It’s time that we started a real conversation about the importance of social impact measurement, the challenges around the absence of a unified approach, and how organizations can navigate the evolving ESG maze to drive measurable community impact.

Picture this: you open your laptop on Monday morning, getting ready for another week of meaningful work. You take a sip of your coffee and begin to read the day’s headlines. “Breaking News: New ESG Framework to Measure Your Environmental and Social Footprint Hits the Industry” pops up on your screen. 

You sigh. Not again.

Sound familiar? If you’re feeling frustrated trying to keep up with the latest ESG guidelines in your industry, you’re not alone. There can be a true sense of overwhelm and burnout as you try to define your impact measurement framework when the standards are changing every day. Which standards do you adopt? Which institutions should you trust? What certifications or pledges should you sign? These questions are constantly revolving in the minds of leaders, in your team’s discussions, and your organization’s meetings.  

Social impact has become another buzzword in the business world as we continue to see the “S” in ESG (environmental, social and governance issues) coming to the forefront. Consumers and shareholders alike are pressuring organizations to demonstrate a positive social impact in their operations and products.

The problem? No one has a clear idea of how to go about measuring and communicating that impact successfully. 

While countless frameworks have emerged to promote transparency and accountability for social impact, a crucial issue persists: the lack of standardization. It’s time that we started a real conversation about the importance of social impact measurement, the challenges around the absence of a unified approach, and how organizations can navigate the evolving landscape to drive measurable community impact. 

What is social impact measurement? 

Social impact is the idea that organizations don’t just affect the planet with their operations;  they also impact the people with whom they interact and the communities in which they operate. As a concept, social impact was made famous by American social entrepreneur Bill Drayton in 1972, and it was rooted in the social justice and environmental movements of the time. Its core tenet? That companies should be held accountable for the positive and negative effects and externalities of their actions. For example, if a manufacturing company dumps its waste into a local lake, leading to health defects and disease in its surrounding inhabitants, it should be accountable for those impacts. 

The evolution of social impact

The “S” in ESG is 10 years behind the “E.” Remember what “green” actions from companies were like a decade ago? They focused on performative actions such as reducing waste and increasing the use of recycled paper. While they were a step in the right direction,  there was no way to measure the impact of these actions on the planet or on the people the company served. 

Fast forward to now. We’ve seen environmental measurement evolve drastically, with companies now expected to commit to carbon emission reduction targets set by international and regional governing bodies. The current environmental reporting standards are an example of the power of standardization to drive change forward. With standard metrics and reporting requirements as a guide, as well as new laws in place, companies are starting to be able to integrate environmental reporting into their existing financial statements. 

The state of social impact measurement right now

Social impact is currently going through the same evolution. Right now, a quick survey of the current social impact landscape reveals a myriad of frameworks, each with a unique set of metrics, methodologies, and reporting standards, making it challenging to draw direct comparisons or identify the right fit for a company. Here is a brief list of some of the more prominent frameworks and standards: 

1. UN Sustainable Development Goals (SDGs): A set of 17 global goals adopted by the United Nations in 2015 to address various social and environmental challenges.

2. Social Return on Investment (SROI): Measures the social and environmental impact of an organization’s activities in monetary terms, using a multiplier set yearly by the US government. 

3. Sustainability Accounting Standards Boards (SASB): Standardizes key metrics that should be measured across Environment, Social and Governance categories by companies depending on what is materially important to their business and industry. 

4. Global Reporting Initiative (GRI): Provides guidelines and reporting standards for how organizations should disclose their economic, environmental, and social performance.

5. IFVI Impact Weighted Accounts: Aims to create a financial accounting system that reflects a company’s impact on society and the environment.

Challenges with current frameworks

Quantifying social impact

The primary challenge with each of these frameworks is that many of them are not completely holistic, causing investors and stakeholders to face challenges when attempting to compare the social impact of different organizations. Frameworks such as GRI and SASB are widely accepted and used because they have robust reporting standards for environmental metrics. However, environmental metrics such as carbon emissions tend to be more tangible in nature, while social impact is less quantifiable.  How do you measure whether your employees and community members are better off because your company exists? The absence of a common language hinders efforts to evaluate the true effectiveness of various social initiatives.

Inconsistency

The lack of standardized metrics across frameworks also results in inconsistencies in the way impact is measured and reported. For instance, the valuation of social outcomes in monetary terms, as advocated by SROI, may not align with the qualitative indicators emphasized by the SDGs. This leads to companies cherry picking metrics, choosing those in which they have outsized impact and avoiding those in which they are performing poorly. As a result, we don’t get to see the full picture, and therefore lack the information needed to hold them accountable. In addition, organizations—particularly smaller ones—may find it resource-intensive to comply with multiple frameworks simultaneously, which can lead to selective adoption of frameworks based on convenience, rather than a strategic alignment with the organization’s mission and values. 

Going deeper

Most importantly, the existing frameworks lack an in-depth view of impact measurement. In the social space, many require companies to report on outcomes using an input-output model, without including reporting on the larger impacts of their actions on people and communities. 

Let me explain. Traditional impact reporting uses only two metrics to measure success: input (what resources ($) have been used for business activities?) and output (what are the direct results from those activities?). The output then results in an outcome. For example, say that company A decides they want to increase their gender parity. They allocate $1M to HR to recruit, hire, and onboard 30 qualified women in leadership positions. That’s the input. After months of work, the HR team reports that they were able to hire and successfully onboard 28 women into managerial positions. That is the output. The outcome is that Company A now has 45% women in leadership positions, increasing gender parity for the organization. 

The issue with this reporting is that it ends there. For the most complete analysis, it should also measure the impact of the action. To achieve that measurement, we would need to understand how the outcome affects the women hired and the larger community. Has it reduced wage inequality among women and men in the organization? Has it contributed to economic growth in these women’s communities? Has it improved company morale or employee satisfaction?

As you can imagine, every organization will have different opinions on what those questions should be—on the value each outcome holds and what constitutes impact for their company and community. And that’s okay. In my opinion, that’s not the part of the impact measurement process that needs to be standardized, because every community has its own needs and priorities. What is important is that organizations understand the impact they are trying to make beyond that initial output—what it means, why they care about it, and how they can measure it.

After answering the questions above, organizations should attribute a value to the impact so that it can be translated into existing organizational reporting and standardized to ensure it’s comparable to other organizations. While the input-output model is a positive step, impact measurement takes it to the next level by working to understand the wider effects on people and communities. This approach to reporting provides more depth, enabling us to understand the complete social impact of an action.

Scaling up measurement

Sounds simple, right? Unfortunately, there’s one final issue. Current reporting standards aren’t sophisticated enough to report on impact at a large scale because it is incredibly resource-intensive to gather that data qualitatively. To combat the problem, companies and governing entities have begun to use a multiplier effect. The social multiplier effect is an assumption-based model that attributes a value to an outcome to estimate the spillover effects that company actions have on the larger society and economy. As you can imagine, the problems with this approach are the same as I’ve outlined for other methods: a lack of standardization. Because there is no standard way of determining the correct multiplier rate, companies can report that they have contributed 10% to their state GDP using this effect, with no real data to prove that this is the case.  

Why is social impact measurement important?

Social impact is important in the sense that it captures your business’ effect on the world. It’s not just about ensuring equality in the workplace or creating sustainable products or reducing waste. It’s about all those things entwined. When one component of society thrives, many other aspects will flourish as a result. Committing to social impact is a recognition that companies do not operate in a vacuum; the actions that organizations take have a larger impact on our society that will cause ripple effects for decades to come.

But even if you are not in a feel-good mood, it’s critical to pay attention to the shift toward accurate social impact measurement for business reasons. Consumers, employees, and shareholders are demanding it, voting with their wallets and smartphones. Regulations such as GAAP accounting and FASB are trending towards mandatory human capital transparency and disclosures. EU Corporate Sustainability Reporting was recently signed into law, requiring mandatory reporting for non-financial metrics in Europe and by US firms doing business in Europe. 

Social impact isn’t just good for the world; it’s good business. And we are learning that companies no longer have to choose between profitability and social impact.

Corporate leaders are looking for direction on this issue, but without one holistic method for approaching the problem, it’s tough to know where to start. Leaders have to navigate a lack of standards, a lack of industry expertise to understand and tackle the problem, and a lack of access to data. Right now, it’s resulting in flawed self-reporting, issues with performative actions, and metrics that don’t allow for comparison between competitors.

To move the field of social impact forward, we need to get serious about standardizing social impact measurement. It will require cooperation, not only from companies, but from governments, employees, and communities to create, implement, and enforce standards that create a better future for all. 

Keep an eye out for part two of this series on impact measurement, where we’ll discuss how community organizations should approach social impact measurement to align with industry standards. Hint: the trick is to start small.