The case for standardised social impact reporting measurements

In September 2023, Australian Unity secured an innovative sustainability-linked loan deal that connects financing to its social value performance. Aligned to the group’s Community and Social Values (CSV) reporting framework, the A$50 million loan differs from most deals in the ESG space as one of the first in Australia to focus on the “S” for social.

While capital has been flowing into the clean energy transition for the past decade through instruments like green bonds and loans, deals that centre on social aspects have been slower to take off. One of the reasons has been a lack of guidance for measuring and reporting social impact, but that is starting to change.

Social impact is now being mapped and reported by an increasing number of organisations. However, in an era of rising scepticism and declining trust, organisations must adapt to the challenge of reporting on the impact of their social programs with authenticity and integrity.

Social impact evolution

The term “social impact” was first used in 1969, during a seminar on ethical investments held at Yale University. It broadly defines how an organisation’s actions – or inactions – affect people.

While earlier efforts to report social impact centred on improving issues such as labour conditions, gender inequality and charitable outcomes, the focus has shifted toward a more active, positive process that both internal and external stakeholders increasingly expect.

Data from research firm McCrindle shows 87 per cent of consumers agree that social impact reporting builds trust with an organisation. Among younger Australians, 93 per cent of millennials are more likely to engage with an organisation that clearly communicates its social impact.

Dr David Cooke, executive director of ESG Advisory, says the understanding of social impact has evolved significantly.

“I think the early blossoming of interest in social impact was the low-hanging fruit – things like forming charity partnerships and being able to put pictures in annual reports or on your website of team-building days where you worked with a charity partner,” Cooke says.

 

"We are trying to deliver more than just commercial profit. We are trying to deliver social outcomes or ‘betterment’ for our members and the community in which we operate. We realised that, if it was important to us, we needed to measure it. Otherwise, it was subjective rhetoric rather than discipline."

 

“You used to see photographs of people handing over giant novelty cheques, but that is disappearing to some extent and was a very simplistic contribution to society. It has moved from a discretionary initiative to much more of a societal expectation of companies.”

Adam Vise, group treasurer and general manager of strategy and impact at Australian Unity, says the social dimension of ESG has been slower to catch on because it is often attached to the political agendas of individuals.

“That cannot be what enterprise is about if it is going to make a difference for its stakeholders,” Vise says.

Measure what matters

Australian Unity developed its CSV framework in conjunction with social impact experts Social Ventures Australia (SVA). It launched its first social impact report in 2021 and, for the 2023 financial year, it delivered A$1.76 billion in community and social value, according to its Our Impact 2023 Report.

“We realised we needed to have a discipline methodology,” Vise says. “SVA stood out, in part because of a belief that the discipline of financial analysis could be applied to the achievement of social value analysis.

Australian Unity’s CSV framework measures 226 outcomes for stakeholders across its areas of wealth, health and care.

“We are trying to deliver more than just commercial profit,” Vise says. “We are trying to deliver social outcomes, or ‘betterment’, for our members and the community in which we operate.

“We realised that, if it was important to us, we needed to measure it. Otherwise, it was subjective rhetoric rather than discipline.”

Vise adds that the social responsibility of businesses to increase profit is “very hard to argue against until you can find something else that you can pursue in a measurable, evidence-based way”.

“You therefore have to start with the outcomes for your stakeholders and objectively try to enhance their outcomes,” he says. “The moment you start measuring something other than profit with the same discipline as financial value, it starts to give you a second axis.”

For organisations like NBN Co, which operates Australia’s broadband network, social value is built into its core purpose.

In 2023, NBN Co commissioned Accenture to examine the social impact of its operations.

The research found that access to telehealth services, online education and social connections had been greatly facilitated by the network, particularly benefiting low-income households and First Nations communities, according to The Economic and Social Impact of the Investment in the NBN Network Key Insights Report, released in January 2024.

“You can measure the outputs and the number of customers connected to the network, but measuring the impact beyond that was something we had never done before,” says Stephen Smith, NBN Co’s general manager of sustainability.

“Within the program design, we constantly reinforced with Accenture that this needs to be credible, robust and underpinned by a scientific measurement approach and that we intended to make the method transparently available on our website, so we can contribute to the learning on social impact measurement.”

The social impact challenge

While organisations are effective at measuring the outputs of a business model or process, measuring their social impact can be highly subjective.

Ian Hong CPA, partner, audit financial services and sustainability advisory assurance at KPMG in Singapore, says measuring the cause-and-effect relationship for social impact can be challenging due to the diverse social aspects of business and the lack of a standardised measurement framework.

“That said, methods exist to quantify social impact in financial terms, aiding companies in making financially informed decisions and tracking outcomes from a financial lens over a period of time,” Hong explains. “Social return on investment is a popular method, assigning a financial value to social impact relative to the funding or investment made.”

 

"If a company is doing good in society purely to increase its profit and shareholder returns in a pure commercial sense, that is not illegitimate, but it does not feel quite right to most people."

 

Hong says there are several ways that companies can approach social impact measurement. For instance, the method of mapping pathways, commonly known as the “theory of change”, can help to clarify the connection between a transformation program’s inputs, activities, outcomes and impact.

“This determines whether the impact metrics or key performance indicators identified to measure the impact created are the best form of measurement, and also if the data being collected best represents the impact being created.”

Prioritising robust data practices ensures reliable numbers for informed decision-making in areas of funding, resource allocation and addressing social needs, Hong says. Investing in robust data management systems and capacities can help monitor, analyse and optimise the quality of data being collected.

Reporting with integrity

A company’s green credentials are subject to increasing levels of scrutiny, as stakeholders and regulators are clamping down on false or misleading environmental claims.

A study by ESG data and research firm RepRisk shows that in the 12 months to September 2023, one in every four climate-related ESG risk incidents was tied to greenwashing. It also found that bluewashing incidents without an environmental component increased by 15 per cent over the same period.

“Greenwashing is a big issue, and so is ‘greenhushing’,” Cooke says.

“If a company is doing good in society purely to increase its profit and shareholder returns in a pure commercial sense, that is not illegitimate, but it does not feel quite right to most people.”

Assuring the numbers – and communicating them authentically – can reduce the risk of bluewashing. IAASB’s Proposed ISSA 5000 General Requirements for Sustainability Assurance Engagements, for example, is expected to be issued before the end of this year with the aim of enhancing trust and confidence in sustainability information.

However, data from KPMG’s ESG Assurance Maturity Index 2023 shows only 25 per cent of companies feel they have the ESG policies, skills and systems in place to be ready for independent ESG data assurance.

“To ensure the accuracy of their social impact numbers and to communicate authentically, companies typically employ either internal measurement processes or engage external agencies for impact assessment,” Hong says.

“Internally measured data can undergo verification by external reviewers or auditors to enhance credibility. This information can then be included in various reports such as an annual report, sustainability report, or a standalone impact report that is published publicly.”

Australian Unity worked with SVA to design a methodology and its financial auditors provide an assurance review.

“We have helped our auditors build a system of review to give us confidence that these 226 outcomes are formed in a way which are objectively clear, objectively assessed, effectively measured,” Vise says.

“Clearly, there is not perfection in all 226, and we will continue to improve them, but we are using the same principles of audit in our financial results.”

When reporting their social impact, Cooke says companies need to be “open, honest, and transparent and not overstate what they are doing”.

“It gets a little more complex when you do something good with the left hand, but the right hand of the company does something that is not so good,” Cooke adds.

“It all comes down to leadership. You should not hide the good stuff you are doing, and you should not shy away from the bad stuff that may surface.”

Fit for purpose

Smith says social impact reporting is about more than disclosure.

“It is also about ensuring that your data is fit for purpose and can be subject to the evolving assurance requirements,” he says.

“If you want data to be assured, you need to ensure that your processes and systems are collating that information with sufficient quality to be able to meet those assurance requirements.”

Vise says Australian Unity has been proactive in sharing its methodology for social impact reporting.

“If we all measure the same thing in the same way, it will start to ensure collective understanding for everyone.

“We would encourage everyone to try to adopt something consistent, because it is like an accounting framework,” Vise says. “A commonality will allow comparison, and it will allow priority and choices.”

While the notion of greenwashing has become well known in recent years, other types of “ESG washing” are also becoming more frequent.

While greenwashing is when a company portrays itself as being more environmentally friendly than it actually is, “bluewashing”, also called social washing, is when it portrays itself as “having a greater impact on human rights” than it actually does, according to the Australian Human Rights Institute.

In contrast, “greenhushing” occurs when “companies are reluctant to even talk about the good things that they are doing in case they are criticised as being inauthentic, or that they are purely seeking an ROI”, says David Cooke, executive director of ESG Advisory.

Greenhushing is a “dangerous step backwards for consumers”, according to Good on You Eco.

Impact assessment frameworks

Testing causality through impact assessment frameworks can establish the effectiveness of social impact efforts, says Ian Hong CPA, KPMG Singapore.

Impact assessment frameworks include:

• the OECD DAC framework
• Impact Management Project’s 5 dimensions of impact
• Social Return on Investment
• KPMG’s True Value methodology.

Companies can formalise these steps with frameworks and standards such as Global Impact Investing Network’s Impact Measurement and Management framework, IRIS+ Core Metrics, and Impact Management Platform’s impact framework, Hong adds.

“This ensures systematic and comprehensive social impact measurement and monitoring,” he says.