(1).pdf
iv) ECODES. Análisis Del Retorno Económico y Social Del Proyecto de Viviendas En La Comarca De Bajo/Baix Cinca en Fraga de ATADES Huesca,
Mediante Aplicación De La Metodología SROI, 2012 http://goo.gl/sDIYfG
7) Mitchell, David. McKenzie, Russell. Analysis Of The Economic Effects Of Low Income Housing Tax Credits, 2009
http://www.google.com.co/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwjl64eH1aHQAhXKjFQKHQIoC
hcQFggZMAA&url=http%3A%2F%2Fwww.cluteinstitute.com%2Fojs%2Findex.php%2FJBER%2Farticle%2Fdownload%2F2322%2F2370&usg=AFQjC
NFCWtb6PIqZsCmyGZi1MyU1_6wyww&sig2=a0wBsAOa3imOeE9tmlAgxQ
8) Clavijo, Héctor. Álzate, Marco. Mantilla, Libia. PMI Bogotá Colombia Chapter. Análisis Del Sector De Infraestructura En Colombia, 2015
http://www.pmicolombia.org/wp-content/uploads/2015/06/PMIBogota-Analisis-sobre-el-sector-de-infraestructura-en-Colombia.pdf
9) Maguire, Joe. Standard & Poor's Financial Services LLC. Global Infrastructure Investment: Timing Is Everything (And Now Is The Time), 2015
http://www.tfreview.com/sites/default/files/SP_Economic%20Research_Global%20Infrastructure%20Investment%20(2).pdf
Value Added Statement 19
In addition, we monetize the electricity we provide to the communities in Haiti. We assume that
the avoided expense in electricity bills results in increased household spend in multiple sectors
of the economy. Hence, we use the energy price for Haiti obtained from the Bloomberg New
Energy Finance’s Industry Intelligence database, and calculate the spin-off effects from such
household spending by using our indirect effect multiplier (see economic externalities).
ENVIRONMENTAL EXTERNALITIES
Greenhouse gas emissions
We monetize the impact of scope 1 and scope 2 emissions, which represent around 91% of our
GHG emissions. This is done based on the social cost of carbon (SCC), which reflects the cost of
the damage for society generated by GHG emissions over their lifetime. We used the
Environmental Protection Agency (EPA) SCC estimates (2013)12, which amount to 27.5 (2015)
and 29.2 (2016) USD/t, after adjustment for inflation, and applied a discount rate of 4%
according to the options provided by the study.
The EPA SCC figures consider changes in net agricultural productivity, human health, property
damages from increased flood risk and value of ecosystem services due to climate change.
However, estimates vary based on the discount rate applied, which determines the present
value of future damages derived from climate change.
Air emissions
Global multipliers from TruCost (2013)13 are used to monetize air emissions in order to reflect
their corresponding societal cost in the 3 regions where we operate. Due to data availability, the
negative impact of Particulate Material (PM) emissions is calculated based on the cost of PM10
(regarding size of particles), while the impact of Sulfur Oxide Emissions SOx is based on SO2.
The scope also includes Nitrogen Oxide Emissions (NOx). The impact derived from air emissions
depends on the population density of the areas where we operate. As a conservative
assumption, we used the average price of air pollutant costs. The multipliers chosen include
impact on human health, crop & forest yields, materials corrosion and water acidification.
However, health impacts (monetized according to the value of a statistical life) account for
approximately 90% of the total cost.
Water consumption
Monetization for water consumption was obtained by multiplying the amount of water
consumed times the societal cost of water, which was extracted from a study conducted by
TruCost (2013)14. This approach assumes that the societal cost derived from water use varies
depending on the level of water scarcity in a given territory. Calculations include water
consumption across all operations, taking into account direct non-consumptive use and indirect
use of water (e.g. value for recreation, biodiversity, groundwater recharge, waste assimilation).
Biodiversity
The impact on biodiversity was calculated using estimated annual benefits from restoration
projects in different ecosystems across the world (TEEB, 2009)15 due to limited availability of
local estimations.
10) Cohen, Isabelle. Freiling, Thomas. Robinson, Eric. The Economic Impact and Financing of Infrastructure Spending, 2012
http://www.wm.edu/as/publicpolicy/documents/prs/aed.pdf
11) OECD, Education At A Glance 2016 OECD Indicators, 2016 http://www.oecd.org/edu/education-at-a-glance-19991487.htm
12) EPA. Technical Support Document: Technical Update Of The Social Cost Of Carbon For Regulatory Impact Analysis Under Executive Order 12866,
2013-revised in 2015 https://obamawhitehouse.archives.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf
13) TruCost PLC Natural Capital at Risk: The Top 100 Externalities Of Business, 2013 https://www.scribd.com/document/282468297/Natural-
Capital-at-Risk-The-Top-100-Externalities-of-Business-TEEB-2015-pdf
14) Idem.
Value Added Statement20
The multiplier was applied to areas liberated plus current active operations, minus areas
restored and offset for the Yumbo, Río Claro and Nare projects in Colombia. Areas from
concrete plants were excluded, since these plants were established over built areas, and hence
no additional impact on biodiversity was caused.
Alternative materials and fuels
The relative impact of using alternative materials & fuels is estimated by taking into account:
• Landfill emissions avoided by using alternative materials/fuels (if the alternative
material or fuel would not have been used by another company instead).
• Emissions avoided by natural resources not being extracted, produced, and consumed
(in the case of fuels).
As alternative materials & fuels used are waste or by-products, the negative impact of
‘producing’ alternative materials & fuels was not included. Avoided emissions were monetized
based on the same social cost of carbon that was used to monetize the impact of GHG
emissions (see GHG emissions).
ADJUSTMENTS FOR INFLATION
Monetary values were brought to present values when needed, using Consumer Price Indexes
variations from the World Economic Outlook databases (WEO)16.
EXTERNAL ASSURANCE
Indicators for the construction of the VAS were verified by Deloitte as part of their Independent
Review of our 2016 Integrated Report. The corresponding assurance statement is available in
pages 124 to 128 of such report17.
For more information, please contact:
Sustainability Metrics Investor Relations
Cristina Arias Manuela Ramírez
[email protected] [email protected]
15) TEEB (2009) TEEB Climate Issues Update. September 2009 http://www.teebweb.org/wp-
content/uploads/Study%20and%20Reports/Additional%20Reports/TEEB%20climate%20Issues%20update/TEEB%20Climate%20Issues%20Up
date.pdf
16) http://www.imf.org/external/index.htm
17) Available at http://reporteintegrado.argos.co/pdf/integrated-report-2016.pdf