Demystifying impact reporting for businesses

01 Aug 2022
Blog Image

Impact reporting is not a new mantra.

Since 1994, “Patagonia” founder and chairman Yvon Chouinard has been on a mission to address environmental degradation caused by businesses through investing decades — not to mention millions of dollars — into developing more sustainable business practices.

Impact reporting means communicating the difference you made to the people you are trying to help, or to the issue you are trying to improve. Many corporate giants such as Apple, Nike, Google, Facebook, etc., have been publishing their sustainability reports on an annual basis. Like Patagonia, these large organizations have been investing their time and dollars for over two decades in publishing their business’ social impact reports. Over the years, the term ‘impact reporting’ and its implications have evolved and become broader. From being a mere PR play to being more integrated with a business' long-term sustainability, impact reporting has come a long way.

But is impact reporting only for large corporations?

Do stakeholders of small and medium-sized enterprises care about community impact or sustainability? Here are some interesting findings on this subject:

  • A 2018 study on climate change reveals 77% feel a stronger emotional connection to purpose-driven companies over traditional companies.
  • A Deloitte Global 2021 Millennial and Gen Z Survey showed 40% of millennials believed that businesses should make improving society a goal in this business plan.
  • A chemicals company Solvay saw 4% annual growth in sales of products that have a low environmental impact, while sales of more-damaging products declined by 5% (Between 2016 to 2018)
  • A PwC research found 65% of investors feel their motive for considering ESG issues was to help manage investment risks.

So, what does this mean for small and medium-sized businesses? When it comes to impact reporting, does company size matter? The answer is “no”. It does not matter. And here are top three reasons you must bring impact reporting into your strategy room.

1. Safeguarding your brand and mitigating future risks

Companies' share prices drop dramatically when their operations cause some kind of environmental catastrophe. Take oil spills as an example. The Deepwater Horizon spill, which is considered the worst oil spill in US history, severely impacted BP's stock price. The reputation damage can cause a nasty dent in your financial and human capital assets. As shareholders loose trust in the business, employees too do not like to associate themselves with a brand that has resulted in negative media outrage.

2. Competitive advantage

Sustainability and impact measurement must be embedded within the broader company strategy. During a Facebook live discussion, Harvard Business School Online Professor Rebecca Henderson shared an interesting insight from an EY study on ‘Ten ways leading companies to turn purpose into strategy’. According to the study, 89% of executives believe an organization with a shared purpose will have greater employee satisfaction. Moreover, 85% of respondents say they're more likely to recommend a company with a strong purpose to others. This goes to show that organizations that create a positive environmental or social impact attract top talent. This further results in improved productivity, lower costs, and higher profitability. Thus, organizations that are committed to striking a balance between revenue and impact on the world around them, enjoy a competitive edge over their peers who do not.

3. Improve your firm’s valuation

Investors want sustainability data — they are looking at your business, from a long-term perspective, to evaluate whether you have the potential to sustain fluctuations in the economy. When your business is backed by a reputation of good social and environment impact or governance, it creates a foundation for trust among customers, shareholders, employees, and the community at large. After the European Union made an announcement to broaden the disclosure requirements, the stock market reacted positively to companies with strong ESG (Environment, Social, Governance) performance and negatively impacted companies with poor disclosure.

You can see now how reporting on the UN’s Sustainable Development Goals (SDGs) and ESG is a win-win proposition. This leads us to the next important question. And that is, what metrics you should be tracking? Is there a framework for measuring your impact? And how can you stay away from overselling sustainability reports?

Auden Scheduler, the author of the book Getting Green Done said, “Measurement and reporting have become ends to themselves, instead of a means to improve environmental or social outcomes.” The important thing to remember is to avoid confusing impact with outcome. When looking for a framework or methodology or software to help you with impact reporting, pick one that provides you flexibility so you can capture necessary insights required for decision making under different circumstances. A fit-for-purpose approach will enable you to capture, analyze and present the information you want to communicate to your stakeholders.