Four Takeaways from “The ‘S’ in ESG” Roundtable
I recently attended “The ‘S’ in ESG: Rethinking Materiality for Social Impact,” a roundtable discussion hosted by the RW Institute and the University of Chicago’s Harris School of Public Policy (ICYMI: here’s the recording).
As a data and impact practitioner who has spent years helping companies and organizations make a difference and measure their social impact—currently as Head of Data Strategy for Deed—I appreciated this opportunity to hear the latest thinking on such an important topic. In this discussion, participants from a wide variety of backgrounds (CSR practitioners, ratings agencies, advisors, and more) explored how we might effectively measure the social impact of Environmental, Social, and Governance (ESG) efforts.
I am coming away from the roundtable excited to have found supporting discussion for several of my own “S”–related hypotheses, as well as a few larger impact-related questions to ponder. I look forward to continuing to explore these topics alongside my peers in the impact space.
After reflecting on the conversation, I have included below my four key takeaways and related thoughts on key questions facing practitioners in the ESG space.
1. ESG ratings agencies are watching “S” factors closely…
ESG ratings measure a company’s exposure to long-term environmental, social, and governance risks, as well as how effectively the company manages those risks, based on their leadership (policies), implementation, and results.
S&P and Moody’s—the two most influential ESG ratings agencies—use robust sets of criteria to determine ESG ratings. While these ratings agencies use independent criteria, nearly half of the criteria in both S&P and Moody’s ratings systems correspond to Social (“S”) factors.
2. …however, lack of standardization across ESG frameworks inhibits effective benchmarking and cross-company comparison.
ESG frameworks are systems companies use to report and disclose ESG metrics. There are about a dozen popular frameworks used throughout the world, as well as smaller, more specific frameworks relevant to certain regions or industries. While ESG frameworks enable standardization among companies that all use the same framework, there is no standardization across frameworks.
Each ESG framework has its own terminology that it uses for key E, S, and G factors. While aligning this terminology is one task, perhaps more impactful to misalignment across frameworks is that each framework has its own way of categorizing which factors fall under the E, S, and G.
As frameworks define what qualifies as the “S” in different ways, the picture of what a company considers to be its Social efforts—and the way it is rated against those efforts—can also vary greatly. As a result, companies can hardly be directly compared against each other by their ESG ratings—even if just looking at their ratings for their “S.” Many of our clients at Deed are looking for a standard framework to help them in benchmarking and goal-setting, but these ESG frameworks are not yet in the place where they can be that foundation.
3. Popular frameworks—such as the Sustainable Development Goals—do not help companies with benchmarking and reporting.
Apart from ESG frameworks, there are other popular frameworks that companies use to aggregate their efforts across a variety of impact areas. Perhaps the most common of these frameworks are the United Nations Sustainable Development Goals (SDGs). The SDGs—which form a key component of The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015—provide 17 goals across a range of impact areas, including “No Poverty,” “Gender Equality,” and “Climate Action.”
While the SDGs have been enzymatic to the rich and ongoing global conversation about how governments and nongovernmental organizations can do good, they focus on change at the global population level. They may be helpful to a company interested in seeing how its impact efforts contribute to worldwide change; however, they do not provide specific, targeted direction for impact initiatives that company could claim to be driving. Ultimately, at the company level, the SDGs are not strong benchmarking tools.
4. The impact industry agrees that we need to evolve from tracking inputs to tracking actual impact outcomes, but there is not yet a standardized way to do so.
For years, the impact space has talked about the importance of tracking actual change—rather than just activity—to truly show the impact that can be attributed to a given company or organization.
Many companies and organizations only measure their impact efforts through statistics, such as the number of volunteer hours or number of dollars donated. While reporting these statistics is certainly a good first step—especially for companies looking to link impact initiatives to employee engagement—they do not tell the full story of what change those hours and dollars actually drove.
Perhaps the most interesting takeaway from this roundtable discussion is that, despite widespread and lasting agreement that such a methodology is needed, there is still no broadly accepted or standardized approach to track how various impact initiatives generate key social impact outcomes.
Questions to consider
As I was reflecting upon how impact practitioners could best help companies looking to benchmark and report their social impact—in the absence of a standardized way to do so—a question was posed by one of the roundtable panelists: Should the measurement of social impact be standardized?
For environmental factors like carbon offset, there are widespread and consistent practices to connect action to impact. But when it comes to gender representation on the board, labor practices, and other “S” factors, there may never be equivalent methodologies.
To avoid letting perfection get in the way of progress, this lack of methodology should not be a cue to stop—or to never start—data collection and reporting, while we wait for some gold standard to emerge. As we move forward, I will continue to ask myself: Given the lack of universally accepted standards for measuring social impact, how can we remain responsible when reporting the outcomes of social impact efforts?
I believe the answer is based on transparency, patience, and partnership. The impact space continues to evolve. As companies aim to do good, and to do their best at capturing their efforts and the impact of those efforts, there will continue to be a learning curve. With reporting that offers clear explanations of data collection approaches and assumptions, companies and the greater impact community can continue to learn from one another, and to define what social impact measurement could—and should—look like.
Throughout my career at the intersection of business and impact, I have seen over and again the discomfort that can arise as companies aim to justify allocating time and resources to impact efforts, to which they cannot easily measure ROI and other commonly used business metrics. The lack of standardized frameworks and clear direction for corporate ESG benchmarking and reporting can understandably be unsettling.
Maybe you now have the same question as many of the roundtable attendees: Where should companies look for guidance on how to address and measure the “E,” the “S,” and the “G”?
This thought-provoking roundtable reinforced my conviction that corporate leaders who want to drive meaningful, sustained social impact need the right data-driven partnerships. While there is not yet the “perfect” standardized framework, there is a lot of work moving in the right direction, and data collection and transparency are foundational to engagement and meaningful impact efforts.
If your company is ready to make a tangible social impact—and to do something good today—let’s talk about how Deed is the nimble, empathetic, and collaborative partner your impact and ESG program needs. Request a demo now.
Head of Data Strategy