Last month, The Boston Consulting Group released their findings on total societal impact (TSI). To recap, TSI is not a single metric; it is a collection of measures and assessments that capture the economic, social, and environmental impact (both positive and negative) of a company’s products, services, operations, core capabilities, and activities. We found that adding the TSI lens to strategy naturally leads companies to leverage their core business to contribute to society in a way that enhances total shareholder return (TSR) over the long term.

But how do companies add a TSI lens to their corporate strategy, and thus, benefit their TSR? We were also able to identify eight key success factors for integrating a TSI perspective into corporate strategy in order to improve TSR:

1.    Understand where you are today—and where you need to go. Companies must fully understand the total societal impact of their products and services, and they must determine where they can make additional positive contributions.

2.    Create a cohesive narrative. After identifying the right themes, companies must tell a clear, cohesive story of how TSI is integrated into their corporate and business strategies.

3.    Build a portfolio of scalable initiatives leveraging the core business. For each area on which a company focuses, it needs to select a limited number of high-priority initiatives that are integrated with and driven by the company’s business units.

4.    Forge partnerships to amplify the impact. Develop deep relationships with a few “anchor” partners (such as NGOs, development organizations, other companies, and governments) in order to create large-scale, high-impact initiatives.

5.    Define goals and measure results. Define the right metrics for measuring various dimensions of TSI, align them with the goals of external stakeholders, and develop internal cause-and-effect models to tie societal impact activities to business performance.

6.    Engage with key stakeholders on the issues that matter to them. The company should also engage directly with key stakeholders—including employees, customers, and governments—in order to understand and work with them on the societal issues that matter to them.

7.    Make TSI integral to investor engagement. Information on the effect of TSI activities externally as well as on financial performance needs to be integrated into all communications with investors, including the annual report and all regular communications and events with investors throughout the year.

8.    Establish the right governance and incentives. The involvement of the board of directors is critical to integrating societal impact activities into the business; a foundation of this can be an annual one-page “Statement of Significant Audiences and Materiality” (The Statement) published by the board of directors.

Companies should take responsibility for identifying their material ESG issues, reporting their performance on them, and explicitly showing how they are related to financial results. One of the best examples I know of the latter is SAP’s webpage, “Connectivity of Financial and Nonfinancial Indicators” in their online 2016 integrated report. Like SAP, companies can use integrated reporting to do this. The International Integrated Reporting Council (IIRC) has published a guidance document “The International <IR> Framework” which can be very helpful. This high-level framework can be supplemented with guidance from the Sustainability Accounting Standards Board (SASB) on an industry’s material issues. If companies want credibility for sustainability, it is up to them to provide the necessary information to and education of investors.

Or maybe big data technologies of natural language processing, artificial intelligence, and machine learning will close this ESG data gap even if companies don’t. The big data sustainability company TruValue Labs, where I am on the board, uses unstructured data on the internet to provides metrics on ESG performance through the SASB lens of materiality through the Insight360 SASB Edition app on Thomson Reuters’ Eikon platform. To the extent investors start using these data in their investment decisions, companies will face the choice of letting this happen or provide the information themselves.

I want to close with a comment about the critical role played by the board of directors, as noted in number 8 above. When asked who should determine what is material, the group cited most often by those 582 institutional investors was the board of directors (64%). They were followed by the chief sustainability officer at 37% and the CEO at 32%. Tellingly, only 14% cited the CFO and head of investor relations, a strong indication that the market doesn’t believe people in these roles understand the link between sustainability and financial performance.

The board has the ultimate authority to determine the role of the corporation in society. Does it merely exist to satisfy short-term shareholders and activist hedge funds? Or does it have a broader purpose in society to create TSI for long-term TSR? The board of director’s annual statement is a good place to start. Two Swedish companies, Atlas Copco and Telia, are already doing so. It’s time for every other listed company to follow their lead.

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