Measuring the "S" in ESG: Why social impact needs a social impact registry

Read what we discussed

So today's guest is Jason Saul. He's the Executive Director for the Center of Impact Sciences, and co-founder of the Impact Genome Project.

So before we dive deep into what we're talking about in terms of ESG and social impact registry, can you tell us, how did you get started in the Center for Impact Sciences and maybe how did you get involved, or how did you found the Impact Genome Project?

About Jason Saul

Jason Saul (00:58):

And I started asking the question, "Why can't we figure out what works in government?" And everyone said, "Well, that's impossible.

There's no way to measure the impact of governments." And so it started with the Center for What Works in 1994, and then I ended up writing books and teaching about this. And I eventually started practicing as a lawyer and doing public finance for governments.

And the same question came up again. Well, we're financing all these public government projects, how come there's no data about the impact of any of these projects?

And it became this very stubborn question that I've spent my life trying to solve, and I feel like it is the most important existential question in social impact, which is, are we actually making a difference or not?

And if we are, how much of a difference, and how do we know what good means?

So that was the genesis of all this work, and a number of books later, and other things we found at the Center for Impact Sciences at the University of Chicago's Harris School Public Policy a few years ago, and that's really instantiated a lot of the work that we've been doing.

Karl Yeh (02:00):

Well, my past several guests have actually talked about social impact data collecting, collecting the data, understanding social impact indicators.

And I think we're at a point now, and I'm still pretty new to the space that... You're right, is what we're doing...

Are all these social impact programs, are all these CSR programs, are they actually making a difference, both from the community or the project or the audience that they're supposed to serve, but also connected back to, I guess, the business goals?

How do they connect back to that? And that's always been fascinating, because it's not necessarily a program that's really defined by direct attribution.

You can't... This activity led to this, led to, from a business standpoint, this many dollars. And this activity led to this change.

How social impact data affects how a social impact program is perceived

Jason Saul (02:54):

Well, I think there are certain outcomes that you can attribute, and there're certain things you can't. And I think the biggest thing that's plagued this whole field of measurement is, I think we've been focusing on measuring the metrics, rather than measuring the outcomes.

So we have a bunch of output data, number of meetings held, number of pamphlets distributed, one government told me they're measuring number of carnival rides inspected.

I was like, "Let's just hope those are a hundred percent." What are you doing? So we have a bunch of low grade administrative data that we're tracking, and it's not really answering this "So what?" question.

The question you're raising is one of causation, which is,

How do I know that my program is responsible or can it be attributed to this outcome, and it's very simple. It's really about what evidence you have to back up your claim.

So the big macro problem in the measurement field is that we have a thousand flowers blooming problem.

Everybody's measuring different things. It would be as if in life sciences I said, "Karl, let me measure your DNA, and I'm going to use this yard stick and this type of assessment. And Jenny, I'm going to measure your DNA, someone else is going to measure your DNA with some other yard stick, and someone else is going to measure someone else's DNA."

We don't do that. We have a standard.

So that when all three of you spit in a cup, it's run against the same evidence base, we can determine based on your genes, because we've already sequenced the entire genome, we know if you have these genes, you're going to have this particular result, and we know what the results are. They're very verifiable.

You have blue eyes, you have gray hair, these different things. And so the same thing in social impact is there are a known set of outcomes in the world that we're all trying to measure against, and the measures don't answer the question, the verification and the evidence do.

So the lack of standardization has been a huge problem, because we're all trying to measure different things, and all we need is a common standard, and then we just need to have evidence that backs up your claim that you've achieved the standard.

Karl Yeh (05:11):

Well, let's muddy up the waters just a little bit more.

There's a term that is pretty popular and pretty, I don't know, maybe sometimes polarizing in the field, and it's ESG, environmental social governance.

And we were talking before we started recording about the S in ESG. Everyone knows about the environmental, maybe not all, and then there's the governance, but then what about the S?

So can you tell me a little bit more about what is the S, and why do we need to solve for it?

What does the "S" in ESG really mean?

Jason Saul (05:44):

Yeah, that was actually the name of my first article was, What About the S?

And so if you think about it, ESG is a construct, it's a term of art that the industry produced.

It is defied standardization for a long time, so it's more a set of principles and codes of conduct, than it actually is a measurement system, which is one of the challenges of ESG.

But if you focus at least on what's happened in E, people have agreed on a common set of standards.

They have a system of measurement that people accept, and people can judge how well companies are doing.

When it comes to S, S is still fairly rooted in the origins of compliance when ESG really bubbled up from the early days of ethical investing, and social responsible investing in the early nineties and mid nineties.

And so the data that backs up the S in ESG is fairly, I would say, low value information.

It's mostly about compliance checklists and codes of conduct.

Are you not mistreating your workers? Are you not trampling on people's human rights?

Are there no children in your factory?

I remember working with one major company, and their head of ESG at the time was so excited because he just got report back from overseas.

They had factories in Asia and the Middle East. He just got a report back overseas that said that they found no child labor in any of their factories.

He's like, "Jason, this is unbelievable. Can you imagine we have a perfectly clean audit?" And I remember at the time I said, "Joe, no one's going to congratulate you for not having kids in your factory.

I don't know what you're so excited about. Don't brag about not having kids, just don't do that. But that's nothing to brag about." And so the standards for S are extremely basic compliance checklist things.

That said, the real question of what is S in ESG, is really about what societal impacts do companies have that are influential over the business itself.

Either they're influential over what investors expect of the business, or they're actually influencing the business performance, or it's license to operate, or it's affecting the demand for its products, or it's affecting the operating environment.

So there's a broader question of S, and actually when you look at the major rating agencies, for example, the Dow Jones Sustainability Index, right now, the only social impact variable in the ESG data that they weight is 2% weighting that goes to social impact that comes from your community investment strategy. In the overall ESG rating, only 2% of it is attributed to social impact.

That doesn't make any sense. So there's a whole other conversation of how we need to expand the definition of S for ESG.

But right now, S is a pretty narrow definition, in terms of compliance.

Karl Yeh (09:07):

And all these companies that have put in ESG programs, is that something that you're finding that they're either not measuring the S enough?

Or, like you mentioned, the S measurement is so basic that it's more of a check mark than an actual something that you would actually have a thorough report on?

Is the current reporting standard for the "S" in ESG too basic?

Jason Saul (09:30):

That's exactly right. You take a company like Apple that's doing all kinds of amazing things for entrepreneurs.

They have a black entrepreneurs camp, they have all kinds of STEM programs that they're investing in, all kinds of racial equity programs that they're funding, none of that shows up in their S, because S asks these questions of, do your supply chain contracts respect the rights of indigenous people?

Yes or no?

Do you have an anti-bribery and corruption policy? Yes or no? Do you give money to charity? If so, how much?

So you're exactly right.

The field, the work of companies on S, is quite robust, whether it's through employee giving, whether it's through volunteering, or whether it's through internal social initiatives that are already being funded by the company.

But none of those show up in the ESG score.

And that's, I think, the big miss that the field has today is the work is happening on the ground. ESG investors and impact investors want companies to have an impact, but the data doesn't capture that impact.

Karl Yeh (10:39):

And so there's no really comprehensive piece that somebody fills out that can show, "Hey, about the S, this is what it is." Versus just a bunch of ticks that... Do you give to charity? Yes. How much? That could be on anything. So it's something that I think...

It Leads me into my to the next question here is, so using the S in ESG as an example, what is the actual impact data, and why is it important?

What is social impact data and why is it important?

Jason Saul (11:14):

So if you imagine a continuum, and on one side you have compliance data risk, are you a bad company? How do we know that you're not bad?

So are you mistreating people? Are you violating rights? Is there safety issues? That's one extreme. So risk.

On the other end of the continuum is impact.

That's great that you're not a bad company, I get that you're not getting people addicted to bad things or trashing the environment, or trampling on human rights, but how good of a company are you?

What impact do you actually make in society?

ESG is not set up to answer that question, and it needs to answer that question, because that's the question that investors are looking for, is not just prove that you're not a risky bet, because then you would just exclude it for your portfolio.

What people want to know is, of the companies in my portfolio, what impact are they producing in society?

And that is on the impact side of the continuum.

And so the data systems aren't set up to answer those questions right now, and they need to be.

And that's where the work of the Impact Genome Project comes in, and the Impact Genome Registry, which is really a standardized registry that any company can use to report all of its social impacts, whether it's through its employee giving, whether it's through its volunteering, whether it's through its grant making, or whether it's through internal corporate social initiatives, all of those can be reported into a registry and verified, just like we do for E.

We standardize and report all of the carbon footprint of a company, why don't we standardize and verify all the social imprint of a company?

Karl Yeh (12:57):

Now, is this all self-reported though? Self reporting, it can only go so far. How would you verify that what a company or business reports is actually what they're doing?

How do you verify self-reported data

Jason Saul (13:13):

Yeah, it is self-reported. And self-reporting, I think, sometimes gets a bad rap because everything is self-reported.

Every survey we take is self-reported, every time we report our taxes, all of our income taxes are self-reported, it's just report but verify. So the way it works in impact is, you report your outcomes into a registry and you say, "Hey, my company had this much impact on these many outcomes."

And then we say, "Great, just, what's the evidence that backs that up?" And they share that evidence and then we verify those claims.

So it's very credible to have organizations self-report information and provide the evidence to back up their claims, and then to have that evidence verified.

And that's actually the only legitimate way to do it, because otherwise you're hiring third parties to use different methods to verify different things. And so centralizing that into a registry and having a central verification process is a much better way to go.

Karl Yeh (14:18):

So let's dive a little bit deeper into the registry. So what are some of the benefits and the features that would benefit businesses and even nonprofits using this?

Benefits of the Impact Genome Registry

Jason Saul (14:29):

Yeah. Well, so I think a couple things.

One, the first benefit of a registry is standardization. And there's an article I wrote in the Stanford Social Innovation Review called Does the Social Sector Need an Impact Registry?

And we have registries in other sectors, whether it's in law, or in finance, or in health, or in carbon and environment.

So the first benefit of a registry is standardization. Everybody's reporting against a common set of terminology into a centralized place.

The second benefit of a registry is the efficiency of not reporting different things to different people.

I remember sitting down with a CEO of a Fortune 500 company a few years ago, and I said, "Tom, let me just get this straight. So you have to report your financial results in different ways for every different investor. So RBC Capital markets, you have to report your financial results differently to them than to Goldman Sachs, than to JP Morgan, than to Bank of America."

And he said, "No, that's not how it works. We only have one set of results, Jason, why would we report them differently?"

And I said, "Great point. So why don't we make nonprofits do that?"

The power of a registry for companies who are nonprofits is that they can report once into a centralized registry, get it verified, and then they can use that to report to everybody"

And that stops a lot of inefficiency of doing different reporting in different places.

And the final benefit of a registry is benchmarking and being able to see, okay, well, everyone's reporting into a same place using a standard, now we can compare and understand how did one company do versus another?

How did one program do versus another?

And that's very powerful. So there're benefits to efficiency, to learning, and ultimately to having higher grade reporting.

Karl Yeh (16:31):

Well, it's definitely... I think when we talked about the S in ESG and how there's no standard, or it's very basic, also, there is a lot of benefit in terms of other organizations that probably want to start a CSR or social impact program, and if they have a registry where they can see some examples, for me, it's very difficult to sometimes to try to find what are some companies that are doing really well with social impact.

If you have the registry, that'd be one of the first places you'd probably start, wouldn't it?

Jason Saul (17:06):

Right, exactly. So you can ask that question on two levels.

One, if I want to solve this problem of reduced domestic violence or increased graduation rates, or helping to get people food secure, one, what are the most effective interventions?

Which programs work, and how well do they work?

Two, what is the cost per outcome? What should I expect to pay for that result?

On average, there're thousands of programs in the registry.

So tell me, what should it cost for one unit of impact? If I want to be able to get one person food secure, what's it cost? It actually costs $542 according to the registry right now, on getting someone food secure for at least two to three months.

That's very important information.

And then finally, as you say, it can also help you understand how to design a program.

So what are the characteristics of the most effective program, so that if we're designing a new program, or if we're looking to fund a program, I can bump it up against the evidence base of the registry and find out what it's missing.

Hey, we really should be making sure that we provide cooking classes for people in addition, because all the research shows that those components are critical to an effective program for food security.

So there's tremendous value to companies in using a registry, versus just completely divorcing the results from the cumulative knowledge of the field.

And then finally, ultimately, yeah, you can be able to see what is the impact of one company versus another.

And if you're an investor, and you really care about food security, here are the companies that are having the biggest impact on food security.

Or if you really care about STEM, or if you really care about education, there's no way to know right now. We don't have any way of knowing what the impact on society of any company is other than through reading a CSR report, which is really more of an inventory of different programs, and an accumulation of total investment.

Karl Yeh (19:16):

So is the registry, I guess, in real time? So is the data..., So if I go to the registry today or maybe in the next couple months, is the data there in real time?

Or is it based on when the person, or when the company inputted their data, and then is there a lag?

How does that work?

How does the Registry work?

Jason Saul (19:40):

So any social program or initiative, whether it's owned by the company or whether it's funded, a company funds a third party to do the social impact, any social program that's funded goes through the registry and reports that data on an annual basis.

So here's the impact that we had over the last 12 months.

There are organizations that report it in real time, particularly as we are moving into a world where the registry is now backing up a market for social impact, which we can get to later, where people are buying outcomes and paying for outcomes.

And so they want to know how many outcomes are produced on a monthly basis, so they can pay in real time.

But yeah, the registry is typically done on a periodic basis. All of the data is accumulated on an annual basis for every program, what was the impact over the past 12 months.

Karl Yeh (20:32):

And I guess for those in our audience who are CSR and CSR professionals, or especially those who are just starting, how would they be able to use the registry maybe today, into helping grow or build their CSR or social impact programs?

How can this registry help social impact pros build their programs?

Jason Saul (20:49):

Yeah, for sure. I think there's a couple things.

One, all of the programs that you're already funding, instead of putting the burden on you, or the burden on the programs to report what happened, you could put the burden on the registry.

Just direct the programs you're funding to the registry, it's free for nonprofits to register, and then you can be able to get a clear report on the total impact of all the volunteer programs that you participated in, or all of the charities that your employees funded.

So it's a simple way to be able to get impact.

But then as you asked, what if they want to do a particular program? How can you use the genome?

We also have that data, so you can be able to come to us and say, "Hey, we're trying to design a food security program. What are the most effective components? Or find us the most effective programs doing this." And so you can use it, also, almost like as a Bloomberg terminal. Find me the closest matching investments to my particular strategy, and what are those investments, and how do they work and how do they perform?

So it's really a tool for any decision maker, on how to basically get a better return on the investment, instead of guessing.

Karl Yeh (22:01):

So is the goal of the registry eventually, to tie it back into our conversation about the S? Is it supposed to be the standard reporting tool for, I guess, the S in ESG? Or is it going beyond that?

Is the goal of the Impact Genome Registry to be the standard reporting tool for the "S" in ESG?

Jason Saul (22:19):

So, it's the standard reporting tool for the social impact in ESG, which is a part of S.

There are still other S questions that are being asked in terms of compliance and risk, those questions we don't entertain.

Those are done through the ESG rating agencies. But the social impact dimension, if you think about the S, Karl, in ESG, is the same as the social impact of government programs that are trying to be measured.

And it's the same thing as a social impact that we're trying to measure of philanthropy. It's the same S, there's only one set of social impacts in the world. There's a finite number of outcomes.

And in fact, we did a big study and looked at something [inaudible 00:23:08] 11,000 different programs and 77,000 different outcomes, and we realized when we de-duped it down, there's only 132 common outcomes in all of social impact.

So the registry is designed to measure anybody's impact on 132 of the most known social outcomes, whether you're a company, whether you're a government, whether you're a non-profit. And so it is used to fulfill a big part of S.

And right now, there is no real standard for measuring social impact.

There's the sustainable development goals that the United Nations put out, which are more population level goals for the globe, they're not really directly things that companies can distribute their impact to.

But we do map to the SDGs, so if you report to the registry, you can also report on the SDGs.

So if any companies or businesses or individuals want to learn more, or even register their data into the registry, how would they go about doing that?

Jason Saul (24:08):

You just go to Impactgenome.org. And we are also partnered with leading companies like Benevity, where we work to integrate this into grants management platform or giving platforms.

And either way, you can get information about how the impact genome can work for you. We are really, right now, looking to drive the field forward and embrace the value of social impact in S.

And so there's a working group that we run with Realized Worth around advancing the conversation around why social impact deserves to be an important part of S in ESG, and also, how do we start embracing this standard? So anybody can go to Impactgenome.org and learn more and be part of the movement.

Karl Yeh (25:01):

And if anybody wants to connect with you, what's the best place to reach you?

Jason Saul (25:04):

If you want to learn more about standardization and the research on advancing social impact, you can reach me at jasonsaul@uchicago.edu

And if you want to learn about some of the innovations that we're working on, I can direct you to Impactgenome.org and you can contact the team there.