How enterprises manage impact

Any enterprise directly affecting people or the planet – whether a large multinational, a small business or a non-profit – can manage its impact.

 

All enterprises have positive and negative effects on people and the planet. The norms described in this page provide actionable guidance on how enterprises can set impact goals and manage performance.

 


 

Why do enterprises manage their impact?

Enterprises have a range of values and motivations and therefore various impact intentions. All these intentions, however different, call for high-quality impact management based on shared norms. 

Some enterprises are motivated to manage impact because the creation of positive change for people and planet is why they exist. Some are driven by a concern about regulatory and reputational risk. Some see it as a way to unlock commercial value — for example, cost-cutting through energy savings or increasing workforce retention or customer loyalty. And some just believe that businesses should respect society and want to live up to that ideal.

Depending on their motivation, enterprises’ intentions range from broad commitments, such as “to mitigate risk”, “to achieve sustainable long-term financial performance”, or “to leave a positive mark on the world”, to more detailed objectives such as “to support a specific group of people, place, outcome” or “to address a specific social or environmental challenge”. These intentions relate to one of three types of impact: A, B or C.

A. At a minimum, enterprises can act to avoid harm for their stakeholders, for example decreasing their carbon footprint or paying an appropriate wage; such ‘responsible’ enterprises can also mitigate reputational or operational risk (often referred to as ESG risk management), as well as respect the personal values of their asset owners.

B. In addition to acting to avoid harm, enterprises can actively benefit stakeholders, for example proactively up-skilling their employees, or selling products that support good health or educational outcomes; these ‘sustainable’ enterprises are doing so in pursuit of long-term financial outperformance (often referred to as pursuing ESG opportunities).

C. Many enterprises can go further — they can use their capabilities to contribute to solutions to pressing social or environmental problems, for example enabling an otherwise underserved population to achieve good health, educational outcomes or financial inclusion, or hiring and skilling formerly unemployed individuals.

While any enterprise that manages its impact is expected to act to avoid harm to its stakeholders, the extent to which an enterprise goes further along the ‘ABC’ of impact, either benefiting its stakeholders or contributing to solutions, depends on its intention. For instance, a multinational corporation seeking to sustain long-term financial performance by benefitting its stakeholders will not just act to avoid harm – by paying above minimum wage and significantly reducing workplace injuries and greenhouse gas emissions – but will also look for ways to generate positive outcomes for some of its stakeholders, such as transitioning its food product lines so that they contribute to good nutritional outcomes and significantly up-skilling its employees.

Achieving any of these intentions calls for impact management based on shared norms. By using a common definition of impact, enterprises can manage their intentions in a manner that allows for classification, benchmarking, and valuation of impact performance. In the next chapters, we explain what these shared norms are, and how they can enable enterprises to set goals as well as assess and compare performance.

How do enterprises assess their impact?

All enterprises have effects on people and the planet, positive and negative, intended and unintended. Using the five dimensions of impact (and their respective categories), enterprises can identify which effects matter and assess the performance of those effects. 

All enterprises have effects on people and the planet, positive and negative, intended and unintended. For example, employees earning wages is an effect generated by most enterprises (positive, intended); effluent running into a local water source may be an effect generated by a clothing retailer (negative, (un)intended); and customers seeing improvements in their health may be the product of enterprises in the fitness industry (positive, intended). But how do enterprises determine which of the many effects that they generate matter? And what data can enterprises collect to assess the performance of those effects that are important? 

Enterprises can determine if an effect matters – and therefore requires managing – by assessing its impact across five dimensions. Developed in collaboration with hundreds of enterprises, investors and practitioners, these dimensions serve as a framework for gaining a holistic understanding of any effect’s social and environmental impact (described in more detail, here). 

To make this assessment possible, the five dimensions have been broken down into 15 categories of data. These categories can not only help enterprises identify which effects matter, but also assess the performance of those effects (for a detailed overview of the categories, you can start here). Based on this analysis, enterprises can use the insights gathered to improve the positive and mitigate the negative. This is the impact management process. 

No one data type is better than another. Enterprises are typically best placed to identify which data – quantitative or qualitative information – is most useful for assessing the performance of effects.

 

Classifying an enterprise’s effects into A, B or C

An effect’s performance across these five dimensions (and their respective data categories) can also be rolled up and classified into A, B or C — just as enterprises’ intentions (see first chapter). The additional layer of analysis is particularly helpful for enterprises that generate many effects, as the classification provides macro-level insights into the types of impacts they generate. Based on this analysis, an enterprise may decide to reallocate resources towards moving 10% of their effects from A to C, for example. 

 

Assessing and classifying an enterprise’s total impact

An enterprise’s total impact is the combination of its impacts on people and the planet. By assessing the impact of its individual effects, an enterprise can classify its overall impact, as shown below.

 

For example, the healthcare enterprise illustrated below uses the five dimensions to assess data about each of its effects on people and the planet. The analysis shows that the enterprise is making a significant contribution (deep, at scale and enduring change that is unlikely to otherwise occur) to an important positive outcome (decent income) for previously underserved people (effect #3). Alongside this effect, this healthcare service enterprise generates other important positive effects for its customers (effect #2) and is also actively trying to reduce its negative effects on the environment (effect #1). Because this enterprise not only seeks to avoid harm and benefit its stakeholders, but also contributes to a solution to a societal challenge, its overall enterprise impact is: Contribute to Solutions.

 

Other important considerations 

An enterprise manages its effects that matter to people and planet, regardless of whether these are generated by its products/services, its distribution chain, its operations or its supply chain. An enterprise does not consider effects generated by an enterprise’s distribution network, its operations or its supply chain to be necessarily less or more significant than the effects of its products or services. For example, the effects generated by a very large business through its supply chain can be as relevant for impact management as the effects of its products or employment practices.

Enterprises cannot ‘trade off’ positive and negative impacts. Carbon emissions are one case where positive and negative effects do cancel each other out but enterprises cannot typically assume that the positive and negative impacts of an enterprise cancel each other out, especially:

  • within the same group of people – for example, if a person’s financial security is better, an enterprise cannot ignore that his/her health is worse as a result of working longer hours
  • between different groups of people – for example, while improving one group of people’s educational outcomes, an enterprise cannot ignore that it is making the educational outcomes of another group worse
  • between people and planet – for example, improving a group of people’s access to energy does not mean an enterprise can ignore its pollution to the environment

Enterprises do make explicit judgements about whether achieving a certain positive impact is worth, at a point in time, generating negative impact. For example, there is judgement involved in deciding whether improving people’s health through air ambulances is worth the substantial carbon emissions generated. When making this judgement, an enterprise acknowledges that those negative impacts still need to be managed by actively setting goals to reduce or mitigate them over time.

How do enterprises compare impact performance data?

By aligning impact measurement to the five dimensions of impact, enterprises have an opportunity to compare their impact performance relative to their peers.

Using the impact categories established under the IMP, enterprises can benchmark their performance across the five dimensions against other enterprises – for instance, of all enterprises working to reduce poverty (what) in underserved communities in Nepal (who), which enterprises are making the deepest change and/or impact the largest number of individuals?

Using the five dimensions of impact helps avoid “bad benchmarking”. Imagine two interventions, both aiming to improve educational outcomes for kids by increasing the student transition rate from one level of school to the next – a standardised IRIS metric. Both provide counselling to 11-16 year-olds and both operate in the same city. Investment A is a proven intervention to re-motivate teenagers who are skipping school, while Investment B is testing a new approach to helping teenagers with learning disabilities. A’s transition rate shoots up from 50% to 85% and the investment generates attractive financial returns, while B’s moves from 50% to 65% and the financial return doesn’t justify the risk taken. If a manager were to benchmark A’s performance versus B’s (i.e. the student transition rate and the financial risk-adjusted return), she would not be able to infer that A is more efficient than B – and resources should therefore be diverted away from B. Rather, she would learn that B’s goal was to take a higher level of risk – both financial and impact risk – to impact a harder-to-reach demographic. 

Bad benchmarking risks diminishing an enterprise’s impact: it could lead to avoiding Investment B, pulling resources away from the toughest problems and away from reaching particularly vulnerable people. By contrast, benchmarking across the five dimensions of impact enables a meaningful comparison of the two interventions: understanding what important outcomes are being experienced, who is most underserved, the contribution compared to what the market would do anyway, and the level of risk taken to reach the specified population, rather than focusing on one how much indicator like scale or depth, out of context.

How do enterprises use impact performance data to set goals?

Using the five dimensions of impact, enterprises can set goals to try to reduce (improve) their negative (positive) impacts, while taking into consideration their financial constraints. 

Most enterprises do not set impact goals when designing their business models, but rather once they are up and running. These enterprises can collect, analyse and assess data across the five dimensions to understand the impact that people and planet experience as a result of their products, services, policies, etc (for an overview of the dimensions, see the previous chapters or the sections What is Impact). Based on this assessment, enterprises can set goals to reduce (improve) their negative (positive) impacts.

If an enterprise is starting from scratch and building a new business model, its intentions guide the goal-setting process. For example, if the intention were to tackle a specific social or environmental challenge, the enterprise would start by analysing available data about the cause of the challenge. Which groups of people (who) are not able to achieve which outcomes (what)? How many people are not achieving these outcomes, and how deep a change would they need to experience to attain them (how much)? What is the market (e.g. other enterprises, NGOs, government interventions) currently doing to help this population achieve these outcomes? To what degree would the enterprise’s efforts contribute to the status quo (contribution)? Are there approaches with a strong track record of succeeding or would the enterprise need to take risks and try new models (risk)?

This assessment across the five dimensions enables an enterprise to not only set impact goals, but design a business model with the greatest potential to achieve those goals (while bearing in mind financial considerations). Once the enterprise is up and running, it can set more precise goals based on continuous learning about its impact and financial performance.  

For example, if an enterprise intended to tackle the challenge of obesity, it would start by trying to understand the causes of this societal issue, and who is likely to be most affected. This analysis may show that low-income families in certain geographies (who) are most at-risk of obesity globally. The enterprise may seek to identify which strategies have proven most effective at delivering the physical or mental health outcomes (what) that these people need, in terms of depth, scale, and duration (how much and risk). It would also assess whether the market is saturated and what the current offering is (contribution). Building on this analysis, the enterprise may choose to create an intervention with a proven track record of delivering a specific outcome, or it may trial new strategies that have a limited evidence base. The selection of a goal will be determined by the impact risk the enterprise is willing to take and the contribution it is seeking to make.  

If the enterprise wants to manage impact to avoid material negative effects – like mitigating financial risk or behaving more responsibly – the goal-setting process is different. It will likely set a goal to try to have a less (or no) significant effect (how much) on important negative outcomes (what).

As a relatively new field, the impact ecosystem does not yet have sufficient data to draw conclusions about which types of impacts deliver which types of financial results — and vice versa. This means that enterprises should exercise caution in inferring causal relationships between specific impact goals and financial goals. Despite the lack of data, enterprises can forecast their impact (financial) performance relative to the financial (impact) goals they want to achieve. 

For example, one enterprise may assume that its impact goals do not preclude competitive risk-adjusted financial returns. Another one may assume that its impact goals allow for competitive risk-adjusted financial returns but over a longer time horizon than the market would typically tolerate. Finally, other enterprises may assume that their impact goals require a disproportionate financial risk/return, because they are testing whether market creation is possible for a very marginalised population.

How do enterprises communicate their impact?

Enterprises describe their impact goals – and share data about their performance – across all five dimensions of impact.

Enterprises frequently communicate their impact goals and performance to their stakeholders – whether raising investment or securing funding, speaking to their Board or engaging with their employees and the local community.

For example, consider how investors select investments to deliver the impact they want. If an investor has broad goals in terms of what effects they want to see, they will then choose between potential investments by assessing the (potential) impact performance of the underlying enterprise(s) across the other four dimensions of impact:

  • who will experience the outcome
  • how much will occur
  • the contribution the enterprise makes to what would likely occur anyway
  • the level of risk that the impact is not as expected

For example, if an investor wants to make investments that contribute to the Sustainable Development Goal (SDG) of good health and well-being (What), they cannot assume that any investment in healthcare is relevant. The other four dimensions of impact will help them understand which healthcare investments are likely to make a real difference when it comes to meeting that SDG

Investors will want to support business models that not only set goals to try to reduce negative impact but also seek to have a significant effect (how much) on the health of underserved people (who), resulting in an improvement of the situation relative to what would otherwise happen (contribution), with any risk of impact failure (risk) justified by the level of positive impact if things go as planned.

By focusing on an outcome (such as good health) rather than a sector (such as healthcare), the dimensions also widen the array of business models that investors may consider relevant. For example, education and clean energy (e.g. solar that replaces kerosene) are both significant drivers of good health for some underserved populations.

Beyond comparing performance between enterprises, the five dimensions of impact provide the necessary fundamentals for creating consistent impact disclosure standards.  

An “impact statement” can be a useful way to organize any information an enterprise already has about its impact. An enterprise might use it to:

  1. Review an approach: If an enterprise already has an impact management (IM) process, there may be value in using the template as a “checklist” to identify strengths and gaps in data. The checklist can also be useful to facilitate discussions with your team and partners.
  2. Set an approach: If an enterprise is new to the concept of impact management or has spent limited resources on managing impact to date, the template can help articulate impact goals and explore whether there is any information about whether they are being met.
  3. Monitor impact: For periodic assessment, an impact statement can be a useful tool to understand which effects yield the most positive impact (or negative impact) for stakeholders and which effects underperformed against any set targets. This analysis could then be used to inform both internal and external stakeholders.