Assessing impact – some considerations

The metrics landscape

A plethora of different reporting standards and frameworks have been developed in an attempt to provide comparable data on non-financial impacts – these include GRI, SASB and the Task Force on Climate-related Financial Disclosure (TCFD) and benchmarks such as those produced by the World Benchmarking Alliance. Recently, there have been significant developments in promoting metric standardisation, partly fuelled by the increasing interest in ESG metrics from investors and this standardisation is likely to continue with moves to set up a Global Sustainability Standards Board.

In addition to these various reporting frameworks, a number of academics and other organisations are looking at how to monetize dependencies and impacts. A paper published in January 2021 by a group drawn from those involved in many of these initiatives provides a useful summary of the various approaches being considered. One of the questions raised by this is how and whether it is desirable to ‘monetise’ everything and we set out some thoughts on this from a Blueprint perspective in this blog: The limits on putting numbers to things we care about

The objective of these various standards, frameworks and benchmarks and the work on looking at whether and how to value capitals beyond just financial capital, is to enable external stakeholders to better understand the non-financial impacts that organisations have on the world, the degree to which they are managing these impacts and to enable some comparison across companies. There is no doubt that the increasing focus on ESG in the investor community is hugely helpful in shifting ESG issues up the agenda and getting companies to take these impacts more seriously. However, as with many externally imposed standards that require reporting of metrics and measures, the focus can quickly shift to a compliance or risk management mentality, with some businesses seeking to meet the minimum standards, and others seeing ESG as a way to enhance their reputation. Reporting requirements from the different sources are emergent and often disjointed and, as was evident in 2020, what does a focus on ESG really achieve if a company can get an AA rating for above-average labour standards whilst still having workers in its supply chain paid below minimum wage and suffering poor working conditions?

See also: The role of ESG in business and how it relates to purpose

Whilst the various reporting frameworks and standards can help in understanding some of the non-financial impacts of a company’s operations, they do not necessarily help a company to understand the impact of its purpose.

Each company has a unique purpose and a purpose that serves society generally envisages a positive impact outside the company. In order to assess progress against the purpose the company therefore also needs to collect data from outside the company to demonstrate this impact.

Framing the impact goal as a big aspirational ‘hairy’ goal can create excitement/ambition in people to get behind it. Reporting against such a goal then needs to include an honest narrative about what is being done and the challenges faced. These kinds of goals can also help set the bar high to inspire other companies to join. Examples of companies that have taken this approach include Unilever and Iceland with palm oil goals and Iceland’s zero plastics goal.

A good first step is to have a view or ‘vision’ of what that positive outcome in pursuit of the purpose might be at a point in time. It can be difficult to attribute positive impacts to one company, as in most cases lots of other factors contribute to the impact. To give a simple example: if the impact sought by a car manufacturer is to improve air quality – it is difficult if not impossible to establish a direct causal link between what the company does and the ultimate impact of better air quality, which is itself the product of so many factors. A good set of proxy outcome measures that can help to show some causality is often the best that can be done.

One way to approach identifying proxy metrics and measures is to use a theory of change approach, which many non-profits use to help identify useful proxy measures for non-financial impacts. This approach helps find things that can be more easily measured by looking at activities, outputs and short-term outcomes that contribute to the impact sought.

So, going back to the example of the car manufacturer:

  • Working back from the impact sought (better air quality) there is evidence that shows that having less diesel / petrol cars on the road contributes to better air quality
  • If the company can contribute to this reduction this contributes to its goal
  • The short-term outputs and activities that contribute to this that can be easily measured could therefore be the number of electric cars produced compared to diesel / petrol cars and the number of these cars part exchanged for petrol or diesel cars by dealers
  • The outcome of this would be a % contribution to the reduction of diesel / petrol cars on the roads
  • These figures can therefore be used as a proxy metrics for measuring the impact of the company on better air quality

Some resources:

Science-based targets are helpful in setting goals for environmental impact and to help quantify the contribution that it represents based on its current impact. Some companies contextualise or benchmark their goals to take into account how they factor in socio-ecological thresholds and identify what their contribution to these goals is.

Seeking to measure social impacts is more difficult and complex e.g. if the aim is to improve the livelihoods of small SMEs / smallholders, at what level does an intention result in a material impact? There is no consensus as to what a measure of this is. Externally verified data sets or approaches are helpful. Some companies work with NGOs or other organisations to set goals and externally verify their metrics or look for established frameworks and coalitions with others on a similar journey.

For more on thinking about goals see: The importance of the “outside-in” view and the UN SDGs

Some resources:

  • Future fit business benchmark: offers a set of indicators aimed at supporting companies to determine the gap between their current performance and where their performance needs to be in relation to key thresholds.
  • The Road to Context – Contextualising your Strategy & Goals – A Guide – produced by the Embedding Project helps companies interested in understanding how they factor socio-ecological thresholds into their corporate strategy and goal-setting processes.
  • The Capitals Coalition – redefining value to transform decision making – the Capitals Coalition is a global collaboration of organisations who are seeking to redefine value to transform decision making. Their ambition is that by 2030 the majority of businesses, financial institutions and governments will include the value of natural capital, social capital and human capital in their decision-making and that this will deliver a fairer, just and more sustainable world. They provide an overview of the landscape, highlight connections, engage in outreach and facilitate expert advice within the capitals community. Ensuring that different parts of the system are connected to one another and that leading organizations and experts are working collaboratively to achieve a shared ambition.
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