Understand your business to understand its impact

Among the key subjects raised by executives in PwC’s latest annual Corporate Directors Survey were board-level concerns about diversity, pay, shareholder activism and environmental, social and governance issues. It is clear that boards are under pressure to demonstrate the positive impact they are having in society, in local communities, as well as on the wider environment.

Yet communicating positive impacts remains a challenge, not least because “impacts” are poorly defined between companies and within sectors, and measurements taken to illustrate progress are often not compelling enough to get stakeholders interested.

The setting of sustainability targets and goals remains a clear strategy for corporates. More companies are setting goals – and more of them. The percentage of the 200 biggest companies in the Fortune Global 500 that make public goals on sustainability has risen the five years to December 2017, from 77% to 94%.

The number of targets being set continues to rise, with a broader basket of goals now including more social impact targets alongside environmental ones. The introduction of metrics on staff wellbeing or community engagement is an increasing trend. It is not necessarily new for companies to work on these issues – but establishing specific, public, quantifiable targets in areas that can be hard to measure remains the exception rather than the norm.

“Impacts are extremely difficult to measure and to claim any success for, because they often occur only over time, and a wide range of factors – outside the company’s control – may contribute to an impact occurring,” says Geoff Kendall, co-founder and CEO of Future-Fit Business Benchmark, a non-profit whose free-to-use benchmark has been developed to help business and investors improve long-term value.

However, outcomes from these impacts are easier to assess – and if the outcomes are meaningful ones, grounded in sustainable business principles, then a company can be reasonably confident that its contribution credibly contributes to delivering positive impact, whether it can be measured or not Kendall says.

The other pitfall businesses can fall into is failing to measure against all of the risks it faces, according to research from Article 13. Their assessment of the risks disclosed by 53 of the world’s largest businesses shows that most of them are not disclosing risk related to planetary boundaries and social thresholds.

Yes, more and more companies are measuring and reporting their sustainability performance and setting new targets. But most of the targets are based on comparing year-on-year environmental and social performance of their own company. And this fails to measure performance in the context of the state of the world and what is and isn’t sustainable.

For example, an organisation may reduce its water consumption by 10% each year, but will this be sufficient to avoid local water scarcities? “An ambitious but superficial target backed up by a metric which lacks authenticity is the quickest route to shouts of greenwashing – or, more recently, SDG-washing,” says Kendall.

Frameworks such as the UN Sustainable Development Goals (SDGs) have proved a useful tool for companies to consider their overall sustainability performance in the context of global challenges. In fact, 59% of 209 of the world’s largest companies cite the SDGs in their sustainability reports. Meanwhile, tools such as the Future-Fit Business Benchmark help companies to define a range of outcomes that deliver tangible benefits at a systems-level.

Economic growth fuelled by companies focused on “good” growth is in everyone’s interest. But understanding what this growth looks like is crucial, as is what that positive impact will actually achieve. Increasingly the measure of corporate success goes beyond short-term financials. With that comes a clear need to not only place a value and cost against social, environmental and governance activities but also against the impacts being felt, both internally and externally.