Management myth-busters: We do ESG – we don’t need to measure impact

Many companies still believe that compliance with ESG criteria is sufficient to keep regulators and investors happy and ensure business sustainability. Not so, says Sonja Haut, who identifies seven ways in which impact metrics can be used to address new markets, unlock new revenue streams, improve efficiency, reduce waste, and cut costs.

1. Brand differentiation

Consumer choices are increasingly influenced by evidence of the positive impact of a company, product, or service. Impact valuation can set your brand apart and foster a deeper connection with socially conscious consumers or B2B customers, strengthening customer loyalty.

2. Talent attraction and retention

Employees increasingly want to work for companies that positively impact the world. As the Edelman Trust Barometer shows, measuring and valuing impact can not only bolster talent attraction and retention, but also align your mission with the aspirations of your workforce; helping to build a purpose-driven and engaged team.

3. Innovation

Improving environmental and social footprints can spark innovation (such as engineering creativity); while transparency regarding the impact of a product or a service can support effective market launches. Innovative approaches are required today even from business fields that may not be considered traditionally research-intensive. (The case of Volvo seeking to introduce electric buses in the city of Gothenburg illustrates this point.)

4. Operational efficiency

Decreasing the impact of energy usage, waste, water consumption, and pollution, for instance, directly translates to greater operational efficiency through cost savings (see Kering’s Environmental Profit & Loss reporting tool).

5. Risk mitigation

Transparency on exposure to social and environmental risks is an operational necessity. Carbon border adjustment mechanisms have led to such materializing of risk in many P&Ls; while the disclosure of exposure to human rights violations along the supply chain will soon become a regulatory requirement in Europe.

6. Capital access and market valuation

Effective impact management can increase access to impact investment. (For example, Infosys addressed its need for investor buy-in for additional investments in skills training by showing a time series about the impact of its human capital investment.)

7. Theme alignment

Impact valuation can help companies build trust with stakeholders, which is essential for long-term success. Theme alignment is essential for all of a company’s external contacts and forms the overarching frame for dealing with a changing business environment.

Key takeaway

Impact measurement serves as a radar beyond the one-year business horizon; enabling you to anticipate risks, identify opportunities, and adapt strategies to remain resilient and relevant – but you need to get started now. Failure to engage in impact measurement and valuation risks being left behind by investors when impact becomes mainstream.

Sonja Haut

Sonja Haut has worked on impact valuation for Novartis since October 2015. Since May 2019 she has headed the strategic measurement and materiality team in global health and corporate responsibility, now under Group Financial Reporting and Accounting. She is the driving force behind Novartis’s engagement in the Value Balancing Alliance and represents Novartis in the Impact Valuation Roundtable. She holds an MBA degree from IMD.