The current magic formula for measuring impact is ESG, which has swept over business like a massive tsunami. We will be upfront. We don’t believe in it. Measuring the E, the S, and the G together simply does not work. There is too much aggregation. The ESG methods are not rigorous enough. We are glad that there are others, like The Economist and the Financial Times who agree with us.

As a business leader or investor there are several reasons why making robust investment decisions on the basis of currently available ESG data relating to social impact is suboptimal and therefore risky. It is  generally based on an annual assessment. Most assessments are based on self-reporting by companies, big data analysis and occasional, rather superficial consultations with local communities in larger footprint projects where issues have arisen. Current methodologies are therefore not aligned with the relevant frameworks such as the UN Guiding Principles on Business and Human Rights and OECD Guidelines that clearly require a focus on outcomes for rights holders that result from the operations of the company and not on the company’s structures, systems, and activities. The currently available data regarding social performance also do not effectively identify future risk in this field; they only show where past issues have arisen. Without reliable information on the perspectives of those affected it will be hard to assess which other future social risk a company is facing. Reliable social impact measurements should also be executed independently, much like it is done by auditors and rating agencies when they assess the financial accounts and market value of a company or project. Only in that way can company managers and investors rely on and invoke an independent assessment. We also see that the standards that are applied are not coherent.