I often wonder whether, in our search for impact, we sometimes overcomplicate matters.
Now, there are of course some companies where impacts are clear to identify and even quantify. Green energy producers, for example, always jump to mind. Seeing how their existence is impactful is normally as easy as pie. By producing X MWh of energy from wind and solar, a company can save emissions of Y tCO2e from the gas or coal which would otherwise have been burned to power our homes, businesses, and public services. Likewise, companies providing affordable medical treatments to those who could not have previously accessed these treatments are another prime example. If every product sold is a condition cured or managed, then that is a clear win.
But what about the companies that also provide us with the things we need (and do so in such a way as to minimise their negative externalities), but don’t have such a clear positive impact? How can they prove to the ever-growing pool of impact investors that they are a worthy candidate for their holdings?
Imagine for a moment a UK company producing ovens. Not the most exciting, but something we in the developed world nearly all use. To attract potential investors, this company could spend £500,000 hiring additional engineers, expert designers, assurance specialists and reporting consultants to develop (and then shout about) a new hyper-efficient oven, the likes of which the market has never seen before.
The company can then report that this model is X% more energy efficient than the leading competitor’s model, and that users of these can save X MWh in energy (and Y tCO2e in GHG emissions) each year, over the 10-year life span of the model (assuming they use grid energy, and assuming a standard grid mix of X, Y, and Z). It can then report that sales of these models represented 20% of its total sales in the most recent fiscal year and, hey presto, quantifiable impact linked to revenues. Perfection.
However, what the company has failed to mention, is that their state of the art, hyper-efficient model costs a pretty 5 grand, and that they (and all of their other products, for that matter) most often find themselves in Notting Hill town houses and detached Cotswolds properties. Those energy savings could make a great difference to the lives of a low-income households, but less so here. As for those tCO2e savings, well, they’ve just been lost to the fleet of new top-spec, fuel-guzzling SUVs that are used by the owners of said ovens, whenever there are leaves on the road.
So, what can this company do, if it wants to use its business as a force for good? Well, it might not be linked to product sales per se, but it could give 250 big ones to new local charity, which has been set up to insulate the homes of low-income families, and the remaining 250 to another charity which is developing micro-grids to provide isolated communities in the developing world with access to electricity.
This way, it will be helping low-income families in the UK to save energy, emissions, and (crucially for them) money, as well as helping the isolated communities in developing countries access electricity, and transition away from using wood and other combustibles for cooking, for example. This would likely save more emissions than the new oven, too, given the potential scale of energy savings, and the fewer direct emissions from combustion.
These actions also have the potential to improve health outcomes, given it may prevent mould from cropping up in damp houses of UK families who they couldn’t previously keep their home dry over the winter, and fewer smoke-filled rooms in the developing world.
To cut a long-story short – corporate philanthropy can have true impact when used correctly, and may even have greater impact than the sale of a new product or service. If companies also commit to donating a certain percentage of profits or cash-flows to such causes each year, this will allow investors to quantify the impact of these activities in the longer-term, provided details regarding supported causes are also provided.
Oh, and another thing, the company in question could close those subsidiaries in the Cayman Islands, and start paying more tax in the UK. But that’s a story for another day.