By: Kyle Roland, Evan Vahouny, and Ryan Miller
In recent years companies have seen a global rise in pressure to measure their impact on the environment and society. With global regulatory developments, stakeholder pressure for more transparency, and a growing search for information that provides a competitive edge, market dynamics are coalescing to bring ESG and impact measurements to the top of the business agenda. Sustainability and social considerations are now elevated to help the C-Suite make better and more informed business decisions.
With regulators, stakeholders, investors, and competitors pressuring companies to take action to disclose and improve performance across a broader spectrum of progress, organizations across all sectors now see ESG and impact data as integral in decision-making and strategy building. ESG and impact data differ from the typical financial metric by which companies measure their outcomes by going beyond measuring short-term economic benefits and measuring long-term sustainable societal and financial benefits.
Companies across all sectors are now facing increased urgency to collect and analyze ESG and impact data and take action to improve their performance. Collecting and analyzing the vast amount of data required to measure the full spectrum of ESG and impact metrics requires cross-functional knowledge and skills that only an integrated approach with scalable data infrastructure and analytics can provide.
To maintain competitiveness under these market pressures, leading organizations will move beyond measuring ESG outputs and toward the quantification of real-time impact performance. Real-time impact performance metrics reveal opportunities for forward-looking organizations to improve society while generating long-term financial effectiveness. In June 2022, for example, Google settled a class-action lawsuit by agreeing to pay $118 million and executing an independent review of its practices as a result of allegations of gender wage inequality, an issue that ongoing, real-time ESG and impact analysis may have caught and addressed.
Organizations that fail to develop this depth of visibility across their impact value chain will hazard otherwise addressable stakeholder, regulatory, and competitive risks, as well as leave potential investment, partnerships, and impact on the table. To achieve impact measurement and performance at scale, technology tools that provide a granular depth of analysis, benchmarking data, target setting, visualization, and disclosure capabilities are required.
Building An Impact Measurement Process
Before developing an ESG impact measurement program, organizations must first define their strategy and KPIs, similar to assessing other business performance metrics. Organizations should take into consideration the market dynamics outlined above to customize an approach based on organization-specific qualities such as sector, stage, and mission. Once an organization has outlined its strategy and KPIs, it must ask itself a series of questions on how to meet its KPIs such as:
- What impact metrics should we measure?
To discover what metrics to measure, organizations must analyze a wide range of metrics provided by ESG and impact standards such as the International Sustainability Standards Board (ISSB), General Reporting Initiative (GRI), and many more, as well as custom metrics bespoke to a business or sector. To determine which metrics to track, an organization must narrow down the scope of data collection based on double materiality and data availability. To begin with, an organization might narrow down what metrics to track with high-level information like industry, sector, and region-specific metrics. Then, a materiality assessment can be utilized to identify which metrics are material to an organization’s operations (for ESG) and its stakeholders (for impact). This assessment might be broken down by department, facility, portfolio company, or region. To understand the landscape of similar organizations, a competitor analysis can be utilized to better understand which metrics are being tracked by similar companies. Finally, if the refined list of metrics does not capture the total impact being created by the organization, then custom metrics can be developed that contain more organization-specific nuance.
- How do we Develop ESG and Impact Data Management Systems?
To develop unique insights and meaningful analysis, a swathe of ESG and impact data must be collected. To ensure companies are managing, retaining, and optimizing the quantity and quality of data needed, organizations should establish data pipelines to ensure impact data is obtained as close to the source as possible. Direct data integrations can help set and automate this process by installing data pipelines and live data feeds. Most data used for impact measurement already exists in one source or another, such as CRMs, ERPs, and HR systems; this step requires getting access to and aggregating these diverse datasets. If any additional data is required, organizations can apply bottom-up data gathering techniques such as stakeholder surveys to obtain beneficiary-level data and evaluate impact. Accessing data at the source also allows for live streaming and real-time risk management, as well as third-party validation and auditability of results.
- How do we Analyze the Data?
Following data aggregation, organizations must analyze and visualize the information in an accessible and real-time manner to drive impact insights. This requires the ability to intake disparate data sources, validate the data for inconsistencies, and perform visual analysis aligned with impact measurement best practices and standards of impact measurement. While impact measurement is highly quantitative, it is also important to allow for qualitative information that can present additional context relevant to an organization’s impact. The results of aggregating data and analyzing it allows organizations to make benchmark comparisons against industry standards and competitors, identify macro-trends to contextualize the results, track and disclose progress against impact KPIs, and develop data-driven action plans and strategies to mitigate ESG risks and improve impact outcomes.
- How do we Report the Data?
Finally, in the reporting stage, organizations must understand which disclosure standards apply most to them and if they are in a jurisdiction that requires them to disclose certain aspects of their ESG and impact data. This is likely based on region, sector, and company size. For climate metric reporting, organizations should be aware of global trends such as climate disclosure regulations plus the development of standards, including Partnership for Carbon Accounting Financials (PCAF), Science-based Targets initiative (SBTi), International Sustainability Standards Board (ISSB), European Financial Reporting Advisory Group EFRAG, Greenhouse Gas Protocol, and more. From a more general ESG and impact perspective, organizations should be aware of legislation such as the EU’s Sustainable Finance Disclosure Regulation (SFDR) and standards like Sustainability Accounting and Standards Board (SASB), Impact Management Project (IMP), Operating Principles for Impact Management (OPIM), the 2X Challenge, the Data Convergence Project, the Sustainable Development Goals Impact Standards, and IRIS+.
Technology Pushing Impact Measurement Further
The use of technology in this quickly evolving ecosystem allows organizations to be agile and be ready to comply with upcoming ESG, climate, or impact regulations or standards. Additionally, carbon accounting and ESG+I measurement software permits the degree of analysis needed to develop effective strategies that require both scalable system-level data collection and aggregation supported by end-to-end data integrations and ground-level data collection. Ultimately, a technology platform gives regulators, decision-makers, and stakeholders the ability to evaluate a company’s impact in a standardized, dynamic format.
Recent research by Forrester commissioned by Persefoni based on interviews with Persefoni customers evaluated the return on investment a composite organization experienced from deploying the Persefoni climate management and accounting software platform. The report found that companies experienced 40% efficiency improvements in carbon reporting and accounting resources by year three due to the automation of manual efforts of data collection and aggregation. Similarly, Proof of Impact clients are able to accelerate their ESG and Impact management programs by adopting technology that cost-effectively automates comprehensive data collection and analysis. With the ESG+I and carbon accounting software, organizations gain comprehensive insights and return on investment to push their ESG and impact measurements further.
Software platforms aim to accelerate the field of ESG and impact measurement by enabling organizations to analyze their performance and take action to improve their positive impact on the planet and its inhabitants. By facilitating organizations’ journey through the impact measurement process, ensuring they are aligned with the proper standards, capturing the correct quantity and quality of data, analyzing and visualizing data, and disclosing all relevant metrics in reporting. Technology can support companies and investors in understanding the real impact they are creating, thereby revealing opportunities for driving impact outperformance.
About the authors:
Ryan Miller: SVP & GM, Global Financial Services, Persefoni
Ryan leads Persefoni’s Private Financial services team. Prior to Persefoni, he spent seven years at Malk Partners, a boutique management consultancy that works exclusively with alternative investment firms and their portfolio companies to create and protect value through Environmental, Social, and Governance (ESG) and Impact management, where he finished as a Partner.
Evan Vahouny: Chief Impact Officer, Proof of Impact
Evan leads the continuous design of Proof of Impact’s data intelligence engine, ensuring the product delivers sustainable value through double materiality analysis and decision-making. Prior to Proof of Impact, he coordinated the implementation of impact-linked financing programs at Optum and worked at the Department of Justice and on Capitol Hill. Evan holds an MPP from the University of Virginia.
Kyle Roland: Senior Customer Success Manager
Kyle works directly with Proof of Impact clients to develop and execute their ESG and Impact strategies. Kyle has a background scaling technology solutions in the supply chain and logistics industries, as well as experience in international humanitarian aid. Kyle holds an MPA-MA in Social Finance from NYU.