Rodolphe Durand of HEC Paris introduces a first of its kind assessment tool that cuts through potential greenwash to measure companies’ contribution to the SDGs
The slow revolution in financial capitalism has yet to find an accurate yardstick with which to measure its social and environmental impacts. This is hardly surprising, it took several centuries for economic actors to adopt universal indicators to accurately measure the efficacy of a “classic” investment: monetary measurements, debt ratios, return on investment. Unsurprisingly, then, we are far from agreeing on a universally standardised yardstick to measure social and environmental impacts.
How, for example, can one be confident that a start-up or an established company is reducing its ecological footprint or allowing its numerous beneficiaries to have access to better health, education or job security? How do investors at the end of the financial chain gauge the impact of the euro they place in a fund that invests in firms that are sometimes on another continent, or in a fund offered by a retail bank as part of a portfolio of other savings and investment products?
A first response to these challenges is the ability to identify and secure universal acceptance for an impact measurement tool that is standardised for each sector. There is a precedent to this, for example, we have agreed on equivalency in the reduction of carbon dioxide (CO2e), enabling measurement of a firm’s environmental print. However, social impact is much trickier. To begin with, we need to agree on what dimensions we should retain to measure social impact: employment, education, health, non-discrimination?
In an effort to help executives with this endeavour, the HEC Paris Society & Organizations (S&O) Center has launched a landmark assessment tool, a framework that standardises evaluation across all industries and organisations. We have based the framework on dozens of investigations of businesses and organisations worldwide. These vary from development programmes for women empowerment and education, to New York City law firms and their CSR activities. Painstakingly, we map out practical solutions to assessment challenges that have been dogging players in the multi-billion-euro sector for decades. The standardised framework is built on the analysis of the seven main challenges faced when measuring social impact. Our results can reduce social- and green-washing and lead to stronger evaluation methodology.
Many private companies have increased their interest, investment and effort in reducing their negative impact. This cultural change has stimulated a growing number of awards and accolades that recognize the results of these firms’ social impact efforts. However, for this to be meaningful there is a need for accurate, standardised assessment. We believe our new framework will drastically improve effectiveness, scalability and return on impact initiatives.
In developing our standardised framework, it was imperative to find convergence around measurement tools by identifying and solving the seven major methodological challenges to social impact measurement. These we identified as confusion, inconsistency, causal validity errors, hidden factor correlation, oversimplification, partiality and over-assumption. Then, we offered 10 tools to help corporations and investors determine the potential of their social impact initiatives.
Companies should understand that climate change or inequality are not only social issues but pressing factors that will determine their performance
We developed a method that starts by establishing the goals of the social impact initiative. At this stage, we recommend a verification of the underlying assumptions behind the intention. Second, we plan the assessment, provide investment counselling and cross-contextual comparisons. Stage three consists of analysing and improving the assessment, where we suggest how to learn from the company’s own and others’ experiences, map and engage the impact value chain, and combine qualitative and quantitative metrics.
Finally, when considering the strategic use of social initiatives, we offer three recommendations: do not focus on either benefits or risks; search for and extend benefits; and leverage goodwill for increased business and social impact. For all these recommendations, we suggest detailed tools in the report.
Alongside standardisation efforts, there is also a need to refine practices to provide clearer pathways for businesses to follow. Companies should be urged to understand that issues such as climate change or growing inequality are not only social issues to consider but pressing factors that will determine the performance (and reputation?) of their companies. These problems cannot be ignored any longer.
Investors that are fastest off-the-mark in integrating these dimensions in their investment portfolios will be at an advantage over their rivals as they will secure higher revenues with lower volatility. As for companies, they need to prove they are generating positive externalities for the environment and the territories in which they operate. This should encourage them to invest in research and venture into impactful business innovations. The convergence between conscious investors and innovative companies will bring positive outcomes.
Rodolphe Durand is professor of strategy and academic director of the HEC Paris Society & Organizations Center, an inter-disciplinary centre whose mission is to contribute to the understanding of contemporary challenges, including climate change and social inequality, and prepare future generations of managers to lead in these complex environments. It relies on three complementary pillars: think, teach and act