For companies to really get to grips with how their businesses work, they need to analyse and report on their impact

 

For companies to really get to grips with how their businesses work, they need to analyse and report on their impact
Impact assessment reports, data-packed documents typically running to several hundred pages, were instigated by US legislation in the 1960s affecting oil exploration and large construction projects.

They gradually migrated to the industrial and manufacturing sectors and became part of the green consumer boom of the early 1990s that was all about new product design, but then gradually morphed to take on socioeconomic and governance issues.

Today, in their dual function assessing risk and opportunity in corporate strategic decision making, impact assessments are increasingly being turned into public-facing standalone documents. New demands on transparency and stakeholder engagement drive the trend.

There’s also an implicit realisation that predefined external GRI-based reporting standards lack the granular specificity necessary for companies seeking to understand and manage, not merely report, impact.

“It’s driven by business operational managers in parts of the world realising there are issues which are important to their ability to make their business work,” says Peter Davis, Ethical Corporation’s politics editor and author of a new report charting the impact assessment phenomenon.

“GRI is a useful framework because it allows comparability,” Davis says. “However, there is a fundamental contradiction between that and the need to manage these issues on a day-to-day basis.”

In the socioeconomic realm, a relatively small number of extractive industries and consumer goods companies have formulated innovative reporting models, principally premised upon local community engagement strategies borrowed from development agencies and non-profit organisations. Socioeconomic data can be fast-changing and harder to evaluate than environmental impacts. The latter are more regulated with a more classically oriented format of numerically driven downside risk and opportunity formulation.

Yet there is considerable blurring of the lines among categories. In developing countries the distinction between social, economic and environmental is less marked than in western societies, says Penny Fowler, a senior policy adviser at Oxfam. Water access cannot be separated out from human rights, for example, and increasing scarcity of natural resources has broader implications on societies beyond simple cost benefit analysis.

How, then, are companies to choose an area in which to perform an impact assessment? What data gets fed into reporting and accountability strategies? Are they to be conducted at the micro or macro scale? And how does one actually write such a report?

With regard to socioeconomic impacts, methodologies have been constructed largely on an ad hoc basis. There is no one underlying baseline approach, and yet models devised by Unilever, working closely with Oxfam, and by Anglo American have garnered considerable attention. If there is an overriding principle, Davis says, it lies in companies’ engagement at the local level – for reporting and, more importantly, taking action.

“Let’s understand it, and let’s take management action backwards,” is the rationale, Davis says. “But at the moment,” he adds, “it is still a small number of companies that are doing this well.”

Leading companies

Companies with long investment horizons and large footprints are in the impact assessment forefront. Pioneered by global mining operations, the underlying logic nevertheless is the same regardless of sector: these are companies that are integral to the societies in which they operate, and better understanding their impact can arguably serve the companies’ business case.

Impact size matters but equally important is the acknowledgement of the interdependent nature of economic, social and environmental impacts.

“Wal-Mart makes a big play at sustainability but is very much focusing on environment and energy efficiency, while ignoring the social and community agendas,” says John Elkington, founder of SustainAbility and Volans Ventures.

The information Wal-Mart publishes on water and carbon largely follows GRI-style reporting – a set of different narratives illustrated by statistics and projections. Coherent impact assessment reporting also follows a narrative arc, Elkington says, but it attempts a more coherent, overall view of the company footprint by moving down the supply chain to the local environment and by including macroeconomic sector analysis.

Analysts say supply chain companies that buy from sites in other countries tend to limit themselves to managing wage rates and labour conditions in the factories they buy from. Yet Vodafone, with its classic multi-tier supplier relationships, cuts against stereotype and has shown just how useful publicly facing impact assessments can be in driving verifiable action plans.

Key to the process is engagement at the local level, so payment systems in Kenya and Tanzania, for example, can connect small entrepreneurs to their markets. In India, Vodafone works with the department of telecommunications to distribute language and financial services information to women’s self-help groups. Finding that opportunity – after assessing and managing downside risk – “is the leading edge of what we consider an impact assessment,” says Joel Roxburgh, head of Vodafone’s performance, reporting and engagement unit.

Roxburgh credits the company’s future agenda programme with creating a macro target-setting perspective. The cross-disciplinary open source effort draws on global experts but then cascades down to the local level where action plans are co-developed with in-country management.

But because socioeconomic impacts are dynamic, data collection and reporting must be conducted on an ongoing basis. That’s particularly true of mining operations, where companies often directly employ thousands of people to work in isolated locations far from other support services.

Anglo American’s socio-economic assessment toolbox (SEAT) is arguably the best-known and most-developed local assessment methodology. Described as a framework for more regular and structured engagement with local stakeholders, SEAT works by guiding operations managers through the process of developing an action plan in areas such as promoting local business development, assessing human capital, improving the quality of social investment, forming partnerships, and planning for the social dimension of mine closure.

“The difference on the environmental side is that generally it’s very tightly regulated,” says Jonathan Samuel, social and community development manager at Anglo American. Seven years after its inception, the SEAT tool is now mandatory across Anglo American and its second round focus has shifted from identifying issues to delivering benefits. “The second version has a lot more guidance around community development and partnerships affecting a wide range of projects ranging from sustainable energy to water, sanitation, microcredits and rural livelihoods,” Samuel says.

The report

Much of the data collected for an impact assessment remains unpublished. There are as of yet few baseline principles laying out the structure and format of an impact assessment report. Nevertheless, the tendency is to get away from the multi-hundred-page volume model, a hallmark of early impact assessment reporting. “Generally, [keep it to] 30 to 40 pages, and have a simple and effective summary and a simple conclusion,” Samuel advises.

In an era of digital mass communication, impact assessment reports can be highly focused on a single area. At Newmont Mining Corporation, for example, the company issues standalone reports on topics ranging from HIV/Aids to respiratory disease and a combined report on malaria and dengue fever.

A great deal depends on audience. Vodafone’s open source initiative swamps the reader with information, if he or she chooses to access it. The final report is a far slimmer document, Roxburgh says.

For a company such as Anglo American, the emphasis is on qualitative data of the sort that moves the underlying narrative. “Collecting the statistics is very much a means to an end,” Samuel says, “and that end is proper understanding.” The very act of consulting with these communities is what counts, he adds. “Whether or not they actually read the report is, in some ways, a secondary consideration.”

For Roxburgh, the challenge in writing an impact assessment report lies in imparting the opportunity upside – where a mobile phone can be used to provide a developmental service and, potentially, a new consumer market. Identifying downside risk, by contrast, tends to be mechanical and more easily quantifiable. “It requires an element of longer term thinking that links back to strategic action and a measurement of the impact of that action.”

Roxburgh adds: “It’s about striking a balance, because if we just manage downside risk, we haven’t capitalised on any new opportunities.”



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