Quantify your company’s impact on people
The Covid-19 pandemic has thrust into the limelight the far-reaching effects that business has on vulnerable people in work forces and communities across the world, putting the imperative of tackling inequalities on a political par with climate change. What will this mean in practice?
Efforts are already underway to develop a single, coherent reporting system that would allow investors and other stakeholders to assess a company’s impact on the environment. These efforts are worthy: We need less competition and choice in what companies report regarding their impact on the world, and more clarity and consistency so better decisions can be made by managers and investors alike. However— and this caveat matters— we must balance the enthusiasm for this ambition with attention to an important reality: When it comes to measuring the effects company operations have on people, there has been far less scrutiny, standardization and innovation.
In 2018, Shift, a nonprofit dedicated to promoting the UN Guiding Principles on Business and Human Rights that one of us (Caroline) co- founded in 2011, reviewed the social indicators and metrics in the reporting of nearly 500 companies and in 8 major environmental, social and governance rankings, ratings and bench marks. What we found was revealing: Around 70 percent of the indicators were based on words in documents, stated activities and their near-term outputs. For example, they looked at whether certain human rights were named in policies, the number of impact assessments completed and the number of complaints received.
These can all be useful to managers seeking to raise awareness of issues and build good practices inside a company. Moreover, the absence of policies related to human rights and grievance mechanisms can be an indicator of a company that is failing to recognize and address its risks to people. However, the presence of these things doesn’t reveal whether a company is managing those risks effectively.
Research has shown the inadequacy of relying on social audit data as a metric of progress in improving the daily realities of vulnerable workers. Moreover, certain metrics can mislead. In some situations, a high number of complaints can be a good sign that people feel comfortable raising concerns, while a low number may signal a lack of trust in leadership’s willingness to address the issues, rather than a lack of problems.
The other 30 percent of the indicators we reviewed were about outcomes for people, which might seem like a promising proportion. Closer scrutiny showed that that segment was dominated by well- established types of data about health, safety and diversity. Both are important reflections of a company’s impact on its work force’s well- being. However, such indicators are often narrowly focused on the work force and do not offer a wider understanding of how a business may affect people within and beyond the workplace.
As we now turn to the important task of building a coherent corporate reporting system that addresses the effects that businesses have on people and the planet, we must not confuse the availability of metrics with their capability to provide insight. Instead, we need a threefold approach that captures what works, discards what doesn’t and dares to think differently about how to address the gaps.
First, we can and should recognize those metrics that have proved to be sound indicators of how companies treat people. Even if not perfect, they can help company managers, investors and others assess how well a business is embedding respect for people in its structures. In addition to certain data on health, safety and work force diversity, examples include measures of freedom of association, proportions of the work force that are employed rather than on temporary or limited- hour contracts and ratios of CEO to median- worker pay, as well as data on gender and race pay gaps.
Second, we should pay attention to indicators showing whether a company’s business model, governance and leadership are designed to function in a way that is respectful of people’s human rights. When risks to people are embedded into a business model, it’s likely that people will be hurt— again and again. Similarly, when the actions of the board and a company’s leaders are not geared toward fostering a culture that treats people with respect, it is predictable that vulnerable workers, communities or customers will suffer negative consequences.
Shift is now stress- testing a set of business- model red flags and leadership and governance indicators that point to whether a company’s culture is fostering respect for people inside and outside the work force. We have developed these over two years of consultation with business, investors, civil society leaders and other experts. Indicators like these should be a valuable addition to the human- focused provisions of a corporate accounting and reporting system.
Third, when it comes to those areas for which current indicators are known to be inadequate, we should not assume that “something is better than nothing.” For instance, measuring the proportion of a supply chain at risk of forced labor or child labor offers little insight into whether or how that company’s actions and decisions are affecting outcomes for the people concerned. Nor do those numbers enable comparison between companies since they lack meaning without context. Moreover, inadequate metrics can generate perverse incentives not to find problems or not to label them in terms that would require disclosure. This undermines the very behaviors we need to encourage if we are to make progress.
We must dare to create the space to learn what’s truly effective in improving people’s lives. A coherent reporting system could promote clear and robust criteria for companies to develop targets and indicators that are tailored to their operating realities. Such targets should be time- bound, tied to specific improved outcomes for people affected by the business, capable of evidence- based evaluation and informed by inputs from all stakeholders.
As companies report against their targets, based on clear evidence, shareholders, employees, nonprofits and other stakeholders can then assess year- on-year progress. Investors will be better positioned to identify and reward companies that are taking meaningful action. And it will be possible to compare company trajectories without pretending their operating contexts are the same.
When it comes to the effects of business over people and the world, we need new thinking and new approaches. Let us move fast— time is pressing and this opportunity will not repeat itself. But let us also move wisely, informed by the errors of the past, so we can construct systems that are up to the task of reversing today’s unsustainable inequalities.