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Despite growing numbers of companies and investors making public pledges and commitments to contribute to social and environmental goals, there is growing skepticism about the validity of these commitments.
A spate of recent media articles have called out the false or misleading nature of the many claims related to net-zero targets or commitments to improve racial and gender diversity, among other themes (broadly referred to as impact-washing or greenwashing). If the private sector is to be taken seriously and rewarded (reputationally and/or financially) for its efforts to help address our planetary challenges, this confidence gap needs to be addressed. Key to closing this gap is providing stakeholders with credible information about what a firm is actually doing to further its commitments and what results or outcomes they are generating.
Many companies and investors that make sustainability or impact commitments produce regular reports articulating their approach and providing details on their progress towards addressing their goals. However, these reports are often based on internal, self-reported data, which is typically not evaluated by an independent party for its accuracy or completeness, therefore limiting the credibility of the data, the usefulness of the reports, and, ultimately, fueling concerns about impact-washing.
Independent verification of impact/sustainability practices and results by companies and investors is becoming more common and is increasingly encouraged by both voluntary standards and regulatory regimes given the value it brings to different stakeholders. However, many still question the benefits of pursuing impact verification — including by challenging their readiness for this level of accountability, debating the extent to which their stakeholders demand independent verification, and wondering how to justify the cost. As individuals working at firms and in roles where we are routinely privy to the benefits of independent verification, we wanted to share more about its growing uptake and demystify the way it works.
If the private sector is to be taken seriously and rewarded for its efforts to help address our planetary challenges, this confidence gap needs to be addressed.
The practices of assurance and verification are common in many industries and provide an important source of checks and balances to control uncertainty across complex systems (think auditing and risk management in the financial sector). Many other sectors rely on independent assessments to ensure certain quality standards or expectations are met. In many cases these assessments are necessary to satisfy regulatory or compliance requirements, but they also provide confidence to suppliers and consumers about the reliability of representations being made. Additionally, most governments have systematized the practice of independent evaluation of results and performance across different departments, agencies, and programs, both as a way to analyze the effectiveness of certain policies as well as to provide transparency to the general public.
While the CSR, philanthropy, and impact investing industries have developed a number of common standards and guidelines for what constitutes a high-quality approach to practices and reporting, these industries have (to date) been largely self-regulating. However, in this self-regulating environment, verification plays an especially critical role in assuring stakeholders of the accuracy of a market actor’s claims. (Not to mention verification is helpful in supporting practitioners that are trying to keep pace with changing expectations in rapidly evolving markets.) The process of undergoing an independent impact verification — and receiving objective feedback about the quality and effectiveness of the activities one pursues to deliver positive outcomes – drives both internal improvement and engenders trust with stakeholders.
Since the company’s launch in January 2020, BlueMark, an impact verification specialist, has completed more than 90 impact verifications for clients with differing approaches to impact and varying levels of sophistication with respect to driving impact results. These diverse clients all have in common a recognition of the importance of authenticity and accountability when it comes to their impact pursuits. And, as such, they each sought out an independent verifier that would be able to rigorously assess their impact strategy, their processes for managing that strategy, and the quality and veracity of their reporting of results. Additionally, they sought guidance and a roadmap for continued learning and improvement.
The process of undergoing an independent impact verification drives both internal improvement and engenders trust with stakeholders.
As an example, Nestlé’s sustainable packaging venture fund is focused on solutions to help address global waste. One of the fund’s first investments was in the Closed Loop Leadership Fund (CLLF), a fund (managed by Closed Loop Partners) that invests in and builds circular economy platforms across recycling infrastructure, plastics & packaging, food & agriculture, electronics and logistics to scale vertically-integrated circular supply chains. Both Nestlé and Closed Loop Partners are committed to setting meaningful impact goals and to producing accurate reporting on their results in areas such as materials kept in circulation and out of the environment, as well as greenhouse gas emissions reduced. As such, Nestlé and Closed Loop Partners engaged BlueMark to verify CLLF’s impact strategy and approach. The six-week process resulted in outputs that ensured expectations were aligned about the fund’s impact strategy and metrics while also providing targeted recommendations to help strengthen CLLF’s approach going forward.
Looking at the intersections of CSR, philanthropy and impact investing, The BHP Foundation, one of the newest actors on the social impact scene, offers yet another example on impact accountability. Solely funded by BHP (a leading global resources company), the Foundation operates independently and is committed to blending bold ambition, transformational partnerships and business acumen to create an equitable and sustainable future for people and the planet. Similar to Nestle and Closed Loop Partners, it does so through prioritizing impact accountability and management across its climate, energy and education portfolios. From publishing results through its Strategy and Impact Booklet, through to framing its venture capital using impact management norms, and then verifying its results, the BHP Foundation is moving beyond self-reported data to disclosure and independent assurance as a key strategy to achieving its purpose.
As you can see, impact verification is an important tool that can help companies and investors strengthen their practices and increase their effectiveness while also communicating their approach and results with greater confidence and credibility. Going forward, we expect impact verification will soon become the norm for any entity claiming to be socially or environmentally responsible.
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