Cementos Argos

Understanding societal value creation through Cementos Argos' Value Added Statement (VAS)

Introduction to the Company

Cementos Argos (Argos) is a leading cement and ready-mix concrete producer and distributor with headquarters in Medellín, Colombia and operations in Colombia, the US, Central America, and the Caribbean. In 2017 the company positioned itself as the fourth largest cement producer in the United States.

Sustainability is a fundamental part of Argos’ business vision and is in reflected in the first objective of the company’s strategy: to create sustainable value. For Argos, achieving sustainability requires balancing profit generation, social development, and minimizing impacts on the environment. In 2017, the company was recognized as one of the most sustainable cement companies in the world according to the Dow Jones Sustainability Index, and received the Gold Class distinction in the RobecoSAM yearbook.

Introduction to the Approach

Recognizing the important role the company plays in developing solutions to the world’s greatest challenges, Argos views understanding and measuring the value it creates for society as critically important to its success. This value is reflected in its financial statements, yet the company also generates additional intangible value through the economic, environmental and social impacts of its operations. These effects are costs and benefits to society known as externalities.

In 2016, the company launched an initiative to assess and actively manage each of the main externalities associated with the company’s operations. Using KPMG’s True Value methodology, Argos developed the Value Added Statement (VAS), a tool that provides important insights on the ways through which the company retains, adds, or reduces value for society as a whole. As there is no standardized methodology for quantifying and monetizing externalities, the company built a customized model based on a set of assumptions that could be further refined as new theoretical developments become available. 

Stage 1: Frame

Identify the business case and potential business decisions

Argos’ top management viewed impact valuation as an opportunity to evaluate whether the company was on track in achieving its purpose: “to build dreams that foster development and change lives.” To do so, the company aimed to put sustainability into financial language that both internal and external stakeholders including investors could understand and use.

The company identified three key objectives for the VAS:

  • To make better informed and more responsible business decisions;
  • To enable more accurate risk management
  • To promote accountability within and outside the industry

Prioritize social & human capital issues

In 2016, Argos conducted a dedicated company-wide materiality analysis scoping exercise to identify the positive and negative externalities for consideration. The process engaged experts from all areas of the company (investor relations, risk management, finance, sustainability among others), who identified 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. The company also assessed data availability and quality of existing methodologies and tools when identifying the material externalities. The results were analyzed against the corporate materiality analysis (completed the previous year) and were used as an input into the most recent materiality analysis developed in 2017.

Stage 2: Scope

Set boundaries

The company viewed senior executives, operations managers as well as investors as the key audiences for the VAS. Argos knew from the outset that it wanted to share the results of its assessment publicly as not only would this help further discussions with key stakeholders but also strengthen the overall impact valuation field.

In light of this audience and the company objectives, the company identified the following organizational, geographic, and temporal scope.

  • Organizational: Argos chose to do a corporate level assessment, gathering information from the 15 plus countries and territories where the company operates. The VAS aggregated the net positive and negative effects in all regions regardless of their relative importance, although some weighting had to be considered in a few specific cases, mostly to adjust input data or multipliers. The company considered including impacts in the supply chain and monetized suppliers spend. However, they excluded these results from the overall VAS report in order to ensure consistency on scope, as it was felt that using supplier spend as the only supply chain externality did not accurately reflect the full value created in the Argos supply chain. As new possibilities arise to quantify and monetize impacts, the company will explore the feasibility of expanding the current reach to a broader range of externalities and to other segments of the value chain.
  • Geographic: In addition to the corporate level, the company also obtained separate results for Colombia, the US, and the Caribbean and Central America. As some of the externalities are not comparable, the company kept these as exploratory internal documents. They have however provided important insight for country managers.
  • Temporal: The VAS aims to calculate the net value Argos created for society during a given fiscal year. This enables the company to assess changes in value year on year and over time. Currently there are results for 2015, 2016 and 2017 and annual variations are carried on internally, as methodologies and results become more robust in order to perform analyses over long-run trends.

Define the Impact pathway

Argos developed a comprehensive impact pathway (see below) to explain how it creates value for society with regard to broader mega trends, company strategy and ultimate purpose, inputs and business activities, outputs in terms of products, final outcomes and monetized impacts. The impacts were separated into different capital categories: financial, operational, intellectual, human, social and natural capital. For each, specific results of the VAS were related in order to show a quantifiable comparison on how the company impacts society.

Figure 1. Argos Impact Pathway

Stage 3: Measure and Value

Choose indicators and metrics

To capture the value to society, Argos started with the value it retains in the form of earnings. This amount is denominated retained benefit and can be tracked in annual financial statements. The approach to quantify and monetize each externality is different and reflect specific contexts and theoretical frameworks, requiring singular data and multipliers for their calculation. This relies on data captured and tracked by the company, but also quantitative references (i.e. multipliers) and methodologies that facilitated the construction of a model that could translate company data into financial costs and benefits assumed by third parties. While some indicators could be captured at a global level, others required data collection at a local level using local multipliers. 

Figure 2. Externalities and Indicators in the VAS

Monetized costs and benefits derived from Argos’ externalities are summed to the company’s retained benefit in order to obtain the net value added to society, that is, a company-wide indicator for social value creation. Additionally, the VAS allows to calculate the proportion between retained earnings and the net value to society, as an indicator of the relationship between corporate and societal value created in a year.

Developing subsequent versions of the VAS requires a constant upgrade and refinement of the current monetization approaches as new theoretical developments become available. Technical teams review the model on a yearly basis, in order to update the current multipliers, discuss assumptions and approaches and define next steps for refining the model and developing applications.

Undertake or commission measurement and valuation  

The company has a number of processes in place to gather data through its sustainability reporting and other external reporting requirements such as the Dow Jones Sustainability Index. They request input data for reporting and the VAS simultaneously using similar input sheets. In order to monetize some of these metrics, the company reviewed literature available and selected the most suitable multiplier. The approaches used for monetizing training and community investment are good examples of how the company adjusted their measurement approaches for the purposes of valuation.

  • Training: Argos assumed training results in increased productivity and efficiency for the company, and hence training impacts are already internalized in company financial results. The effects of talent development become an externality once employees leave Argos and earn a higher income due to their increased set of skills. Argos worked with a consultant to design an approach for capturing the 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 by the total training hours of our employees per year, as well as the company’s annual staff turnover rate.  It relied on a World Bank policy paper on estimated returns from investment in education around the world.[1]
  • Community Investment: Argos monetized 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 of selecting multipliers that represent the effects of monetary investments on society for each specific investment line. SROI multipliers are location and country-specific. When no local multipliers were available, the company selected the closest reference to local conditions.

There has been a couple of important lessons on data collection and analysis from VAS assessments conducted for 2015, 2016 and 2017:

  • Macroeconomic variables: Results over time are sensitive towards changes in macroeconomic variables, such as inflation, exchange rates and GDP. This may represent challenges in the future regarding comparability of results over extended periods of time.
  • Multipliers: Finding local multipliers proved challenging and the company included various assumptions in the methodology. The more the company refined the model, the more assumptions were required. Transparency in communicating these assumptions is a critically important part to ensuring users can assess the rigor and usability of results.
Stage 4: Apply and Integrate

Apply results to key business decisions 

The company produces an annual VAS report and captures the results across economic, social, and environmental dimensions in a bridge chart and in aggregate form, as total net value added to society. The findings of the VAS indicate that in 2017, the net value added to society by Argos was USD 804.3 million, 4.73 times its retained benefit.

Argos achieved to deliver value to society in times of organizational transformation. Future challenges will be overcome by strengthening the capacity to endure over time, directing the efforts in optimizing the well-being of workers and communities, and implementing the environmental strategy in all facilities

Figure 3. VAS results for 2017

Integrate social capital into business processes

Argos is exploring and developing different applications for the results aligned with the three objectives identified in Stage 1 of this case study (Frame). Some of these applications include:

Contribute to mainstreaming

While Argos always intended for the VAS to be useful to investors and internal decision-makers, it has been pleasantly surprised by the positive reactions by peer companies and academics. The VAS has become a source of collaboration among various stakeholders and companies in the sector who are seeking to strengthen approaches to measurement and valuation. The company feels strongly that the VAS will be more impactful through collaboration and when others develop further methodologies and refine the multipliers used.



[1] 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