Abstract

With the rapid growth of sustainable and responsible investment and widespread adoption of the environmental, social, and governance (ESG) reporting and integration by organizations, how to assess and measure ESG impact has become a critical issue. Although the UN’s Sustainable Development Goals (SDGs) provide a useful framework for investors and organizations globally to align their standards, the SDGs are vague on how to implement them at an organizational or activity level. Current practice relies heavily on third-party ESG rating providers, whose scores mostly apply to public equities only. They also suffer from biases, inconsistencies, and a lack of sufficient disclosure. Impact measurement is an alternative that grew out of impact investing that extends beyond public equites and circumvents many of the drawbacks of ESG ratings. However, despite its increasing popularity, impact measurement is still in its infancy and lacks standards that can be generalized across various business activities. In this chapter, we propose a new framework for impact assessment and measurement, leveraging our practical experience working with industry leaders from Singapore (DBS Bank) and the Netherlands (Impact Institute). Our framework focuses on quantifying, valuing, and aggregating the different kinds of impact - direct vs. indirect, absolute vs. marginal - for different stakeholders, and is highly implementable. It also helps organizations map the impact from their activities on various stakeholders to different SDGs, thereby providing a generalizable approach for organizations across sectors and countries. We define our conceptual framework and illustrate how it may be applied with a case study on measuring the impact of bank loans to the palm-oil and automotive sectors.

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*working paper

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