ESG Impact Is Hard to Measure — But It’s Not Impossible

Around the globe more than a third of all professionally managed assets — or roughly $30 trillion, are now subject to ESG criteria — and that proportion is increasing. This trend reflects a growing awareness among companies, investors, and shareholders that businesses must manage their impact on the planet.

Accurately measuring the ESG impact is key to future business success. But current ESG measurement is dangerously narrow as it fails to capture the complexity in environmental, social, and business systems. These measures lack insight into messy underlying processes — it’s important to look behind the numbers and ask: how, why, and under what conditions an outcome came about.

Here are three ways companies can widen their focus to capture information and better reflect the complex systems governing outcome and impact.

First, zoom in to understand how processes work.

To grasp underlying processes, companies should focus on thoroughly comprehending a handful of issues most germane to their core activities. Through this, they gain a greater understanding of the factors that enable improved impact.

Next, zoom out to see broader systems.

This brings a longer term and broader perspective on issues that demand deep insight. Soliciting diverse stakeholder input is an effective approach to understanding systems and one’s role within them.

And finally, value curiosity and learning.

Many people are calling for firms to articulate a purpose beyond profit maximization, so that they can better serve societal values. But purpose is empty without action. Getting started with focused “doing” is a more grounded approach that can leverage existing capabilities and talent.

To reimagine how we think about waste, companies are learning from what their people do on the front lines. For example, Patagonia knows that zippers wear out far sooner than fabric does. Tapping the wisdom of its repair team helps the company rethink product construction so zippers can be replaced without destroying a down sleeping bag or jacket. This example places an emphasis on doing and learning — that is, on not being driven by measures alone.

Robust ESG and impact measures can help us keep score, and, when necessary, make course corrections. Ultimately, no matter how and what we measure, we need to act strategically to obtain greater understanding, insight, and purpose.

Based on the HBR article “ESG Impact Is Hard to Measure — But It’s Not Impossible”

by Jennifer Howard-Grenville

(January 2021)