What was once a fundamental practice only of nonprofits and social enterprises has become increasingly critical to all types of organisations. Across industries, companies such as Nike, Tesla or Thomson Reuter are asking themselves and being asked by their key stakeholders to reflect on their role and impact on society.

Through social impact reporting, companies aim to measure their initiatives or activities’ direct and indirect socio-economic impacts on customers, community, and society. Considering the social effects of any business is critical to its long-term sustainability and strategy. It is an opportunity to question and test its societal purpose, products and services, and way of operating. Many industries are already engaged in this reflection, and the trend is accelerating.  How do they help address societal problems around poverty, education, inequality or health? What is their social value?

In the traditional ESG framework, the “S” criteria often relates to the company’s business relationships and how it operates. Does the company ensure equal access to job opportunities, diversity and inclusion, human rights, employee wellbeing, health and safety and learning development? Does it hold suppliers accountable to a set of values and practices? Does the company support the local community or encourage employees to perform volunteer work?

However, as the ESG “S” focuses on organisational policies and practices, it rarely includes the impact of an organisation’s products and services on people and communities. How does the company improve the quality of life of its consumers? To what extent does it consider and address societal problems around poverty, education, inequality or health? Companies need to consider this broader “S” to maximise social value and be proactive about their activities and intended impact. Engagement with stakeholders — for example, through a materiality assessment — is critical to identifying needs and business priorities. There is a growing expectation that companies will better define and measure their social responsibility towards their customers, employees, supply chains, and communities in which they operate.

Social impact reporting has traditionally been complicated because of challenges in scoping and defining intended impact, selecting indicators and measurement tools, or analysing and comparing results. The mix of quantitative and qualitative information has often been seen as a source of complexity rather than insight. However, over the last five years, learnings from the nonprofit sector, broader data sharing, and advanced analytics (e.g. machine learning) have enabled organisations to design and build effective impact reporting frameworks and tools. The barriers to social impact reporting are gone, and organisations have no excuses to embark on the journey.

For organisations who are still uncertain about the relevance of social impact reporting to them, let’s consider the business case. Developing a social impact report is more than a communication exercise. It should be seen as a core element of any ESG strategy and an opportunity to engage with key stakeholders about the societal impact of a company’s products and services and how it operates. It is a powerful tool to build confidence, trust and inclusion and be accountable and transparent with the audiences that matter to the organisation — these could include employees, clients, customers, beneficiaries, investors, supporters, policymakers, and other organisations.

In a nutshell, a social impact report helps organisations to:

  • Be transparent with their stakeholders and meet requirements in terms of compliance, disclosure (e.g. regulatory, procurement or investment processes) and expectations
  • Secure funding at attractive rates and win contracts with organisations that value social impact credentials
  • Attract and retain employees who care about what the company does and how it does it
  • Demonstrate the value of their activities for society and the specific communities with which they interact
  • Identify and manage social impact risks and opportunities in their value chain
  • Inform internal decision-making and ESG strategy development

As more companies define and share their social impact strategy and data, they help address our critical societal issues and encourage others to benchmark their activities and adapt their models.