THE COMPLEXITY OF MEASURING ‘IMPACT’—and why it matters

Ever heard of Goodheart’s law? Chances are you’ve come across it before, even if you didn’t know it by name. It states that when a measure becomes a target, it stops being a good measure, as the focus shifts to meeting the metric rather than achieving the underlying goal. As I will cover shortly, it plays a significant role in why it is so challenging to measure positive impact.

The ambiguity of ‘impact’

In the worlds of investment and entrepreneurship, ‘impact’ is no longer just a trend; it’s a part of every conference and conversation. In starting a communications business, it was clear to me who I would want my clientele to be—impact-driven organisations. But I’ll also be the first to admit that while ‘impact’ holds a lot of weight, it is a rather vague term. So, what does it really mean, and can it ever properly be measured?

From aspirations to reality: How ‘impact’ evolved

‘Impact’ emerged as a descriptor of investment in the 2000s, popularised by organisations like the Global Impact Investing Network (GIIN) and becoming more formalised through the emergence of Environmental, Social, and Governance (ESG) criteria produced by the United Nations, and the Sustainable Development Goals (SDGs) that followed. GIIN continues to define it as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”. It is the concept that the profit should not be the sole ambition for companies but so should the positive difference that they can have on our planet and society.

The challenge of defining ‘impact’

Of course, such an aspiration is a worthy endeavour. And in 2024, more consumers than ever (73% of millennials and gen-z according to Devere group) are demanding that investments made with their money conform to ESG criteria. This demand has driven myriad organisations to focus on the positive impact that they can make—in practice and in the way they present themselves. However, unlike the one-dimensional metric of financial success, the wishy-washy nature of ‘intended good’ makes it difficult to define exactly what should count as positive impact.

It's also important to note that the perception of what ‘positive impact’ is changes over time. At the beginning of the 20th century, the work of Royal Dutch Shell was considered an immense good for the world. By providing affordable energy, Shell and other fossil fuels companies contributed to pulling millions of people out of poverty, especially following the second world war. Fast forward to 2024, and things are very different—I’ve seen a millennial face public ridicule just for sheepishly admitting they work for Shell.

Measuring ‘impact’ isn’t easy

So how can we measure impact? The SDGs and ESG standards provide goals for the betterment of the planet – i.e. ‘No Poverty’; ‘Zero Hunger’ – but do not provide prescriptive criteria, and organisations are largely left to set metrics for success for themselves. This flexibility encourages innovation but also opens the door to shortcuts that may not achieve the intended long-term impact.

In addition, when setting criteria, Goodheart’s Law becomes relevant: when success is measured by easily quantifiable metrics – such as trees planted – companies may focus on those figures, even at the expense of their overarching goal (especially when financially incentivised to do so).

Imagine a company is compensated for reforesting with the aim of decarbonisation and biodiversity. Measuring their success on the number of trees planted may encourage them to plant as many as possible without considering environmental factors. This could lead, in practice, to badly planted trees that die without making any of the intended impact. In fact, the energy wasted in planting them could mean they even have a net negative impact. Unfortunately, this is not merely a hypothetical situation: a 2022 study showed that as much as 44% of seedlings planted in reforestation projects in south and southeast Asia don’t survive to the age of five. 

However, despite the challenges of measuring impact using proxy metrics, the demand for ‘impact’ investments from financial markets and consumers is a strong incentive for companies to frame their work in these terms—whether appropriately or not. Self-reporting can be unreliable when companies often have financial motivations to exaggerate or overstate the positive effects of their initiatives. Indeed, critics are becoming increasingly concerned of companies ‘impact washing’ their activities, which may ultimately make the term meaningless for those that are truly driven by positive change.

How to get around this?

This article is not a call to throw the baby out with its challenging bathwater—far from it. While metrics are essential, they need to be paired with transparency and meaningful communication. Companies like True Footprint in the Netherlands offer in-depth tracking solutions to improve accountability, and certifications such as B-Corp ensure that businesses are held to high standards of social and environmental performance. However, even with verified data, the true challenge lies in how effectively these stories are communicated to build trust and credibility.

My 5 cents 

Even with in-depth tracking solutions and B-Corp certifications, one element remains constant: transparency. So, what can truly impact-minded organisations do to ensure they do not get lost in the crowd of noise of those looking to capitalise on the popularity of the ‘impact’ label? My answer: more transparency is key.

There will always remain challenges with metrics and companies self-reporting, but those sincerely dedicated to the betterment of our world must demonstrate their best practices openly to the public. They should go above and beyond to build trust with those observing them and create a culture which shows – without a doubt – that they are what they say they are. It’ll always be an imperfect system, but humans have a surprisingly good knack for detecting insincerity—and are much more forgiving of honest imperfection than one might assume.

Communicating authentically is crucial.

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