The Difficulty of Measuring a Company’s Social Impact

Media Coverage June 24, 2019

Full article available (subscription required)  on The Wall Street Journal
By Alina Dizik 

Asset managers, nonprofits and others are working on the problem. But even many companies themselves still struggle with how to define their own positive social results.

Summary 

For investors who follow ESG strategies, something is missing.
Most would agree there are plenty of data—on carbon emissions, say, or water use—that can show how well a company is performing on environmental goals (the E in ESG). Similarly, changes in executive leadership or company policies can be a clear signal of progress on issues related to corporate governance (the G).

But when it comes to gauging the “S”—the social impact that a company delivers—companies and investors are still struggling to come up with meaningful, and widely accepted, measurements. To put the challenge simply, it is a daunting task to translate into numbers the well-being of an underserved community.

Different parties, including asset managers, nonprofits and companies themselves, are working on the problem. But many companies are still struggling with how to define their own positive results in this area.

….

San Francisco-based Truvalue Labs, meanwhile, uses big data to quantify ESG factors for asset managers. The firm takes data available online and feeds it into algorithms that it says produce ESG scores for different companies. “We built out a suite of algorithms that allows us to process massive amounts of data,” says Truvalue Chief Executive Hendrik Bartel, who launched the offering in 2017 and is now working with about 40 asset managers to assess ESG.

 All of these offerings are still emerging, and, so far at least, share little common ground, which continues to make it difficult for investors to make meaningful judgments and comparisons. Even companies in the same industry that try to measure their social impact seldom use the same metrics, Mr. Bartel says.

But findings suggest that even companies that do track their own social impact efforts often miss the bigger, more-complete picture.

Many, for example, will track the impact of their foundation arm or a splashy campaign rather than focus on their core business, says Ms. O’Connor-Willis, the Stern School researcher. For instance, a supermarket chain may measure social impact by looking at donations to local health-focused nonprofits but ignore its own food-waste practices.