How lean data can draw insights and improve social impact
Opinion piece by Sasha Dichter and Tom Adams
Is the term “ESG” fit for purpose in today’s business landscape? For investors, ESG represents a “negative screening”, helping them avoid investing in companies that are “doing wrong" or prompting them to engage with business leaders to make things better. It’s a frame of reference that focuses minds on the risks to the business bottom line – and that’s as far as it goes.
This narrow view of ESG, focused on risks to the business bottom line, is problematic, particularly when it comes to the social aspect of ESG. Compared with the “E” and the “G” of ESG, quantifying social outcomes is woefully underdeveloped.
Ask a layperson what the term “social outcome” means to them, and they might mention thriving communities, personal dignity, or good health and education outcomes. Yet these basic elements of social welfare often lie beyond the scope of ESG ratings. This means that companies don’t need to produce much or any evidence of positive contributions in these areas to get top ESG ratings. Worse still, they could leave the door open to businesses causing direct social harm and yet still garnering great ESG scores.
Nonetheless, most business leaders, and especially those in sectors like fashion, and food and drink, want to see how their activities impact and benefit the communities they work with. They will also want to be ahead of any potential reputational issues that might emerge over time.
The information gap between the narrow “S” of ESG and the broader “S” of social outcomes means businesses are effectively blind – not only to any hidden risks in their supply chains, but also to any evidence of their real-world social impact.
The power of better social reporting
Rather than focus on tangible impacts on social well-being, “S” ratings predominantly depend on the existence of policies or committees. For instance, a company with a well-written diversity policy or a workplace safety council will rate highly, but, in most cases, there is little or no data showing the impact of these policies on people and places. That’s why a lot of social impact reporting resorts to little more than output measures such as “number of lives reached” or “number of jobs created”, numbers that say nothing about the depth or quality of that impact.
Few companies or investors seek to understand and connect, in a deep way, with stakeholders – whether customers, direct employees or small-scale farmers at the beginning of the supply chain. Fewer still make a real effort to understand these peoples’ lived experiences, perceptions, or how their (often basic) social needs are met. Nor is much attention paid to understanding if impact is being experienced by the most marginalised individuals or communities, even when these individuals or communities are essential parts of company supply chains.
For years, even attempting to gather this information, across some of the hardest-to-reach parts of the world, was practically impossible. Thankfully, this picture is now changing.
A new way to measure social impact
At 60 Decibels we’ve developed a novel approach that strips the time, cost, and complexity out of social impact measurement. We call it “Lean Data.” It is “Lean” because it is based on simple, repeatable surveys that yield high-quality, comparable impact data, and which enjoy very high response rates. Gathering Lean Data is cost-effective, and the payoff can be significant.
Our approach draws on two fairly recent trends: first, the near-ubiquity of mobile phones that make it possible to communicate quickly and directly with target users, even in far-flung rural areas; second, a standardised, repeatable set of questions that allow us to gather impact performance benchmarks. These benchmarks put the social performance into perspective, revealing the good, bad and the ugly, and allowing some of the world’s biggest companies to understand their comparative social performance for the first time.
What useful impact data should look like
Impact data for business shouldn’t be gathered to produce flashy marketing or investor reports. Rather, just as businesses and investors use data to inform every aspect of their strategy and decision-making, Lean Data does the same for social impact. Our benchmarks of impact performance not only help to prove good impact, they also allow enterprises and investors to compare their impact performance against their peers and make decisions to improve performance.
In other words, like other forms of business data, Lean Data is also “fast data:” readily available, dynamic, and updated at the pace of the business. This stands in contrast to the feel-good numbers and case studies which might only be reviewed during reporting season.
Corporate responsibility that actually contributes to a better world
In the absence of a serious reflection on the “S” in ESG, businesses run the risk of compounding the original sin behind the currently accepted definition of ESG materiality. If companies ignore the issues that matter to people and the planet, but which may not directly affect the short-term business bottom line, ESG will almost certainly remain a smokescreen. It will give the appearance of more socially conscious capitalism while overlooking some of the most significant effects business can have on people and communities – positive and negative.
By making it easy for organisations to gather high-quality impact data, and contrast genuine performance, Lean Data helps dramatically shift businesses’ attitudes toward social impact measurement. Companies with Lean Data at hand gain new insight; they are empowered to understand the impact of their existing policies and practices; and, most important, they are positioned for the first time to drive improvement. Indeed, they begin to approach creating impact just as they would any other business activity.
In turn, the insights into social impacts that arise from Lean Data help companies close an accountability gap. Lean Data, by opening and encouraging a listening channel to individuals and communities, is a chance to gather feedback at scale. Rather than focusing narrowly on risk, Lean Data can help businesses grasp the broader – and potentially more valuable – opportunities that true social responsibility can bring.