Monitor, learn and adapt

Example: A clothing manufacturer tracks the implementation of the minimum wages paid in its workforce over time. In doing so, it reviews whether change is positive or negative in direction (whether it has improved or worsened), and it places the level in context relative to a sustainability threshold, in this case the living wage. See Figure 1 for an illustration.

Example: An enterprise that implements a diversity and inclusion training programme for its managers may consider the outcomes and impact of its activity by evaluating information on representation, experiences of opportunity and safety in the workforce. The enterprise can track changes in such outcomes and impacts across groups of employees, including among the employees whose managers did receive the training, and those employees whose managers did not (otherwise known as a “control group”). The data gathered against these two groups can show the degree of change, and therefore the effectiveness of the training.

For sustainability-focused organisations with sufficiently close distance to impact, collecting and understanding counterfactual data can also be a means of evaluating whether their organisation is causing a change that would otherwise not occur (versus the change that might have occurred anyway, in the absence of the organisation’s activities). This is known as assessing the organisation’s additionality.

For those sustainability-focused organisations with greater distance to impact (such as impact investors), assessing additionality can be more challenging. These organisations still can and should assess their investment contribution.

Indeed, for all sustainability-focused organisations, assessing their contribution to positive impacts is central to understanding whether they are delivering on their purpose and theory of change.

Example: A social enterprise focused on supporting and increasing the well-being of the elderly may consider its additionality by comparing the level of service provided to the targeted population to the likely level of availability in its absence.

An impact investor supporting the company, by contrast, would need to consider what portion of the increase in the well-being of elderly population is attributable to its investment (in other words, its contribution). This contribution can be put into context using the percentage of ownership by the investor. Further factors, such as investor engagement with company management (for instance, with a view to focusing on specific under-served areas or population sub-groups) also form a part of an investor’s contribution and should be considered in the assessment. See Figure 3 for an illustration.

Overall, evaluating impacts is more challenging for investors and financial institutions than for other enterprises, because of their distance to impact. As a result, these organisations often need to rely solely on tracking practice indicators (i.e. indicators that are linked to their activities and outputs).

Example: A bank that has identified pollution reduction as an impact objective (and is seeking to evaluate its performance) may find it difficult to measure financed pollution. However, it can monitor the evolution of its corporate portfolio; in particular, the portion of its portfolio composed of companies in “key negative” sectors (which it should aspire to phase out) and the portion composed of companies with a clear transition plan and/or in “key positive” sectors (which it should aspire to growing and making the norm).