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Piedras Azules Plant, Honduras Value Added 2015 - 2016 Statement VAS

Value Added Statement VAS - Argosreporteintegrado.argos.co/pdf/vas.pdf · DISCLAIMER The main purpose of our Value Added Statement (VAS) is to illustrate the relative importance of

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Piedras Azules Plant, Honduras

Value Added

2015 - 2016Statement VAS

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 Statement16

APPENDIX

Assumptions and details on indicators

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

Value Added Statement21