Norms | ABC of Enterprise ImpactAll enterprises have positive and negative impacts on people and the planet, intended and unintended.
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”.
The ‘ABC’ of impact provides a way to connect these high-level intentions – which are what most enterprises and investors start with – to the more granular dimensions of impact and data categories, which help to measure and manage impact.
A. Act to avoid harm
At a minimum, enterprises can Act to avoid harm by identifying where the organization (or asset) is causing harm to people’s well-being and the condition of the natural environment and improving those outcomes so that they are getting nearer the sustainable range established by the societal or ecological threshold. This objective is set when the organization will improve performance on the outcome but will not achieve a sustainable outcome within the period for which the objective is being set.
B. Benefit Stakeholders
In addition to acting to avoid harm, enterprises can actively benefit stakeholders by not only acting to avoid harm for all stakeholders (A), but also maintaining or causing improved well-being for one or more group of people and/or the condition of the natural environment, so that it is within the sustainable range established by the societal or ecological threshold.
C. Contribute to solutions
Many enterprises can go further by not only acting to avoid harm for all stakeholders (A), but also improving the well-being of a group of people or the condition of the natural environment so that the outcome is within the sustainable range, where the outcome had been unsustainable prior to engaging with the organization through no fault of the organization itself. These unsustainable outcomes might have been the result of market or policy failure, leaving a group of people without access to something they need for their well-being or putting the availability of natural resources at risk.
D. If an unsustainable outcome is not improving it can be considered: Does cause harm.
M. If there is no performance information for an outcome can be considered: May cause harm.
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 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 following sections, we explain what these shared norms are, and how they can enable enterprises to set goals as well as assess and compare performance.
Other important considerations
An enterprise manages its impact 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 and greenhouse gas emissions
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. Impact valuation is the process of estimating the relative value that an organization creates, preserves or erodes for its stakeholders, expressed as a common unit, for the purpose of decision-making.