Defining and Measuring ESG impact

1 year ago

ESG and Impact Investing have existed for decades. Yet they’ve been gaining significantly greater traction in recent years. It’s not difficult to explain this phenomenon—it reflects the collective recognition of an increasingly integrated and transparent world. We know more about what companies are doing. We have incredible access to the results of their activities. We interact with and hear from new and expanding sources as more and more people add their voices to a connected world.

The convergence of doing good and doing well, which forms the DNA of ESG and Impact investing, stems from our collective reaction to these changes. What was once unknown or unseen is now readily available, and many investors are demanding more accountability, ethical and sustainable behavior, and returns on investment (ROI) from activities that minimize negative outcomes.

Famed author Maya Angelou put it like this: “Do the best you can until you know better. Then when you know better, do better.” In today’s world, we know better.

However, much of how we define ESG impact leaves significant room for improvement. ESG impact has to be about more than just the absence of negative outcomes: doing good isn’t equivalent to not doing bad. Effecting positive change requires more than the avoidance of controversial actions.

The ESG and Impact Investing continuum ranges from passive support of ESG-positive behaviors, strategies, and efforts to active determination of which behaviors, strategies, and efforts are pursued. It ranges from a tolerance of concessionary returns to a demand for market value. But regardless of where a given investor’s interests lie, successful ESG impact starts with several key elements: high-quality data and information, comprehensive measurement, and long-term monitoring.

We must continue to innovate with regard to how we define and measure ESG impact. We quantify doing well through ROI, but how exactly are we defining doing good? Understanding which metrics to use in a given context is complicated and requires substantial expertise, but it is achievable. Measuring those metrics with scientifically rigorous methods helps to truly quantify and operationalize the ESG impacts made. And tracking those over time is crucial to adapting to dynamic conditions.

These considerations map directly to our service areas: comprehensive assessments conducted in a local or regional context, ESG impact optimization using the most appropriate metrics, and monitoring and evaluating impact in real time are all central to supporting true impact.