Jason Saul, executive director, Center for Impact Sciences

A new white paper from the Center for Impact Sciences (CIS) at the Harris School of Public Policy outlines a series of steps to better measure social impact.

Environmental, Social, and Governance (ESG) investing has transfixed the markets as socially conscious investors seek better data on which to base their decisions. To date, it has been the success of “E”– environment-related measurement – that has been at the forefront, helping to usher in a robust carbon trading market. As Jason Saul, the executive director of CIS, writes, this success has proven that intangible commodities like carbon can be standardized, priced, and quantified. 

This progress on “E” provides reason for optimism. But what about the “S”? The ability to better measure “S” would have massive implications for investors – and ultimately societies, given the impact that markets can have – if we are able to credibly determine what really works when it comes to using “data for good” and taking action that improves human lives.

In the new paper, published in the Stanford Social Innovation Review and entitled “What about the ‘S’ in ESG,” Saul argues that “S” must be modernized and more consistently defined. Doing so, he explains, will require overcoming three key conceptual challenges: standardization, quantification, and reporting.  And, because of the inherent difficulty of determining social impact, effective measurement must be legitimately outcomes-based in order to achieve investor confidence.

To that end, the paper outlines a series of three practical steps that ESG investors, rating agencies, and companies can take to elevate the importance of ‘S’ to the markets and give investors something to price into their models.