Why is measuring impact important for my business?
3 min read
Over the last decade, there has been a significant rise in expectations that businesses measure the impact of their operations, especially relating to Environmental, Social, and Governance factors (ESG). This trend is set to continue given consumer and employee pressures from below, as well as regulatory and investor pressure from above. While measuring impact has many advantages, it can feel like a resource-intensive and ambiguous process. As an early-stage business with limited resources, this begs an important question: why is measuring impact important for me?
Let’s start with some clarifying definitions. At Baobab, we see impact as the effect a company has on people, the planet, and the economy. A company’s purpose is the value an organization brings to society-- this is the company’s reason for existence and it aligns with its business strategy but transcends profit. Impact measurement is the process of identifying social and environmental issues most relevant to a company and using quantitative and qualitative data to assess those impacts.
A company’s purpose and how it addresses its impact are essential to building a strong, adaptable, and attractive organization. Below, we’ll deep-dive into the internal and external benefits of identifying and measuring your impact.
Internal Benefits:
Stronger financial performance: numerous studies have shown that measuring impact increases revenue growth by attracting more customers and talent, allowing the company to be proactive in addressing risks, and penetrating new market segments. Amid a global pandemic that halted business activities around the world, Morningstar reported that the first quarter of 2020 saw 51 of their 57 sustainable indices outperforming their broad market counterparts. This highlights that businesses with stronger ESG profiles are generally more resilient to internal and external changes.
Increased operational effectiveness: when organizations start measuring their impact they often uncover opportunities to optimize and strengthen their operations. This could mean gaining more transparency over your supply chain, identifying opportunities in your hiring protocols, or realizing ways to reduce energy, water and/or waste.
Mitigation of risks: The biggest risk to companies in this day and age is not knowing them-- and not knowing your ESG risks doesn’t cut it for stakeholders that are demanding more out of business. Identifying what impact areas to measure and how to measure them allows companies to strategically align financial and ESG goals across operations. Additionally, having readily available impact data helps you to see around corners and make swift decisions to address and adapt to such risks. By keeping track of diversity and inclusion data for instance, companies can address gaps in their organization ahead of any external pressures to ensure they are building an inclusive and equitable organization.
Strengthened company culture: strong and relevant impact data makes it easier for a company to have clarity and direction on its sense of purpose. Many companies fail to implement effective ESG strategies due to employee skepticism in a company’s commitment to ESG or lack of clarity on how to achieve ESG goals. Impact measurement helps companies build a trustworthy reputation, and as a result, a company culture that pridefully rallies behind their company’s purpose.
External Benefits:
Furthered license to operate by giving stakeholders a more favorable view on the business’ behavior and reputation. Until recently, the pressure to measure impact has been primarily driven from below through changing consumer norms. This has created an environment where, in order to get large-scale buy-in from and effectively operate in society, businesses are called to show that they care about their impact and are walking the talk by measuring it.
Preparation for regulatory changes: evolving regulations are bending towards stronger legal mandates for businesses to monitor their ESG footprints. The pressure from below to measure impact has been recently accelerated by pressure from international organizations codifying these changing consumer norms with ratings and reporting standards (i.e. B Corporation, GRI, SASB, etc.), and an increasing number of regulators taking a more active stance in this space. Regulatory pressure and requirements are expected to grow, with the EU Commission leading the way by mandating the disclosure of ESG related data from the financial services sector (with the expectation of expanding to non-financial sectors) and the SEC considering a mandatory climate risk disclosure rule by the end of 2021. Given the rising need for greater transparency and accountability to prevent ‘impact washing’, companies that already measure impact will be at an advantage when governments begin to mandate due diligence through ESG reporting.
While impact measurement is valuable, it is resource-intensive - requiring a deep understanding of business operations and key stakeholders, how different parts of the business affect key ESG factors over time, and how to best measure this changing impact. Measuring impact isn’t straightforward either - it can be quite challenging to identify what is most relevant for your company to measure and how to best measure it.
This is where Baobab can help. With our platform, you can easily identify the most relevant impact areas to prioritize in your ESG strategy based on your industry and size. Our tool guides purpose-driven companies, like yours, in the process of organizing your impact data in one place for greater clarity, alignment, and ease of access. Baobab provides companies the opportunity for continual reputation and relationship building. By gaining ownership of your impact data, you can stand confidently behind your ESG claims and utilize them to attract and retain customers, talent, and investment, ensuring long-term growth and value creation.
