How can investors assess whether companies are causing changes for stakeholders and the natural environment that likely would not have occurred otherwise?
This module considers how to build Enterprise Contribution into an impact rating. Enterprise Contribution deals with outcome counterfactuals: what outcome would stakeholders have experienced in the absence of this enterprise? This question is as important to consider as it is difficult to answer definitively.
Enterprise Contribution deals with the technical definition of ‘impact’ used by economists and evaluators, which involves counterfactuals: an organization’s ‘impact’ is equal to the difference between the outcome experienced by stakeholders as a result of the organization’s activities, and the outcome they likely would have experienced in the organization’s absence.
Enterprise Contribution is relevant for all investors, and essential for investors that have a goal of causing changes in outcomes
Key concepts in Enterprise Contribution:
Counterfactual: “What has not happened, but could, would, or might under differing conditions” – Collins Dictionary
Spectrum of evidence: the different kinds of evidence investors can use to assess Enterprise Contribution
Scenario analysis: a low-cost, structured way of thinking through likely counterfactual scenarios to assess Enterprise Contribution
Key Concepts: Counterfactuals, Spectrum of Evidence, Scenario Analysis
When it comes to assessing counterfactuals, the perfect often becomes the enemy of the good. Experimental studies such as randomized control trials are not the only way to consider what would have happened in the absence of an enterprise.
Building an Impact Rating: Enterprise Contribution
Economists and evaluators define ‘impact’ as a change in outcome that wouldn’t have happened otherwise. The Enterprise Contribution dimension of an impact rating integrates this kind of counterfactual thinking into investment decision-making.