With many multinational companies expanding into emerging markets and globalizing their corporate citizenship activities, the question of how to measure a company’s socio-economic impact is drawing more attention than ever, according to corporate leaders and development practitioners who gathered in Washington D.C. last week to discuss a new report on the topic.
Measuring socio-economic impact: A guide for business, published in February by the World Business Council for Sustainable Development, makes the business case for measurement and examines 10 publicly available tools that companies can use to get the job done.
“If you care about having an impact, you have to measure it,” said Randall Kempner, executive director of the Aspen Network of Development Entrepreneurs (ANDE), which hosted the presentation and discussion of the report.
Participants at the event noted that socio-economic impact measurement has a long way to go before it is widely adopted in the corporate world.
Marika McCauley Sine, Coca-Cola’s international public affairs director, said that the tools and processes currently used to measure impact need to “democratized.”
“It is indicative that we don’t have more [multinationals] doing this work, and we have to ask ourselves why,” said McCauley Sine, who worked on a three-year partnership with Oxfam to measure the company’s impact in two developing countries. “Coca-Cola was proud to invest time and resources to advance this field, but not every company can spend three years and significant resources to do study like this.”
According to Filippo Veglio, a director at the WBCSD, companies are increasingly interested in measuring their socio-economic impact.
A variety of factors are pushing businesses in this direction, he said. To maintain a social license to operate, for example, businesses may need to show host governments or nonprofits the impact of their operations; companies can use the same data to influence government policy and regulation. Internally, companies can learn more about their producers, customers and other stakeholders in order to manage supply-chain risks and develop new products and services.
Measuring impact, however, can be technically challenging. “It’s not straightforward,” explained Veglio. “There is usually a lack of baseline data. There are decreasing results along the chain.”
According to the report, impact measurement happens along a “results chain,” roughly analogous to a value chain in business terms. The report offered an example of an organization that provides a needy population with water purification tablets in order to reduce water-borne disease.
The organization could measure the number of tablets sold (an output), the percentage of water that is purified as a result (an outcome), or the percent reduction of illness (an impact.) Development projects have often focused on outputs because these are easiest to measure.
Businesses that want to measure their impact will need to choose tools that align with their objectives, said Veglio.
“Ultimately measurement is about prioritizing what is most important to me as a business,” he said.
For the report, the WBCSD examined 24 tools currently available tools for measuring socio-economic impact, evaluating them on a number of criteria, from how well the tools aligned with business goals to the amount of effort required to implement them to how much developer support the tool-makers offer. Ultimately 10 were included in the report.
“Our report is a topography of the field as it stands now,” said Veglio. He urged practitioners to provide feedback on the tools and said the WBCSD intends to make the report a “living document” that evolves along with the field of impact measurement. Veglio said that socio-economic impact measurement for business is in its early stages, and in many ways is catching up to measurement standards around environment issues, which are more advanced.
In order for the field to evolve, companies and measurement practitioners must wrestle with two key issues, one internal and one external, he argued.
Individual businesses, Veglio said, must answer the questions: “How do you integrate socio-economic measurement into business performance management? How do you make that data real driver for action and not just a communications exercise?”
More broadly, he said, the question is how to use impact data as an “evidenced-based approach” to private-sector-driven development work and public-private partnerships. Veglio said data can help businesses articulate their strengths, demonstrate where they have the greatest positive impact, and also show areas of weakness where they need support as they partner with nonprofits and government.
‘Where the rubber hits the road’
At the event, business and nonprofit representatives discussed their experiences with impact measurement.
Kate Montgomery, director of global partnership for the social enterprise d.light, said her organization works on on the basis of a “triple bottom line,” a term coined by sustainability leader John Elkington to mean a organizational focus on “people, planet and profits.”
“We were good on reporting the financial bottom line, but our social bottom line reporting was very anecdotal,” said Montgomery, who previously worked at the International Rescue Committee. D.light, founded in 2007, sells solar-powered lights to a bottom-of-the-pyramid clientele.
In order to improve the organization’s understanding of its own impact, she said d.light developed its own theory of change and is now using Impact Reporting and Investment Standards (IRIS), first developed by a partnership among the Rockefeller Foundation, Acumen Fund and B-Lab, supported by Deloitte and PricewaterhouseCoopers, and other tools to measure social impact.
“It’s important for communicating with our investors, external funders, partners and customers,” said Montgomery. “As a social enterprise, if we’re not legitimately measuring our impact, and really walking the walk, we are not going to be authentic to our own mission.”
Helio Bertachini, a project analyst at the Inter-American Development Bank’s private sector-focused Opportunities for the Majority project, said his organization measures impact because, as a bank, it is required to show results. He added, however, that a measurement tool like IRIS allows projects to be compared across sectors and helps “tell a more coherent story” both internally and externally.
Because of the expense and difficulty of measuring actual impact, rather than just outputs or outcomes, the bank has to subsidize the measurement exercises because businesses “are usually not willing,” said Bertachini.
Steve Wright, vice president of poverty insights at the Grameen Foundation, said the tool his organization has developed, the Progress Out of Poverty Index, is designed to harmonize social and business goals. “We believe that measurement is not something you do as an aside, an extra,” he said. “You need to measure in order to run your business effectively.”
Noting that measuring poverty at the household level is difficult, Wright said the tool is based around 10 questions that are most predictive of poverty in a particular country. When the data is aggregated across a customer base, a social business can say with confidence what percentage of its customers are below the poverty line.
“If your organization believes poverty alleviation is important, you’ll never know if you’re any good unless you measure it,” said Wright.
Perhaps the most telling story discussed at the Washington D.C. event was the partnership between Coca-Cola and Oxfam International.
McCauley Sine, of Coca-Cola, said that the company’s local distribution and retail model led naturally to the “business case” for measuring socio-economic impact. “For decades, we’ve had a strong interest in better understanding our footprint and finding ways we can better contribute to sustainability at the community level.”
Coca-Cola worked with its bottling partner, SAB Miller, and Oxfam to apply Oxfam’s Poverty Footprint measurement tool. The project examined operations in El Salvador and Zambia over a three-year period, ending in 2011. “It was a fascinating, complex and difficult process,” said McCauley Sine. But it was also very rewarding, formative and enlightening.”
McCauley Sine said the company had three objectives as it embarked on the partnership. The first objective, of accountability and transparency, meant giving Oxfam complete access to operations. The second goal was to “test and evolve” the tool itself, which had previously been applied by Unilever, in partnership with Oxfam, to examine that company’s footprint in Indonesia. Finally, Coca-Cola aimed to take action as a result of the findings.
For its part, Oxfam was motivated to build on its experiences both with Unilever and companies in the extractives industry, said Jonathan Jacoby, Oxfam International’s senior private sector advisor. “The food and beverage industry has a whole different way of impacting the poor,” and partnering with Coca-Cola allowed Oxfam to adapt the Poverty Footprint to a new industry.
“In some ways, we were unlikely partners,” said Jacoby. “It was a long laborious process, and we were wrestling with how to get it right. That’s why it took three years, not three months.”
But Jacoby said that such partnerships are essential to make meaningful measurements. “Impact measurement and management of what we find is where the rubber hits the road,” he said.
While the final report came up with relevant insights — for example, that the majority of jobs created were in the informal sector, and that women owned three-quarters of Coca-Cola retail outlets in El Salvador — McCauley Sine was frank about the limits of the report.
When asked if the company used the data to change core business practices, McCauley Sine said, “The simple is no, not in the sense that we now measure results against the Poverty Footprint.” She did say, however, that the partnership process and report led in part to the creation of a new company office focused on sustainability. “The idea is taking root.”
The road ahead
Some disagreement emerged at the event about which sector is best suited to take the lead in setting new measurement standards. To some, it was clear that the private sector, with its expertise in measuring financial results and consumer preference, is best positioned to figure out human development metrics. Others, however, felt that international development community, with decades of experience in showing the results of projects, should take the lead.
“The business community is looking to the development community to advance this work,” said McCauley Sine, who noted the companies interested in measurement today will discover there is neither an internationally standardized methodology or an obvious way to operationalize an measurement program.
As part of its 5x20 program, which aims to empower 5 million women in the Coca-Cola value chain by 2010, for example, McCauley Sine said the company convened a panel of 20 stakeholders. “We asked them: What are the top five metrics we should measure for each of the 5 million women, to assess whether they have been economically empowered? There was no consensus.
Impact measurement, she said, “needs to be more straightforward, affordable and accessible for more [businesses] to take it up.”
Bertachini of IDB agreed. To make impact measurement more of a standard tool for business, Helio urged development practitioners to “keep it simple.”
“Some companies are impact-investing minded, some are not,” he said. “You need to show them [that the measurement process] is not going to be cumbersome.”
Wright, of the Grameen Foundation, expressed optimism that social metrics will one day be on par with financial metrics as a key business tool.
“The catalytic change will be for companies to see poverty as a business risk that they have to manage.”
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