Every company has positive and negative economic, social, and environmental e ects on the world. We refer to the aggregate of these as its total societal impact. TSI is a collection of measures and assessments, not a single metric. Companies should use TSI to help shape strategy.
A company’s TSI includes the impact of its products and services, its operations, and its corporate social responsibility initiatives. It also includes the result of explicit decisions the company makes to adjust its core business to create positive societal benefits. Activities related to TSI often have a material impact on total shareholder return (TSR)—but not always.
TSI encompasses numerous elements. Examples include:
- The intrinsic bene t to society of a product or service (a drug that saves lives, for instance, or a bank loan that enables a farmer to buy a plow)
- Business practices, including strict adherence to ethical business rules and inclusive hiring policies, that directly or indirectly affect societies in the countries and communities where the company operates
- The jobs created as a result of the materials a company purchases and services associated with the company’s supply chain
- The impact on the environment—both negative (such as the environmental footprint of operations) and positive (such as innovations that reduce pollution)
Impact is not an easy thing to measure. It is topic- and industry-specific and o en requires data from outside the company. Many companies measure the outcomes of their efforts—but have difficulty measuring the ultimate societal impact. In the case of efforts aimed at expanding financial inclusion for women, for example, it may be fairly easy to measure an outcome, such as the number of women who join the banking system. The impact, on the other hand, which may be a decrease in gender income inequality, may be more difficult to measure.
No doubt, companies will make progress in identifying and tracking impact in the future. The objective, however, is not to come up with a single metric like TSR but to understand how a company’s actions connect to impact and to adjust strategy to maximize TSI for the benefit of TSR.