How to Effectively Measure Social Impact of ESG Initiatives
This article on how companies measure social impact is an abbreviated version of a research report prepared by Kindred Concierge. Concierge is our on-demand research and insights team that helps our members get the data and information they need to navigate complex decision-making within their organizations. To learn more about the Kindred experience and member benefits, apply here. For existing members, log in to the member portal and maximize your Kindred experience through Concierge today.
For today’s companies, measuring the social impact of environmental, social, and governance (ESG) initiatives is a key aspect of a sustainability and corporate responsibility strategy.
With organizations expected to acknowledge and communicate ESG risks and initiatives, measuring the impact of their efforts is crucial to demonstrate progress year over year. However, quantifying social impact can prove to be challenging for organizations. The absence of industry standardization or a singular reporting framework contributes to a landscape that’s difficult to navigate. That said, in recent years, there has been progress in developing ESG disclosure frameworks and standards that companies can adopt to report on impact publicly and increase transparency.
Before an organization begins to quantify its impact, it must first determine the ESG factors most important to its business. Two ways to do this are through value chain mapping and materiality assessments.
- Value chain mapping helps an organization identify all the activities, processes, and stakeholders that drive a product or service. Creating a value chain map enables companies to outline the relevant factors to consider and identify the potential for positive and negative impacts.
- Materiality assessments enable companies to identify the topics or activities most important to the business and stakeholders. These assessments are key to a company’s sustainability strategy and help the company determine its ESG priorities.
Once a company understands its priorities, it can better outline the most relevant metrics to track and disclose, and adapt existing frameworks to meet its needs.
Existing Reporting Frameworks and Standards
In the ESG landscape, disclosure and transparency around impact are important to internal and external stakeholders. As such, companies should determine which existing frameworks and standards are most relevant to their business. According to SASB, disclosure standards and frameworks “facilitate the disclosure of comparable, consistent, and reliable ESG information”. Companies can use frameworks and standards together — frameworks provide general principles-based guidelines while standards offer specific and measurable metrics. Some existing reporting mechanisms include:
- UN Sustainable Development Goals (SDGs): Launched as part of the 2030 Agenda for Sustainable Development, the 17 Sustainable Development Goals provide a blueprint for a more peaceful, sustainable, equitable, and just global future. The private sector has increasingly used the goals as a general framework for considering the societal impact of their business operations. However, SDGs are not designed to communicate specific metrics. This means that companies should also identify specific metrics or indicators to measure progress and disclose transparent performance data.
- Global Reporting Initiative (GRI): According to a KPMG survey, 73% of the world’s 250 largest companies adopt the GRI, making it the most commonly used standard for sustainability reporting globally. These standards cover a wide range of sustainability topics and are compatible with other reporting tools (such as the SDGs). They are also applicable to different industries and cover multiple topics, from energy consumption to supply chain standards.
- Sustainability Accounting Standards Board (SASB): SASB’s evidence-based, industry-specific standards enable companies to report on ESG issues that are most material to their financial performance. Using SASB’s interactive financial materiality map, companies can identify and compare sustainability-related topics for disclosure and understand the accounting metrics to help them measure impact.
- B Impact Assessment: This rating tool provides social and environmental performance standards, corporate benchmarks, and additional tools companies can use to measure their impact on workers, community, environment, and customers. The Assessment is not a reporting system; however, companies use it to show improvement on ESG issues and specific initiatives. The Assessment is part of the B Lab family, which includes the B Corp Certification.
- World Economic Forum’s (WEF) International Business Council: Introduced in the 2020 Measuring Stakeholder Capitalism report, the WEF’s standards were intended to create a new universal standard for ESG reporting. They include 21 industry-agnostic metrics to supplement existing standards under four pillars of governance, planet, people, and prosperity.
Best Practices for Reporting
As companies build out their measurement and reporting frameworks, leaders must also ensure that they adequately communicate impact to stakeholders. When developing sustainability and impact reports, leadership must ensure they are transparent, precise, forward-looking, and strategic. Important information includes:
- The company’s core or material sustainability issues
- How or why these issues were chosen
- The specific metrics, measurements, or indicators used to track impact
- The targets or benchmarks the company is seeking to achieve
- The governance structures, practices, and oversight in place for accountability
In addition, organizations should consider how formatting and data visualization can improve readability and provide consistency across reports. Given that a well-compiled report serves multiple uses for different stakeholders, organizations should also ensure the information is easily accessible. For example, a dedicated webpage on the company website will make it easy to find relevant information about ESG impact.
Looking ahead, the movement toward standardization that allows for cohesion across companies continues to grow. Already, mandatory disclosures are a requirement for countries in the European Union. The SEC is also working to develop mandated ESG and DEI disclosure requirements. Additionally, the increased interest in the impact of climate change will boost the relevance of sustainability reports among stakeholders. As the work continues, companies can use existing frameworks to track and measure the social impact of their ESG initiatives.
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