GIST'S APPROACH TO QUANTIFYING IMPACTS
What are impacts?
Impacts are defined as changes in human wellbeing (both positive and negative) as a result of a company’s activities.
Companies always measure impacts on financial capital - this is what you will find in a P&L - but they don’t measure impacts on natural, human, and social capital.
These are often known as externalities - impacts on stakeholders and society which are not accounted for.
How are quantified impacts different from ESG ratings?
ESG metrics rate companies on a variety of factors including how ambitious their targets are, how often they talk (or tweet about) sustainability, or (at best) how their greenhouse gas emissions compare to their competitors.
Impact metrics quantify companies' real footprint on stakeholders, society and the environment - positive and negative, planned, and unplanned.
For example, a company with high water use in a water-scarce region might reduce availability of clean water, resulting in negative impacts such as infectious diseases and malnutrition.
How do we quantify impacts?
GIST measures the value a company is adding to or subtracting from society’s natural, human, social and produced capital in economic terms, i.e. in $s.
We use rigorous, peer-reviewed science to model outcomes, and robust economic models to calculate estimated impacts.
All of these impacts can be measured in economic ($) terms to represent real value lost by stakeholders and society - for example, as a result of a certain amount of air pollution released by a company's factory.
GIST's method to measure impact enables companies and investors pre-empt risk because today's externalities are tomorrow's risks and day-after's losses.
Why quantify impacts?
Business leaders need to understand their company’s impacts so that they can prioritise correctly, manage risks and increase business value.
By quantifying impacts, business leaders can understand the relative size of all material impacts, which enables prioritization and uncovers hidden risks and positive stories.
Investors want to understand the 'hidden alpha' of the companies they invest in. Increasingly, they are being asked to assess “double materiality”, showing both shareholder and stakeholder returns, and to convey how their investments are aligned with specific frameworks e.g. the UN SDGs.
By quantifying impacts, investors can make decisions based on the real impacts and size of risks of a company's activities (vs. the company's intentions). Investors can also use this transparent, universally applicable and science-based method to accurately compare the performance of companies in a portfolio within their sector and across sectors.
Stakeholders across society need assurance that a company’s model of capitalism is not solely focused on shareholder value, but also on its value to society. They want to know that a company is 'walking the walk', not just 'talking the talk' when it comes to sustainability.
By quantifying impacts, stakeholders can not only pick out the signal from the noise and understand which companies have an outsized negative or positive impact on society and the environment, but also whether and how much they are improving over time.
What sets GIST's methodology apart?
Comprehensive coverage across all key impact areas: We cover all material impacts across all four capitals: Natural, Human, Social and Produced. We typically need less than 50 data points, but can process up to 500 different types of metrics.
Built on 16 years of impact calculation R&D and deep sustainability expertise: Our best-in-class methodology is based on rigorous, peer-reviewed science and robust economic modelling. It draws on extensive academic research and a range of official databases for regional environmental, ecological, population, health and demographic data.
Extensive benchmarks database: GIST provides a detailed benchmarks database of over 3300 companies (and growing). The database enables benchmarking in the form of impact intensity histograms (vs. weighted averages), which gives specific insight into how a company performs against its peers and sector.
Alignment with emerging standards: GIST's four capitals approach, definitions and methodology aligns with emerging industry standards, including the Capitals Coalition, the Value Balancing Alliance, and many others (see below).
How does GIST's approach align with existing and emerging standards and frameworks?
The last few years have seen considerable harmonisation in the lexicon of measuring and quantifying impacts.
GIST’s Four Capitals Framework is fully aligned with the four capitals approach laid out in the United Nations’ Inclusive Wealth Report, and adopted by the Value Balancing Alliance and the Capitals Coalition.
In addition to the four capitals approach, these impact dimensions can also be mapped to the Six Capitals of the International Integrated Reporting Council (IIRC, now merged with SASB to form the Value Reporting Foundation) and can be expressed in terms of the seventeen UN SDGs.
Impact valuations conducted by GIST are available in any of these frameworks.
How does quantifying impact help manage risk?
External risks arising out of environmental, social and human impacts are becoming existential in nature and can threaten the survival of any organisation.
A company’s factory location that was relatively risk free when it was set up 20 years ago could now be at extreme risk in the near future due to stressed water resources or severe shifts in weather patterns.
A ban on single use plastics could threaten the survival of a company.
Community protests could lead to the shut down of a mining operation.
GIST's method to measure impact helps companies and investors pre-empt risks because today's externalities are tomorrow's risks and day-after's losses.
Stricter environmental regulations
Carbon taxes, stringent discharge limits for effluents and air pollutant , etc.
Increased litigation costs
Higher litigation costs for managing accidental spills / discharges
Increased compliance costs
E.g. installation of emission monitoring systems
Increased costs of raw materials
E.g. higher cost of water
Stranding of assets
As a result of protests and/or regulation
Shift in customer preference
Consumers opting for environmentally friendly products
E.g. subsidies for lower energy / resource intensive products
Loss in share price
As a result of reduced investors confidence following controversies
Loss of sales
E.g. customer boycott as a result of campaigning efforts