by Janet Ervin, Chief Marketing Officer

When Josh and I filmed this video last year, we called out impact reporting as one of the hottest ESG topics to follow. Over the last year, we’ve had the chance to experience that firsthand. Impact reporting is hard, time-consuming work – but it’s critical work because your stakeholders are paying attention.

Capturing and measuring data effectively is not a new conundrum. Nonprofits and impact programs have been trying to figure this out for years. The needs of communities often seem clear – but tracking the long-term effectiveness of programs created to address these needs is notoriously difficult. It’s not enough to have just quantitative data. A good impact report has both strong numbers and data that work together to form a compelling, ‘big picture’ narrative.

With increasing focus on ESG, a major shift has happened in recent years, creating more questions than answers about the most effective way to measure impact, both in the community and internally, to support an organization’s business goals. What a company measures, as well as how they measure it is key – and a lot of eyes are watching.

How We Measure Impact is Changing

A key to this change is in how companies measure and express social impact. If current ESG disclosures focus on the financial investment being made, we believe the future will include accountability for how those investments generate impact. To make that work, companies, nonprofits and local municipalities will need to collaborate like never before, creating new methods of evaluation that tie investments to discrete outcomes.

Beyond financial investments, we believe that activating the people power of a company – the very customers, employees and shareholders that are driving the ESG shift to begin with – is a big part of how companies will be evaluated in the future. Transactional social impact activities are shifting to more meaningful and strategic expressions of commitment to causes.

Cause marketing is a great example of this shift. When done well, this is a highly effective strategy to create impact and engage stakeholders. When done poorly, stakeholders criticize a company for ‘empty expressions’ of social cause alignment. We see it as the ‘canary in the coal mine’ for the much bigger change we will see in the decades to come – a change being driven by younger generations who are making ‘taking a stand’ a corporate mandate.

That this is disrupting the status quo in a way that leads to politicization is not a surprise. But data suggests this is not being done to companies, but rather proof of how a free market works – capitalism driven by the preferences of customers, employees and shareholders.

Measuring the ‘External S’ – Stakeholders are Watching 

For publicly traded companies, ESG disclosures focus on the financial investment being made. These in-depth reports are necessary for the evaluation of their environmental, social and governance structure and most often align with the UN’s Sustainable Development Goals. Measurements for environmental and governance goals are often clearer (though not easy!) to measure. (Many companies struggle with a lack of standardized and consistent data collection, among other challenges.)

But as Josh noted in his ‘External S’ blog, the social expression of a company’s impact strategy looks different for every business. So once your company has defined the External S – how the heck do you measure it?

For most companies, ESG disclosures are not a requirement. Privately held and smaller companies may question the necessity of even producing these reports. What is the advantage of producing a ‘report card’? The answer is simple: your stakeholders (consumers, employees and shareholders) are watching.

What We’ve Learned About Impact Reporting

Over the last year, Next Stage has worked with multiple companies and nonprofits on impact measurement and reporting. The approaches are as varied as the companies themselves – but the importance of tracking this impact is only growing. If your company is looking at tackling an Impact Report, here are three lessons we’ve learned over the last year:

Understand who is watching – and why. 

Impact reports have a range of audiences, each looking for something different out of your document. For large or public companies, financial disclosures may be key. Other stakeholders may look for information about the sustainability or diversity of your supply chain. Some may simply want to know that you have an ESG expression. For nearly every business, these reports can serve as an important employee recruitment and retention tool.

Like any public-facing document, it’s critical to consider not just who is reading your report – but why. Producing a report that is meaningful to all of your audiences is key.

Engage a partner. 

There is a reason nonprofits and government agencies consistently struggle with impact measurement. It is notoriously difficult to measure the long-term impact of any program. Leaning into this challenge, one of our current clients recently developed a partnership with a local university. They paired a research assistant with a group of pilot nonprofits to regularly survey and measure activities over the course of a three-year grant cycle. The data they are getting is rich and nuanced – and will help them develop meaningful programs that they can both scale and stand behind with meaningful qualitative and quantitative data.

Unless your company has a robust research division, it can be smart to engage a partner. Local universities and nonprofits can be great partners in this work.

Look for the bigger story. 

For impact reports to have authenticity, they must center the voices and experiences of community. Data is important, but it never tells the whole story and good impact reports need both qualitative and quantitative elements. It’s this storytelling and lens on the bigger story that help stakeholders understand your company’s impact priorities – not as a PR strategy but as an authentic expression of your stakeholders’ priorities. We recently hosted a workshop with another client for this very purpose. They have clear impact goals with long-term data (and a lot of spreadsheets!) to back them up. The process and thoughtfulness behind those goals is clear, but the data by itself doesn’t share the human effort and experience behind these efforts.

Rather than center the numbers, this client is choosing to center the stories of their own employees and community partners. For example, a graph that shows incredible safety numbers is great – but it doesn’t share the heart and meaning behind that number. Pairing that graph with a meaningful story about the safety team brings authenticity and lived experience to that number and helps people see themselves in the narrative.

No one yet has all the answers on impact reporting, but the importance of these reports is only growing. Savvy companies and agencies are leaning into this challenging work because they know it matters – and because they know stakeholders are watching.