How to measure the social and environmental impact of your company and how to improve it

January 18, 2023
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Measuring impacts and comparing impact performance data helps companies make strategic and operational decisions for their future survival and resilience, set goals, and communicate performance.

There are several steps to understanding and measuring impacts, including mapping the impact, identifying those you want to monitor, and determining which methodology is the most appropriate depending on the message you want to convey.

That way, companies will see the effects of their vision and strategy so that they can reinforce what is working and change or eliminate what is not.

The five dimensions of impact

The impact, defined as a change in a positive or negative outcome for people or the planet, can be measured across five dimensions of performance. Each dimension seeks to answer impact questions.

What:

  • What outcome the enterprise is contributing to in the period?
  • Is the outcome positive or negative?
  • How important is the outcome to the stakeholders, the people, or the planet experiencing them?

Who:

  • Which stakeholders are experiencing the outcome?
  • How underserved are the affected stakeholders about the outcome?

How much:

  • How many stakeholders experienced the outcome?
  • What degree of change are they experiencing?
  • How long have they experienced the outcome?

Contribution:

  • Would this enterprise’s and/or investor’s efforts result in outcomes that were likely better than what would have occurred otherwise?

Risk:

  • What is the risk to people and the planet that impact does not occur as expected?

To guide companies in collecting this information, the IMP (Impact Management Project) has broken the five dimensions down into 15 categories of data.

The IMP offers a template on their website to help organizations set up an impact measurement process from scratch. The table can also be used as a checklist for ensuring that existing impact data provides sufficient coverage across the five dimensions to enable robust assessment.

Data to value impacts can be collected through 3 approaches: Qualitative, Quantitative, and Monetary.

Companies will use one or several data approaches in their impact assessment, depending on the level of granularity and confidence targeted.

For better interpretation, impact assessment can require comparison with a counterfactual (expression of what has not happened), that narrows impact down to a measurable change in a pre-specified variable.

For example for social impact, the pre-specified variable would be the result of what would have happened in the absence of one social program, one social investment. Companies can measure how much impact they have had compared to a situation where they would have done nothing.

Mapping impact

Mapping impacts permits to identify them in advance. It leads to:

  • Better decisions being made about which interventions should proceed and how they should proceed
  • Mitigation measures being implemented to minimize the harm and maximize the benefits from a specific planned intervention or related activity

Companies can represent the realm of possibilities of the kinds of impact a business decision, a business strategy, an activity, a good or service production might have or already has. The impacts will be mapped according to several criteria, intended or unintended, positive or negative, foreseen ahead of time, or unforeseen, like in the table below.

Example from a job skills program reduce unemployment among young people in a rural district:

Companies can also map the network of impacts of their activities, their products, their actions have, considering all possible effects of the cause.

Below is an example of a network of impacts for the construction of a dam:

Example of a network of hypothetical impacts from the construction of a dam
Source: https://cdn.odi.org

Impact reporting

They are different frameworks and valuation methodologies designed to measure and communicate social and environmental impacts. They provide companies with processes related to impact reporting. Below is a short description of these methodologies.

Impact frameworks

They assist companies in defining the scope of their impact assessments, setting their objectives and delivering meaningful and consistent results. This is the first step for companies in the process of impact reporting.

Examples of impact framework: Theory of Change, Impact Management Project

Valuation methodologies

They are used to further evaluate impact, with the aim of measuring and placing a monetary value on identified impacts. This enables companies to communicate their impacts both internally and externally, and to provide comparisons of the impacts of different projects or investments (thanks to the common monetary unit). It is usually done on a second step, to align the impact strategy with the financial strategy.

Example of valuation methodology: Natural/Social Capital Protocols developed by The World Business Council for Sustainable Development (WBCSD), Social Return on Investment (SROI) methodology

Frequently Asked Questions

What is impact in ESG?
How does an organization measure its impact?
What are the 5 dimensions of impact?
Sources

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