‘Through the radical transparency of the platform, which we call the “External Rate of Return” (ERR) a wide range of users will be able to measure and compare the economic and social impact of all types of business ventures in a holistic and consistent manner. Furthermore, through the ERR platform companies and the public at large can engage in on-going dialogues about the overall impact of business. We close our paper with a call for action as follows: we ask readers of the report to contact us to suggest indicators and metrics to be included in such a comprehensive impact assessment platform. Also, contact us if you would like to help build the platform.’
This month I am delighted to announce the launch of a £2m fund from King’s College London to develop the External Rate of Return (ERR) into a fully functioning platform (summary here).
Conceived in 2013 as an antidote to the partial and short-sighted treatment of ‘impact’ made by organisations, the ERR – and developed further in a 2016 working paper in partnership with Dr Dr Robyn Klingler-Vidra and Mr Martim Jacinto Facada – offers instead a way to positively maximise, and not just manage, the ripples every organisation leaves in its wake: considering job creation, IP, skills development and a range of other key external factors.
In the ‘impact’ conversation – and a whole industry built on managing, perpetuating and profiting from its maxims – we are at a tipping point. There are around 150 different impact measurement systems, all of which measure differently – preventing clear and transparent outcomes, and making application a headache for all involved – and focus dramatically on environmental, social and governmental factors (ESG); on limiting damage rather than harnessing business as a positive social force.
Good business – socially responsible and socially engaged – can’t wait. We are simply out of time. Like the model of rational man, the concept of siloed measurement – considering, for example, the CSR or ESG or carbon footprint or tree planting of a business as a marker of its overall goodness – will soon be an unacceptable – and, as with all seismic shifts – ludicrous way to have approached the world at large.
Like the dawn of behavioural economics, which toppled the long-standing assumptions of judgement, our notions of how we behave and why, impact is simply a question of placing things in context. We must think holistically to see what is true. The ERR measures the economic contribution of every business, but it looks wider. It asks businesses to consider what they put back in to the environment around them – through their suppliers, their customers, their cascade social impact and the environment – not just what they gain for shareholders.
In a complex political and regulatory environment, many businesses that seek to do good are inhibited by the limited scope of available metrics, or the sheer burden of attempting to think more widely. Many struggle to establish the ‘right’ parameters of measurement, under continued pressure to deliver short term returns for their shareholders, at the expense of real reform.
The ERR offers a broad and transparent lens, governed by the most powerful commercial force of our times: the opinion of informed consumers. Harnessing the principles of the trust economy, the platform will be radically open, allowing every business to share their processes publicly and engage directly with the public, using the four tiers of impact (suppliers, customers, society and environment), which the informed public would then rate openly against a set of clear principles. In this way it will be self-regulating – a Trip Advisor or a Glassdoor of impact measurement – while allowing businesses to build a direct and collaborative relationship with consumers.
Consider, for example, the impetus on a business to improve their efforts to banish modern slavery from their supply chain if they knew how visible their efforts would be and how integral to their overall rating, and how valuable the discussions provoked would be. Today, despite being passed into law in 2015, most large companies still lag perilously behind, unmoved by a government requirement that has little risk of consequence if ignored, and huge cost to implement.
This social aspect is key to the ERR’s emphasis on positive change: inviting, not condemnation or a rigid score system, but a shared approach to improvement; a recognition of good intent and an on-going dialogue in how to do better and where impact should be measured. As we develop the platform, we’ll be looking for input from all organisations and all sectors – please do get in touch with your thoughts so that we can create the most useful possible tool.