HBR: ESG Impact is Hard to Measure, but not Impossible

by Jennifer Howard-Grenville

January 22, 2021


<Link to article>


Summary.

ESG measurement is an increasingly popular way of holding companies accountable when it comes to sustainability efforts, and of giving companies an incentive to improve them. But measurement, no matter how sophisticated, is much better at capturing easily quantifiable inputs than complex and messy outcomes and impacts. Companies need to do everything they can to understand those outcomes and impacts — and that requires doing more than just measurement. In particular, companies need to do three things: (1) zoom in to develop insights on processes, (2) zoom out to see broader systems, and (3) value curiosity and learning.


This article hits a couple of hot-buttons for me, most notably the "need to do 3 things".

  • Develop insight into processes Womack et. al., published The Machine That Changed the World in 1990, which introduced the concept of Lean, and a recognition that organizations need to look beyond price, and adopt a quality mantra as well. OEM's realized that they need to evaluate their supplier's processes, but their view was limited to the quality of good coming in the door. How those processes impacted Environment and Society received little attention.

  • See the larger system From the article: “What gets measured gets managed” — that old mantra rings true for most businesses. But measurement often fails to provide insight into messy underlying processes, which is where important and actionable information can be found. Organizations with purpose intend to bring value to society, but 'value' is abstract they eventually devolve their operations into decomposed tasks which are easy to measure, rather than systemic efforts which create societal or customer value. (BTW - per The Innovator's Dilemma, such organization's are ripe for disruption.)

  • The Value of Learning The mantra for my class is "Decomposition leads to Dysfunction, and Collective Learning is Key". I believe that people generally want to good for others, in a means of enlightened self-interest, but organizational structures based on individual metrics discourage an understanding of a larger system.

"Quality" seemed like an immeasurable concept when I was studying Lean in the late 1980's, but in the space of a decade it was, to a greater and lesser degree, widely adopted. We can and must to the same with two additional dimensions of value, Environment and Society, reinforced by Good Governance.


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