In Focus: Sustainable investing  

How to measure the S in ESG

How to measure the S in ESG
Photo: Kelly via Pexels

Recent high-profile voices suggest that we should not even attempt to measure the S in ESG.

This white-flag attitude is a perfect reflection of the adage: “What is not measured is not changed.”

But using the latest technology to measure portfolio social performance represents an increasingly affordable and integral part of needed environmental, social and governance investment valuation.

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As a former portfolio manager and financial market economist, I can understand the despair felt while searching for appropriate indicators of social measurement.

So much of what I did as a market economist was dependent on existing secondary data, mostly published by government agencies. The idea of gathering new data seemed both expensive and time-consuming. I know now that’s not so.

Relying on my two decades of social research work, I now collect primary survey data as a rule – all while using cheaper, more agile and more robust methods.

Technology forms the bedrock of these possibilities, helping us listen to portfolio company customers and the beneficiaries of impact more carefully and closely – we call this “tech-led listening.”

Using interactive voice recording, we collect open-ended feedback from beneficiaries directly and at scale. To analyse those client voices, automated speech-to-text  technology transcribes and translates the audio data before Natural Language Processing programs pull out key themes of what individuals are saying.

Sociolinguistics analysis then adds an extra layer of interpretation, providing valuable insights into how beneficiaries talk when providing feedback, generating valuable insight into the subtext behind the spoken word.

This tech-led approach allows us to affordably work across industries, countries and languages, creating a social measurement index that consistently measures each company against their own social impact model.

In this way, the impact can be compared or aggregated against all the companies in a single portfolio, providing a robust, yet agile social measurement indicator.

Most importantly, having a single approach to measurement allows important impact goals to be set, measured and discussed. This creates alignment both between the portfolio company and  investor, as well as internally in the company itself.

Beneficiaries, in fact, feel that this way of gaining impact measurement feedback makes them feel consulted, and not “researched,” which makes them feel respected by the company.

After all, language is a critical part of people’s lives – being encouraged to express oneself in one’s own language is an immediate form of empowerment, making even the process of impact measurement impactful itself.

Not lost in this process is the encouragement it gives the portfolio companies themselves as social entrepreneurs. They are often surprised by the type of impact they have.

Measuring the S in ESG empowers entrepreneurs and investors to understand their impact and be assured that they continue to move the needle towards social benefit, year by year.