Businesses create effects: inputs, outputs, outcomes and impacts. ESG management is a business sustainability approach focused on improving input, output and outcome metrics, eg energy efficiency and diversity of talent. Impact management is an approach focused on creating positive impacts in society and the environment where needed, to make an effective contribution to sustainable development.
3 min read | Last updated 21 May 2021
Businesses affect people and places through their ‘effects’. Useful definitions of organisational effects are provided by organisations concerned with managing business, government or civil society effects on sustainable development, such as business sustainability standards setter GRI, intergovernmental organisation OECD and multilateral trust fund GEF.
GRI: 'Impact refers to the effect an organization has or could have on the economy, environment, or people, including on human rights, as a result of its activities or business relationships. The impacts can be actual or potential, negative or positive, short-term or long-term, intended or unintended, and reversible or irreversible.These impacts indicate the organization’s contribution, negative or positive, to sustainable development' (GRI, 2021 (pdf)).
OECD: A results chain comprises outputs, outcomes and impacts. Outputs are the products, capital goods and services which results from development interventions. Outcomes are the likely or achieved short-term and medium term change and effects of intervention outputs. Impacts are the positive and negative, primary and secondary, long term effects produced by development interventions (OECD, 2021).
GEF: Transformation is a 'deep, systemic and sustainable change with large-scale impact in an area of global environmental concern... the key criterion is sustainability, ie the impact endures financially, economically, environmentally, socially and politically, long term after the intervention ends' (GEF, 2019 (pdf)).
Effects seem to ripple out from the business centre, commencing with the resources that a business uses (inputs) and concluding with the global systemic changes (transformations) that might ultimately result from business actions, each effect being a contributing driver to the next higher order effect.
Effects can be small or large, positive or negative, instant or delayed. They decrease in manageability and measurability the further they occur from the business and may decrease (dissipate) or increase (accumulate) over time.
- Inputs are the goods and services used by the business.
- Outputs are goods, services, by-products, waste and actions produced by the business.
- Outcomes are the immediate consequences of outputs to stakeholders and the environment.
Inputs, outputs and outcomes are business measures (ie the business has direct access to their data); therefore, these three effects are the focus of ESG management practices.
- Impacts are the medium to long term, positive or negative changes experienced by stakeholders that may be intended or unintended and are attributable to the business.
- Transformations are large-scale, enduring impacts, experienced by the public as systemic changes, often stemming from industry collaboration or disruption.
It is assumed that ESG management drives impact. That is, by managing inputs, outputs and outcomes, a business creates impacts. But without measuring the value of an environmental or social change and understanding the contribution of a business’s actions to that change, a business’s true impact is unclear.
A construction company builds a road bridge over a river canyon for a regional government, generating outcomes for the environment, project workers, local business people and infrastructure users. These lead to impacts on ecosystems, individuals and communities that, in turn, contribute to community transformation. Effects happen both during and after the project. Most impacts happen later, and may be hard to attribute to the original project. Transformation may take years to emerge.
During the Project
Economic – time, budget and quality goals are met
Environmental – works involve earthmoving and deforestation
Socioeconomic – the project trains and employs 100 local people
Environmental – earthworks cause some runoff into the river
Socioeconomic – project workers earn income, learn transferable skills and obtain valuable work experience; ancillary businesses start up to supply food, housing and courier services to the project
Environmental – earthworks runoff contaminates a downstream ecosystem killing a significant number of a rare endemic species of fish
After the Project
Economic – construction company investors gain a return on investment
Social – the new road and bridge connect remote village communities to a large town, significantly reducing the average journey time and number of accidents
Business – the construction company builds its reputation for delivering successful projects
Environmental – the contaminated ecosystem takes more than one year to recover with the aid of a local environmental group
Socioeconomic – some workers set up as tradespeople in the large town, some leave the region to re-use their skills on another project and some become unemployed; some ancillary businesses survive since the new road increases visitors to the area; with better access to services and opportunities in the large town, village communities experience improved health, a rise in academic achievement and increased incomes
Socioeconomic – economic security in village communities improves, transforming standards of living, intergenerationally