By Mark Jones, CEO ImpactInstitute
One big idea is shaping the outlook for purpose-driven leaders in 2023.
The global zeitgeist points towards our desire for positive change in the fabric of society. More kindness, better use of resources for social programs, and a greater sense of meaning from employment.
Thanks to ESG, this post-Covid sentiment is getting a long-overdue shot in the arm.
ESG needs little introduction, except to note global leaders are now looking beyond a near-exclusive focus on the environment.
It’s an important moment in time. Corporates, governments and social sector leaders are recognising issues like modern slavery, diversity, inclusion and equality are not just moral imperatives, but also economic ones.
Truly healthy markets and economies are only possible when communities thrive. It’s a growing awareness among corporate and government leaders, particularly here in Australia, which in turn is driving a meaningful shift to the “S” in ESG.
Social impact has been on the radar for years, or course, but now the needle has shifted.
Set against the backdrop of economic, geopolitical and environmental uncertainty, leaders can no longer ignore the fact social wellbeing is everyone’s problem – and there’s plenty at stake.
Let’s take a closer look.
The big lesson from the past few years is that investors, consultants and c-suite leaders have become increasingly more confident in the ability to measure environmental impact, or the “E” in ESG.
For example, we can put a price on carbon, measure a company’s carbon footprint, efficiently manage energy, and use myriad standards and best practices to evaluate corporate policies and environmental activities.
The “social” part of this story is where strong leadership is required because the “S” in ESG has always been tricky.
It’s no secret measuring social impact is difficult. For starters, every person, community and social program ever devised by charities, foundations and governments is completely different. What’s a common way of measuring social return on investment (SROI) when there are infinite variables?
It’s a hot topic that’s been discussed for decades:
In the US and Europe, industry groups have been developing social impact assessment (SIA) and Cultural Impact methodologies since the 1970s when the Environmental Impact Assessment was first legislated in the US.
Here in Australia, an organisation called Social Impact Measurement Network Australia (SIMNA) was established in 2011 to bring greater focus on the issue and foster a shared understanding of different methodologies.
So, what’s different in 2023? How are we advancing the conversation?
In short, investors are becoming more vocal in their calls for standardized, comparable social impact measurement data. The money-makers have joined the chorus and that means social impact measurement is finally on the march from “nice to have” to “must have” in board rooms across the world.
Here are a few examples of groups thinking seriously about “S” in ESG:
- The Global Impact Investing Network (GIIN) and a coalition of impact investors called ImPact have developed the Impact Reporting and Investment Standards (IRIS). Think of it as standardised framework for measuring and reporting the social and environmental impact of impact investments.
- The Sustainability Accounting Standards Board (SASB) has developed industry-specific sustainability accounting standards for publicly listed companies in the US, which provide a framework for measuring and reporting on environmental, social, and governance (ESG) performance.
- The United Nations-supported Principles for Responsible Investment (PRI) has developed a set of performance metrics and disclosure guidelines for the measurement and reporting of ESG performance.
- Investors such as BlackRock, Allianz, AXA Investment Managers, Nordea Asset Management, UBS Asset Management, and Aberdeen Standard Investments have called for companies to provide more consistent, comparable and transparent data on their environmental, social and governance performance.
- Groups such as Social Value International and GRI (Global Reporting Initiative) are developing and sharing sets of sustainability and social impact measurement guidelines for companies worldwide.
All told, social impact measurement and SROI is entering a new phase of maturing as investors sharpen their focus.
Theory says if myriad social programs and services can be more easily assessed and compared, it will make it easier to include ESG and social impact issues such as modern slavery, and DE&I in overall investment decision-making.
The catch
Sounds great, right? But here’s the warning. We’ve still got a long way to go.
One of the greatest inhibitors of positive, long-term changes in society is poorly coordinated resources and a lack of shared vision between key stakeholders such as community groups, purpose-driven organisations, politicians and governments.
Let me illustrate with a quick story.
We recently met with the board of a large sporting club in Sydney. Their primary issue was better allocation of donated funds to community groups.
The board had a theory – if they could better measure the long-term outputs of charities, foundations and groups receiving their funds, they could assure club members the board continued to make wise decisions on their behalf.
From our perspective, the best approach in a case such as this is to conduct quantitative and qualitative research, develop an evidence-based impact measurement framework, report, and then produce a detailed impact report.
But here’s where organisations like this club run into trouble. That’s a lot of work, and because of the time, technology and skills required, it’s not cheap. As one board director confessed, club members don’t (yet) care about long-term outcomes: “If we tell them we spent millions on charitable giving in our Annual Report, that’s enough.”
Herein lies the rub. CEOs, boards and community-at-large have not yet caught up with decades of industry thinking and best practice. There’s little distinction in their minds between reporting an output such as money spent and more meaningful outcomes like social cohesion or long-term changes in community health.
It’s a subtle, but significant problem. Happily, it’s also solvable. Here are three steps that leaders can take in 2023 to help their team develop social impact strategies:
- Get smart and learn about the “S” in ESG. What positive, long-term difference is your organisation making in the community – or what should it be working towards?
- Take time to listen to understand underlying issues before developing a social impact framework. Discrimination, inequality and injustice are complex problems that demand the right combination of empathy and action.
- Research how your organisation can realise greater impact through existing resources and strategic partnerships.
It’s an exciting, hope-filled time for those of us passionate about making a difference, despite our differences.
The challenge for leaders this year will be managing expectations, that of our team, and critically, the demands of investors and financial stakeholders. Are you ready?
Ready to increase your social impact?
At ImpactInstitute, we partner with clients to support, resource and enable their impact journey. Contact us if you’d like to discuss how your organisation can become impact-driven.