With sustainability now a mainstream corporate concern, companies’ social footprint – an organization’s positive and negative externalities on society – is under scrutiny. Consumers, investors, employees, and affected communities increasingly expect companies to act as change agents to help address society’s most significant challenges, including poverty alleviation, ending discriminatory practices, and improved access to health services.
As a result of these demands, corporations are increasingly sharing their environmental, social and governance (ESG) performance with the public. The events of 2020 accelerated the practice as investors, governments, and consumers alike placed more attention on the ‘S’ of ESG. This trend in reporting is dramatic: in less than three decades, sustainability reporting among companies has risen from 12% to 80% among large and mid-cap companies.1
Social impact reporting – measuring and communicating the positive socioeconomic effects of an organization’s activities – is included in this broader trend. Once only practiced by non-profits and social enterprises, social impact reporting has been increasingly used by corporations to demonstrate their corporate citizenship commitments and their value to society at large. Companies ranging from SurveyMonkey to Standard Chartered engage in the practice, whether producing standalone social impact reports or integrating social impact information into their existing sustainability or annual reports.
Should your company include social impact reporting as part of your sustainability communication activities? And, if yes, how? This guide offers companies a general overview of social impact reporting, outlines some of the practice’s core benefits, and presents practical tips on how to effectively communicate your company’s social impacts.
"Sustainability disclosure is now at the top of the agenda for the world’s largest investors, the world’s largest companies and regulators in almost every major market.” Janine Guillot, Chief Executive of the Sustainability Accounting Standards Board (SASB)" *
Emphasizing the ‘S’ in ESG: Social Impact Reporting as a Corporate Practice
Social impact reporting is a sub-set of sustainability reporting, a catch-all term to include reporting practices by organizations on their sustainability performance. Much like the practice of corporate social responsibility itself, there is currently no standardized approach to sustainability reporting.2 Sustainability reporting – also commonly referred to as CSR reporting or ESG reporting – can include information ranging from a firm’s greenhouse gas emissions to its corporate governance practices.
On the other hand, social impact reporting is a specific reporting practice, which measures the positive socio-economic impacts of an organization’s initiatives or activities on society. Environmental impacts are excluded, and there is a strong focus on quantifying impact over time, such as monetizing a company’s total contribution to GDP or tabulating its effect on community health.
Unlike other forms of sustainability reporting that focus on a company’s immediate activities and effects, social impact reporting seeks to measure the company’s indirect impacts on stakeholders. Indirect impacts include economic growth through supply chain spending, indirect job creation, improved community health outcomes, and positive societal results from its downstream activities. For example, Starbucks measures its impact on fostering diverse communities partly through its lower-tier supply spend on minority-owned businesses, while the global pharmaceutical company, Teva, assesses the indirect effect of its economic activities by the number of jobs supported and contribution to GDP across countries.3
Capturing the extent of a firm’s indirect social footprint can prove challenging and often requires significant data analysis, proxy indicators, and stakeholder engagement. In response to these challenges, new impact measurement techniques have emerged over the past few years to leverage data and impact models to better understand the connection between a firm’s activities and its long-term socio-economic effects.
Common Corporate Social Impacts
Broadly speaking, a social impact refers to the positive and negative effects of a company’s operational activities on society, whether those be direct or indirect. The nature and scope of a company’s social impacts can vary widely depending on industry, size, region, etc. Some of the most common corporate social impacts are listed below.
- Direct economic growth: a company’s contribution to GDP and direct job growth.
- Employee wellbeing: health care coverage, educational opportunities, work-life balance, employee learning and development.
- Diversity and inclusion: representation of minorities and historically marginalized groups, the composition of executive board and senior leadership positions, wage equality.
- Corporate philanthropy: Corporate giving programs, social investments, grants, employee volunteer programs.
- Indirect economic growth: increased economic activity from wages paid, jobs supported throughout the value chain, growth of complementary industries.
- Community diversity: supporting the growth of minority-owned lower-tier suppliers, diverse job creation among suppliers.
- Community health and wellbeing: increased access to essential services and infrastructure as an indirect result of company operations.
- Human rights protections: improved working conditions among suppliers’ workforces, elimination of child labor.
Creating Value: The Business Case Behind Social Impact Reporting
Social impact reporting is not just a communication exercise. Improving brand competitiveness, attracting talent, maximizing investments and mitigating reputational risks are a few of the benefits underpinning the business case for measuring and communicating a firm’s social impacts.
Building Stakeholder Awareness and Trust
Demonstrating a company’s value-add to stakeholders through direct and indirect economic growth, education opportunities for employees, community wellbeing, etc., can advance trust and safeguard the company’s social license to operate. Sharing examples of strong corporate citizenship can also lead consumers to perceive the company and its products as performing better in comparison to competitors.4
Attracting and Retaining Talent
Highlighting your company’s social impacts and related CSR practices can aid in attracting top talent, especially among younger generations. Nearly 40% of millennials report selecting their employer because their social impact was better compared to other similar employers.5 Among Gen Z, over 75% report that working for a firm whose values align with their own is a key factor in their employment decisions.6 Alignment between a company and an employee’s values has been shown to increase employee engagement and productivity, leading to cost savings from decreased turnover. Employees are also more likely to stay with companies offering volunteering and fundraising opportunities to their staff.7
Quantifying social impacts over time can provide evidence of the value of a company’s social programs, such as diversity and inclusion initiatives, community investments, and supply chain diversity goals, to senior management. While studies exist linking companies’ social initiatives with business performance, shareholders and executive boards may be more likely to continue social initiatives supported by evidence of their value.8
Mitigating Reputational Risks
‘Social washing’ – making unsubstantiated claims or misrepresenting a company to make it appear more socially responsible than it is – can lead to significant reputational risks.9 With up to 90% of a company’s sustainability impacts originating in its supply chain, companies should also consider the social impacts of their suppliers to mitigate further reputational risks.10 Providing validated proof of your company’s positive social impacts, including across your supply chain, can prevent accusations of social washing and empty marketing statements.
Identifying Improvement Opportunities
Measuring social impacts can help highlight areas where a company’s impact could be better leveraged, such as greater diversification of supply chain spending or funding essential healthcare services in the communities it operates within. Some projects aimed at creating positive social outcomes may be eligible for sustainable financing options, including social bonds.
With regulatory trends on ESG-related disclosures accelerating, companies can utilize their social impact data to report and demonstrate compliance. Mandatory reporting on the social impacts of a company’s supply chain, in particular, is becoming widespread, including California’s Transparency in Supply Chains Act and the proposed EU directive on supply chain due diligence. Companies already measuring their social impact data will be better equipped to meet these emerging regulations.
Informing Corporate Decision-Making
Social impact data provides valuable insights for senior management to maximize investment and procurement decisions, including how to best direct their corporate philanthropy efforts to areas of largest impact or which suppliers may amplify the company’s indirect economic impacts.
Collecting and reporting on social impacts can provide a competitive edge as a supplier or when tendering for a project. Governments and companies alike are increasingly considering a supplier’s supply chain sustainability in major procurement decisions. In Canada, purchasers in the provincial government of British Columbia must consider social impact with respect to potential suppliers for all major requests for proposals.11 Supplier sustainability programs are growing among top-tier companies, with companies such as 3M and SurveyMonkey prioritizing suppliers with a demonstrated focus on sustainability, including their social impact policies and practices.
"The benefits of building a workforce that’s not just diverse but also inclusive are clear. We believe inclusion should be measured and actively cultivated.” SurveyMonkey, 2020 Social Impact Report
Communicating Performance: Five Steps for Effectively Reporting on Social Impacts
Given the business benefits and growing demand from stakeholders, many companies are scrambling to tabulate their social impacts. These impacts may be simple to identify, but challenging to measure. Environmental reporting benefits from universally recognized approaches 12 and easily quantifiable metrics, such as greenhouse gas emissions and water usage. Reporting on social impacts, on the other hand, is less developed due to challenges in capturing the extent of a firm’s social footprint. However, with emerging measurement tools and greater data availability on suppliers, capturing your social impact need not be a herculean undertaking. Here are five steps for your organisation to consider when reporting on your firm’s social impacts.
Define Report Scope
Before collecting data and contacting stakeholders, decide on the report’s scope and identify the topic boundaries for each of the material topics covered.13 Are you including subsidiaries’ impacts or only the parent company’s impacts? What are the temporal and topic boundaries of the report? Narrow reporting boundaries can draw criticism as many organizational impacts – both positive and negative – occur with a firm’s supply chain.14 Ensure your analysis looks beyond the firm’s immediate activities to include indirect impacts, such as economic growth across the supply chain or the long-term effects of educational programs.
- Conduct regular materiality assessments: Undertake a materiality assessment every two to three years to help identify key ESG related impacts, including social impacts.
- Understand the relevance of impacts to stakeholders: Consult stakeholders to help identify relevant ESG priorities and impact areas to include within the report.
- Consider report’s target audience: While investors are key readers, employees and consumers make up a growing portion of readers of a corporation’s annual report. Integrate these readers’ interests and needs when determining the report’s scope.
Determine Reporting Format
Social impact reporting can be integrated into existing public disclosures, or be a separate communication strategy. Consider whether to produce a standalone report or include social impacts disclosures within a sustainability report, annual report, or on the company’s website. Dell Technologies, for example, produces standalone social impact reports, while Starbucks integrates social impact disclosures into its annual sustainability report.
Some companies, like Standard Chartered, produce country-specific socio-economic impact reports to further detail regional impacts. During this stage, explore whether you would like to align reporting with existing impact frameworks, such as the UN’s Sustainable Development Goals (SDGs). For example, Salesforce maps its social impacts to ESG metrics and indicators from different reporting frameworks (GRI, SASB, SDGs). Investigating how industry peers are reporting on social impacts can also help provide direction on the format of your report and possible frameworks to use.
- Benchmark against peers’ sustainability reports: Gain a greater understanding on what information similar corporations are disclosing, which standards and frameworks are used, and overall report style.
- Investigate digital reporting formats: Consider formats that facilitate sharing information across multiple distribution channels, such as social impact infographics to be shared on your company’s social media channels.
- Consider reporting more broadly on ESG topics using internationally recognized standards: If integrating your social impact reporting within your company’s broader sustainability or annual report, consider aligning reporting to international sustainability reporting standards such as the GRI standards and Taskforce on Climate-related Financial Disclosures (TCFD) to guide what ESG-related information to include in public reports.
Select Meaningful Indicators
Once reporting boundaries and format are decided, select clearly defined, relevant, balanced, and comparable indicators to measure and report social impacts. Key stakeholders can also be consulted as part of the selection process to ensure meaningful indicators are chosen and reported on.
Use a mix of input, output, and outcome indicators to capture not only resources expended (i.e., dollars spent), but also the long-term effects or deliverables produced (i.e., improved education outcomes or economic growth). For example, in its social impact reporting, Dell Technologies uses input indicators such as the dollar amount of its diverse supply chain spend. It also applies output and outcomes indicators on improved health and safety, ethical recruitment practices and labor management for its suppliers’ workforces.
- Select clear, relevant and reproducible indicators: Choose indicators that are clearly defined and communicate well, such as measuring impact by percent of GDP or job growth, and ensure indicators allow for year-to-year comparison.
- Consider partnering with an independent data provider when selecting output and outcome indicators: Third-party partners can use new techniques to enable the selection of indicators for indirect impacts that were previously difficult to measure, such as lower-tier supply chain spend.
- Harmonize selected indicators with selected reporting standards and frameworks: If adhering to an established reporting framework, such as the GRI standards, ensure selected indicators meet required standards. Consider matching indicators to relevant Sustainable Development Goals (SDGs) to demonstrate your company’s commitment to fostering sustainable development.
Collect and Present Data
Explore new measurement techniques and tools to help gather data for the selected indicators. Present data with the help of visuals, such as interactive infographics on your company’s website.
Be sure to include a description of data collection methods used (i.e., survey, platforms or tools used) and consider the inclusion of anecdotal evidence, including case studies and stakeholder interviews to demonstrate the beneficiaries’ stories. Reuters, for instance, shares short case studies of the long-term results of its social impact work alongside its quantitative-focused indicators. Manufacturing company Kohler weaves storytelling into its social impact report, detailing how its corporate philanthropy programs affect the wellbeing of individuals who may have never heard the name Kohler before.
- Use robust measurement techniques: Use reliable and consistent processes to gather data on social impacts, including both upstream and downstream impacts. Leverage new tools to capture indirect impacts that would otherwise be too difficult to measure.
- Balance data with narratives: Provide a mix of quantitative and qualitative reporting to provide a more human-centric approach to communicating your social impacts, including the use of case studies and program descriptions.
- Leverage visuals: Work closely with graphic designers to present complex data visually, utilize program pictures, and produce a compelling report that is accessible to your targeted audience.
Continue Engagement and Evaluation
Avoid making social impact reporting a ‘box-ticking’ exercise. Instead, learn from your data and act on areas in need of improvement. Standard Chartered’s social impact reports identify local development gaps and analyzes how its positive impacts can be improved. If external funding may be required to initiate larger-scale social impact projects, investigate the use of social bonds. In terms of the report itself, seek input from stakeholders on how to improve future reports and seek appropriate channels to continue to promote the report to your stakeholders.
- Use data to inform corporate decision-making: Maximize corporate investments by identifying impact areas to augment, such as establishing inclusive procurement policies to increase supplier diversity or matching employee donations to enhance corporate philanthropy in local communities.
- Communicate senior management’s commitment: Advocate for senior management to take an active role in communicating social impacts to internal and external stakeholders.
- Establish a strategic approach for future reports: Evaluate both the report and the reporting process, and identify areas of improvement over the long term, such as additional indicators to include or using a third-party auditor. Use these insights to establish an internal plan for future reports.
Nutrien’s Social Impact Report
Global agricultural company Nutrien started reporting on its social impacts to bring focus to the impact of its community investments and efforts to increase supplier diversity. Sustainalytics worked with Nutrien to leverage data on its suppliers to calculate the direct and indirect economic impact of its work, including jobs created and GDP impact, as well as capturing how the company’s presence is changing the communities where Nutrien does business. The company sees sharing learnings and successes of their sustainability strategy as key in getting people excited about the potential impact of sustainability and the value in Nutrien’s work.
Social impact reporting captures a company’s positive externalities that would otherwise be overlooked in a traditional sustainability report. By leveraging data and new measurement techniques, social impact reporting can attribute job creation, greater human rights protections, inclusive economic growth, and other indirect impacts to a company’s operations. Visibility over these direct and indirect impacts will be increasingly important in communicating with stakeholders and meeting investors, governments, and consumers’ demands for greater transparency on ESG-related topics.
Social impact reporting is not an end to itself; however, understanding the effects a company has on society is vital to achieving sustainability as well as contributing to better stakeholder engagement. Companies who ignore their social footprint risk alienating stakeholders while fostering strong stakeholder relations and leveraging social impacts can lead to better business relationships and outcomes.15
Don’t know where to start? Sustainalytics offers Corporate Impact Reporting to assist firms in conducting social impact reporting, in addition to measuring economic and environmental factors. Contact us today to connect with our team of experts and learn more.
"Investors are increasingly asking a different question: not whether a company has good intentions but whether it has the strategic vision and capabilities to achieve and maintain strong ESG performance. That means companies need to start measuring and reporting the results of their initiatives. Instead of communicating their policies,…they must communicate outcome metrics.” George Serafeim, Harvard Business Review
Resources for Companies
- Global Reporting Initiative (GRI): universal voluntary reporting standards for organizations to report on their sustainability impact.
- IFRS Foundation: a not-for-profit created to serve the public interest by developing globally accepted financial reporting standards.
- Impact Frontiers: a forum for building global consensus on measuring, managing and reporting impacts on sustainability.
- Social and Human Capital Protocol: provides best-practice principles and processes in integrating social risks and opportunities into corporate decision-making.
- SDG Compass: provides guidance for companies on how they can align their strategies as well as measure and manage their contribution to the realization of the Sustainable Development Goals (SDGs).
- ISO 26000:10 Social Responsibility: provides guidance on assessing an organization’s commitment to sustainability, shares best practices relating to social responsibility, and assists organizations in translating CSR principles into effective actions.
- Sustainalytics’ Corporate Impact Reporting provides an independent analysis of the total impact of an organization’s activities and their value-add to the environment, economies and societies.
1 KPMG (2020). ‘The Time Has Come: The KPMG Survey of Sustainability Reporting 2020 KPMG,’ KPMG, accessed (21.05.21) at: https://assets.kpmg/content/ dam/kpmg/xx/pdf/2020/11/the-time-has-come.pdf. Survey sample comprises the top 100 companies by revenue in 52 countries and jurisdictions (N=5,200 companies).
2 At this time, companies can choose to draw from a variety of global reporting standards such as the Global Reporting Initiative (GRI) standards, the Integrated Reporting Framework, or the Sustainable Accounting Standard Board (SASB). However, these reporting standards currently lack a comprehensive and standardized approach to measuring social impacts – both direct and indirect. Harmonization efforts across reporting standards have increased, with IIRC and SASB joining to create the Value Reporting Foundation.
3 Teva (2020). “Teva Global Economic Impact Report,“ Teva, accessed (17.06.21) at: ttps://www.tevapharm.com/globalassets/tevapharm-vision-files/teva economicimpactreport_global_final.pdf.
4 Stone, E. (2018). “Take 5 How Companies Benefit from Corporate Social Responsibility,“ Northwestern University, accessed (15.06.21) at: https://insight.kellogg.northwestern.edu/article/benefits-of-corporate-social-responsibility.
5 Peters, A. (2019). “Most millennials would take a pay cut to work at an environmentally responsible company,” Fast Company, accessed (25.05.21) at: https://www.fastcompany.com/90306556/most-millennials-would-take-a-pay-cut-to-work-at-a-sustainable-company.
7 Benevity (2018). “Benevity study links employee-centric corporate goodness programs to big gains in retention,” Benevity, accessed (25.05.21) at: https://benevity.com/media/media-releases/benevity-study-links-employee-centric-corporate-goodness-programs-big-gains.
8 Eswaran, V. (2019). “The business case for diversity in the workplace is now overwhelming,“ World Economic Forum, accessed (17.06.21) at: https://www.weforum.org/agenda/2019/04/business-case-for-diversity-in-the-workplace/.
9 Marsh, A. (2020). ‘‘Social Washing’ Is Becoming Growing Headache for ESG Investors,’’ Bloomberg, accessed (17.06.21) at: https://www.bloomberg.com/news/articles/2020-04-09-social-washing-is-becoming-growing-headache-for-esg-investors.
10 Bové, A. and Swartz, S. (2016), ‘Starting at the source: Sustainability in supply chains,’ McKinsey & Company, accessed (24.06.21) at: https://www.mckinsey.com/businessfunctions/sustainability/our-insights/starting-at-the-source-sustainability-in-supply-chains.
11 Province of B.C., “Social Impact Procurement Guidelines,” official website for the Province of B.C., accessed (15.06.21) at: https://www2.gov.bc.ca/gov/content/governments/ services-for-government/bcbid-resources/reference-resources/social-impact-procurement-guidelines.
12 Environmental reporting standards and suggested indicators include those provided by the CDP (formally known as the Carbon Disclosure Project), Global Reporting Initiative (GRI), Task Force on Climate-related Financial Disclosures (TCFD), and Greenhouse Gas Protocol.
13 Material topics can be identified and prioritized by the significance of the firm’s social impact and their influence on stakeholders’ decision-making. GRI (2016), “GRI 101: Foundation 2016,“ Global Reporting Initiative, accessed (16.06.21): https://www.globalreporting.org/standards/media/1036/gri-101-foundation-2016.pdf#page=18.
14 Bové, A. and Swartz, S. (2016), “Starting at the source: Sustainability in supply chains, “ McKinsey & Company, accessed (25.05.21) at: https://www.mckinsey.com/businessfunctions/sustainability/our-insights/starting-at-the-source-sustainability-in-supply-chains.
15 Henriques, A. (2015). ‘Corporate Impact: Measuring and Managing Your Social Footprint,’ Routledge
* Quote pulled from Financial Times article: https://www.ft.com/content/92915630-c110-4364-86ee-0f6f018cba90.
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