The State of Corporate Purpose 2023 Trend 5: ESG Is Evolving Toward Positive Impact

Environmental, social and governance (ESG) issues have rapidly risen in relevance in recent years and are increasingly topping board agendas. But when it comes to ESG reporting, corporate purpose leaders are split on its effectiveness and intended purpose. As it’s a reporting requirement primarily driven by investors and regulators, two-thirds of companies believe that ESG is mostly a risk management strategy, with one third believing it’s a good tool for impact. The one thing they all strongly agree on? Impact reporting is a critical investment for the future and it will be used to drive greater investment in social impact initiatives from their companies.

CSR leaders agree that impact reporting is rising in importance:

92% say impact reporting will be a critical investment for 2023 and beyond.

91% say impact data will increase support for investments in corporate purpose.

86% say companies should focus on driving greater impact versus ESG reporting.

Ninety-four percent of CSR leaders say the demand for impact reporting is increasing, and 93% say they need to be able to confidently communicate their impact. This has led many to report that there needs to be a shift in priorities when considering ESG and impact.

From financial and impact materiality to generating positive outcomes

Today’s ESG ratings measure and mitigate financial risk for investors — but a new approach to reporting is emerging that shifts the focus from disclosures to positive outcomes. Why? Because a new generation of investors, employees and consumers is interested in another dimension beyond risk and compliance — they care about impact.

In 2023, employees, consumers and corporate purpose leaders all wish to make more informed decisions that will help them generate the most positive impact possible with their available resources — and they want to feel that sense of efficacy most of us look for when we give. So, it’s not surprising that individual and workplace donors are increasingly focused on whether their contributions are leading to concrete outcomes.

The biggest impact opportunity is on the human level — it’s about fulfilling the ultimate promise of philanthropy. When people give, they want to know their dollars are making a measurable difference to the causes or issues they care about. With the ability to choose from millions of nonprofits around the globe, donors need help understanding which organizations they can trust and what outcomes they can expect from their support. Research from the University of Pennsylvania tells us that with this kind of data, donors are more likely to increase their frequency of support over time, while increasing their own sense of happiness and well-being.

92% of companies agree it's important that impact reporting doesn't put a burden on nonprofits.

As a result, CSR leaders are looking for standardized data and reporting tools. For example, those offered by Impact Genome enable companies to understand the outcomes they are achieving, like providing people with regular access to affordable food, permanent housing or healthcare treatment services. And then they can benchmark their progress and impact over time and improve their investment decisions without burdening nonprofits with greater administrative work.

Achieving this level of impact and outcome transparency requires standardized data and guidance on giving based on an assessment of the impact generated by organizations — and it enables individuals to make choices that give them confidence.

If it is to realize its true potential, ESG will need to evolve to include a focus on positive impact. It will need to shift from measuring inputs and become a tool to drive increased positive internal and external impact — for companies and their people. Companies who measure and independently verify their impact will be ahead of the game when ESG reporting finally catches up to this.

Discover the top five emerging societal and industry trends shaping the future of CSR, DEI and ESG in The State of Corporate Purpose 2023.