Sara Olsen provides a brief history of impact measurement and management

A client recently mentioned in their impact report that they adopt a "first principles" approach. The concept is potent: it involves understanding the objective, questioning whether existing solutions are suitable for the present and future, and using evidence rather than just intuition to guide decisions.

Applying first principles to impact management can assist leaders newly tasked with deciphering their company's "sustainability and impact" to get straight to the point. Today, corporate sustainability and impact officers face a formidable job description:

1. Decide how the company should react to new mandatory disclosures.
2. Address the company's climate risks.
3. Devise a strategy to meet the growing demand from customers and employees to know that the company is part of "the solution."

These tasks can seem unrelated and overwhelming. That's why it's vital to step back and ask the fundamental question: what's the overall societal "goal," and what unique role can our company play? It's also essential to acknowledge the universal context: people are crucial to "sustainability" in any sense.

First principles thinking can reveal how seemingly unrelated ideas are inherently connected. For our client, the goal is to halt deforestation caused by the use of wood and charcoal for cooking fuel. This practice not only devastates the watershed and food security of regions that can least afford it, but it also pollutes indoor air, shortening millions of lives each year. The status quo is that these fuels are cheap and convenient, making it challenging to persuade "last mile" households to switch.

However, with the widespread availability of mobile phones and internet apps, the benefits of cleaner solutions like bioethanol can be internalized through the voluntary carbon markets. Private equity investment can be mobilized at a scale that allows entire regions to conveniently access the solution, much like ridesharing apps swiftly replaced subpar taxi services in many cities. By creating an attractive and convenient product, reducing the price, and building the infrastructure to make access as easy as charcoal, a swift, large-scale switch to the new solution becomes surprisingly feasible.

If a company uses first principles thinking to address its chief impact and sustainability role, it can understand that:

1. The company should respond to required disclosures in a way that best informs its understanding of whether it is achieving its goal of ending deforestation, reducing climate emissions, and improving well-being of customers who have previously been overlooked by innovation.
2. It should prioritize its climate risks not only by identifying where its environmental impacts are greatest, but also by focusing on the groups of people most significantly affected by its solution, regardless of their power. This includes the customers who are its primary intended beneficiaries, and those whose livelihoods are threatened by the rapid switch from charcoal and wood to bioethanol.
3. Its strategy for addressing the interests of customers and employees to know that the company is part of "the solution" emerges from its clarity of purpose.

In my twenty-five years of working with a diverse array of investors, companies, and innovators, I have consistently found this to be true: the first step any company should take is to define its purpose in relation to the grand challenges facing society and the environment.