October 29, 2024

Impact measurement and management in complex context

A shift from 'data as an end' for compliance reporting to 'data as a means' for informed action

"Impact investment and management are booming.... Rarely a month goes by w/o organizations being accused of greenwashing, purple washing, bluewashing  or rainbow washing... In response to these "washing debates", the solution I hear proposed are usually variants on a theme: "we need more impact data"  and "we need more rigour and standardization and verification of our data"... The worrying rise in the expectations stakeholders place on impact data can get in the way of the very impact they are trying to convey. To address this, I argue that Impact Measurement and Management needs to shift from 'data as an end' to 'data as a means'."

Julia Mensink, Head of Impact at Acumen, 'More data is not the answer: Why we need to reset our expectations for impact measurement and management'. Next billion net. May 2024.


Impact measurement and management is booming

In the context of todays polycrises of climate change, armed conflicts, fragility of democracy and inequality -just to name a few- organizations are expected to act, i.e. being committed to creating positive impact in the environment and society. 
Impact measurement and management of ESG, sustainability and impact investing is rapidly increasing from 7.6 billion USD in 2020 to expected 31.2 billion by 2030.
But how can we tell if an organization or in a broader sense sectors or ecosystems are truly making an impact or simply talking the talk, i.e.doing impact washing? 
And how can we go beyond impact data collection and compliance reporting, using the data to informed action for change?
And who is 'we'? All stakeholders: Governments, corporations, investors and funders, NGO's, social enterprises, policy makers, you and me in our different roles and responsibilities?

"Consulting firms are adding impact divisions....Software platforms now offer real time impact data, visualized and animated for websites. But all this money spent on verifying and presenting does not, by itself, yield insights. Impact data itself will not prove impact... Ultimately it's people who make the decisions that make impact happen. Let's treat them as the key drivers of impact and set them free."

Julia Mensink, Head of Impact at Acumen, 'More data is not the answer: Why we need to reset our expectations for impact measurement and management'. Next billion net. May 2024.

With increasing uncertainty, the call for methods that help generate a sense of certainty grows, leading to a dead end!

This is where a flood of concepts and methods for measuring positive impact comes into play and things are getting blurry as the context is complex and uncertain. 
Current impact measurement frameworks applied are often either too rigid or too simplistic aiming to reduce risks, are target- and value -oriented and are creating an illusionary narrative of certainty. 
A way forward are methods that give support in navigating in a direction to emphasizing action, monitoring lead data and rapid iterative learning cycles.

What is impact measurement and management (IMM)?

Impact measurement is a process of systematic quantitative and qualitative assessment of changes—both positive and negative— resulting from an organization’s, sector or system activities. These changes can be social, economic or environmental.
 ESG risk and opportunity management, context-based authentic sustainability management, ideally linked to UN Sustainable Development Goals and the Global Reporting Initiative Framework are part of the impact measurement process. 
To evaluate contributions to sustainability, regeneration and social equity and overall well-being goes ideally beyond traditional financial metrics where value is getting embedded in IMM
Current practices are incremental and reinforcing the need to go beyond sustainability. i.e. towards regenerative business models and value propositions to truly create long-term positive impact. 

‘We are getting better at measuring and valuing the negative impacts created by our businesses, markets and economies. But we still struggle to master the task of prediciting and valuing the positive impacts... This is a core challenge, among others, for the rapidly expanding impact investment sector. Currently worth around 620 Billion (US), impact investment could reach 25 Trillion (US) if it mainstreams properly. 

John Elkington. Green Swans: The coming boom in regenerative capitalism, published in April 2020, p. 65 

How to do impact measurement and management?

Rethinking of appropriate indicators, metrics and process from short-term profit and incremental improvements to long term positive impact: Using insights from impact measurements to enhance decision-making, optimize strategies to refine the approach, to demonstrate the positive impact of your work and to finance a regenerative future, i.e. beyond the classic impact investment.
 Aiming for credibility: via specifying and monitoring lead data describing what needs evidence and to what extent, for whom and for which action.
Ensuring data utility, analysis and insights: Crucial for sound decision making and communication with all stakeholders regarding impact creation on society and the planet
Process (based on collaboration): e.g. 5 step circular framework by Impact Europe for investors, investees and corporate sector: 1- Setting objectives and the theory of change, 2- Stakeholder engagement, 3- Measuring outputs =(quantifiable metrics), outcomes (=long-term) and impacts, 4-Verification and valuation, 5-Monitoring and reporting

Instead of applying too rigid or simplistic measurement frameworks to todays complex context, approaches embracing uncertainty, monitoring lead data, fostering ongoing learning and adaptation are making more sense

Engagement today

Incremental approach via ESG and authentic sustainability = sustainability as usual

More organizations are integrating Environmental, Social, and Governance (ESG) criteria and UN Sustainable Development Goals to their strategies. As of 2023, ESG assets are projected to reach $50 trillion by 2025, representing over a third of global assets under management. 

By 2023, global ESG assets were estimated to be around $41 trillion, with a projection to reach $53 trillion by 2025, representing over a third of global assets under management.

Frameworks for transparency and accountability

Development of frameworks from the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), B Corp certification or Impact Europe, help to navigate impact measurement for transparency and accountability. It helps all stakeholders involved in the impact ecosystem to identify what works and what doesn’t to drive positive impact.

Financing the future: Will it go beyond impact financing?
Rising demand from investors for impact data, leading to the growth of financing the future (via impact investment). The Global Impact Investing Network (GIIN) is reporting that in 2024 over 3,907 organizations manage ca. $1.571 trillion USD in impact investing assets under management (AUM) worldwide. 

A call to act

 Why does it matter?
Which hidden barriers and underlying dynamics are impeding a move towards using data as a means for informed action for change  on corporate, national and global level?
And  
What can we do to overcome them?

Why does it matter?

In summary, ‘ positive impact measuring and management frameworks’ support organizations in navigating meaningful contribution to the environment, society and economy and to align their strategies, business models and processes with societal and environmental demands, ensuring that their operations benefit not only their profit but the planet and people in the long run. Data measurement became a key for problem solving in the industrial era. However, data alone and reporting them don’t lead to change. 

"Data + measurement = solution' has become embedded in political, policy and funding decision-making- and yet in complex contexts this narrative is just not that easy!"

Prof Ingrid Burkett and A/Prof Joanne McNeill. June 2024. Now we are all measuring impact — but is anything changing? Griffith Center for Systems Innovation. Published in Good Shift.Medium. 

Positive impact measurement

A navigating tool

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examines an organization's impact on their workers, community, environment, and customers. By monitoring social, environmental, and economic lead data, it ensures that companies are not just short-term profit-driven but also responsibly navigating their positive impact on planet and people. This approach helps prevent impactwashing and ensures that claims of sustainability and social responsibility are backed by monitored lead data and qualitative input. For more check e.g: B-corporation.eu 

Stakeholder focused 

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examines an organization's impact on their workers, community, environment, and customers. By monitoring social, environmental, and economic lead data, it ensures that companies are not just short-term profit-driven but also responsibly navigating their positive impact on planet and people. This transparency helps prevent impactwashing and ensures that claims of sustainability and social responsibility are backed by lead data and qualitative input. For more check e.g: B-corporation.eu 

Accountability on relevant dimensions

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describing specific dimensions of impact relevant to stakeholders holds organizations accountable for their actions: e.g. related to the impact of a company’s day-to-day operations or overall business model. 

For more check e.g.: B-corporation.eu

Transparency for all stakeholders

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Organizations that measure their impact provide transparency to stakeholders, including investors and regulators which helps to build trust and credibility, making it easier for stakeholders to make informed decisions about where to invest, work, or buy from. For instance, companies with responsible business practices are increasingly favored by investors. Responsible business models, value propositions and practices go beyond ESG risk and opportunity management and incremental sustainability management.

Innovation

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allows organizations to assess the effectiveness of their initiatives and make data-driven decisions. By understanding what works and what doesn’t, organizations can adjust their strategies and operations to navigate towards positive outcomes. This rapid iterative- learning cycles drives innovation and enhances the overall impact on society and the environment.

Global Alignment

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helps align business practices with the United Nations’ Sustainable Development Goals (SDGs). By having these goals embedded in their business model, value propositions and processes, organizations demonstrate their commitment to addressing critical global challenges, such as e.g. climate change and inequality.

Hidden barriers and underlying dynamics impeding the process

"Regenerative anything requires moving away from linear benchmarks, certainty and KPIs to an acknowledgment that things aren’t that simple"

Louise Kjellerup Roper, CEO of Volans, a London-based think agency and advisory firm


Short-term focus

A McKinsey survey from 2024 underscores that for many organizations balancing long-term impact against short-term profit pressures continues to be a major challenge. 

Complexity, scalability and time lags

In situations involving uncertainty (e.g., climate crises, inequality) measuring impact is complex. Applied methods often aim to create certainty but oversimplify complex problems by reducing them to numerical values.
Focusing on small-scale activities like projects or initiatives creates a disconnect in understanding the cumulative impact of these efforts, as evaluations often fail to capture the broader, system-wide effects of multiple initiatives. In addition, impact might take years to materialize.
e.g.
A study by the World Business Council for Sustainable Development (WBCSD) found that 83% of companies struggle with measuring their social impact

World Business Council for Sustainable Development (WBCSD): Measuring Impact 2023 wbcsd.org

Data: availability, quality and bias  

Limited access to reliable and relevant data, the quality of data and the way data is collected and by whom affect outcomes.
The methods used to measure impact, such as cost-benefit analysis, do have certain assumptions and biases, often oversimplifying complex problems by reducing them to numerical values. 

e.g.
According to a 2023 survey, 47% of businesses cited data collection as a significant challenge in their ESG reporting efforts

McKinsey & Company: ESG and Long-Term Value Creation McKinsey Report

Lack of consensus - Stakeholders and a flood of frameworks

One of the biggest challenges in impact measurement and management is aligning the perspectives of all stakeholders like investors, business leaders, customers, employees, communities etc. Different groups may have different views  of what positive impact looks like and what needs to be prioritized. 
Different frameworks and standards can lead to inconsistencies in measurement, reporting and might hinder management. Impact is often defined by funders and organizatiosn, not by the stakeholders affected, leading to a mismatch between what is measured and what actually matters for people and planet.
e.g.
A study revealed that 60% of investors found the lack of consistency in ESG data and ratings problematic

Hidden barriers and underlying dynamics are powerful so what can we do to overcome them?

"Making Sense of the Impact Measurement Soup: A Matrix as a Starting Point 

Increasingly the landscape of Impact Measurement is crowded, dynamic and contains a diversity of frameworks and approaches — which can mean we end up feeling like we’re looking at alphabet soup. As we’ve traversed this landscape we’ve tried to make sense of it in various ways, and have begun to explore a matrix to represent the constellation of frameworks, approaches and models we’ve encountered in the process."

Prof Ingrid Burkett and A/Prof Joanne McNeill I Now we are all measuring impact — but is anything changing? Griffith Center for Systems Innovation. Published in Good Shift.Medium. June 2024

A matrix that categorizes impact measurement approaches

is proposed by the Griffith Center for Systems Innovation (see above). Based on whether the approaches are retrospective or prospective, and whether they focus on management through quantitative data for outputs from interventions asking what happened or what could happen or evaluation through a mixture of quantitative and qualitative data for interventions asking what changed and why? What was or might be  the interrelationships between changes?. Latter are creating a more cohesive understanding of changes that occurred, are occurring or could occur.
The framework is meant to facilitate discussions about the diverse methodologies in use and how they relate to one another.

Capacity building

Providing organizations with tools, resources and expertise needed to effectively navigate, i.e. experiment, monitor lead data and course correct through iterative cycles, and report on impact.
e.g. Organizations like
B Lab, a nonprofit network is offering sustainability certifications, standards, and schemes compliant with its discerning criteria to transform the global economy to benefit all people, communities, and the planet. As of October 25 2024, there are 9,325 certified B Corporations across 162 industries in 105 countries.
The Impact Management Project are working to build capacity by offering tools and guidelines for effective impact measurement. By 2024, the IMP framework has been adopted by over 2,500 organizations globally.

Regulatory Push

Governments and international bodies are increasingly mandating for policy changes and impact reporting to ensure organizations are held accountable.
E.g. The European Union’s Corporate Sustainability Reporting Directive (CSRD) will require nearly 50,000 companies to disclose ESG data by 2025. This directive is a significant step towards ensuring more transparent and accountable impact reporting across the EU.

Data measurement and reporting alone won't make the change. It doesn't move without integrating societal norms, beliefs and narratives and policy changes based on systemic changes occurring around the world at the same time through orchestrated actions agreed by national governments around the world:

"We cannot afford rest-stops or detours or stumbles at this half-way point in humanity's climate journey. Climate change impacts are not isolated events. They transcend political boundaries, damaging economies and causing cascading changes to our societies and culture, with children and the most vulnerable bearing the brunt. We need every country to have a plan by 2025 and make progress on implementing them by 2030. I urge you to come together, and to overcome differences. This is not a moment for trying to try, but for finding solutions and forging pathways forward.’"

Simon Stiell, UN Climate Change Executive Secretary, speech in June 2024 

Technological advances 

in data analytics, AI, and blockchain are being leveraged to improve the accuracy and efficiency of impact measurement. However, impact data management systems can help, but won't resolve the need for analysis and decision-making to make impact happen.

E.g.
AI-driven tools like Truvalue Labs or Datamaran  analyze real-time ESG data, helping businesses and investors among other stakeholders to make more informed decisions.

We can do this

'' I'm always astounded at how many people want to do the right thing. And it doesn't matter whether they're an activist blocking the M25 (highway near London) or whether they are CEO of a multinational, most people have good intentions and want to make a difference. The hard bit is we've all locked ourselves into patterns that make it very difficult to be the first person or company or industry to step forward. But I'm absolutely confident we can do this.”

Louise Kjellerup Roper, CEO of Volans, a London-based think agency and advisory firm

Are you a first mover stepping forward

with a business narrative explaining the new role of business in society and related paradigm shifts by using your business language and helping to develop systemic foresight, tools, methods and excersises that are making sense in the complex context?