Alliance Manchester Business School - AMBS
Article By
Tera Allas

Tera Allas

Director of Research and Economics in McKinsey’s UK and Ireland Office

Measuring Good

Businesses have great potential to improve environmental and social outcomes.

When we talk about business and management as a force for good, my starting point would be to ask, ‘what do we actually mean by good?’

Ask an academic that question and you may get a million and one different replies, so I think the better way forward for companies is to listen instead to their customers, employees and community so that they can define good in a human-centric way, not as some kind of abstract construct.

There are eight billion people on the planet, so the simple starting point for any business is to ask how their activities are impacting on these three groups. What is the effect of consumers buying your products? Are we providing good quality jobs for our employees? Are we having a positive impact on our local community and the environment, and do we create a sense of pride?

Businesses need to do this in a forward-looking manner, also answering tricky questions about their impact on future generations’ lives and livelihoods. It is no good simply doing this exercise once and then sitting back. Once the exercise is completed for the first time, a business needs to prioritise the things that have the most impact and then constantly act on and track them.

Sense of purpose

The cynic in me could say that many businesses are only engaged with this agenda because they think shareholders want or need it, or out of compliance.

Some businesses are probably in that camp. But just as many are genuinely engaged because they know a lot of the actions involved in improving a company’s environmental and social footprint are win-wins. They know that if they want to survive and still be around in 30 years then they need to do far more than just watch the bottom line. The sense of purpose and doing good has to run throughout the organisation and be embedded in their culture.

In recent years businesses have actually learnt a lot from the journey they are on to understand and mitigate climate change, and I am genuinely heartened by the actions many companies have taken to reduce their greenhouse gas emissions. They now need to devote the same amount of energy towards looking at other ways their actions impact people, today and in the future.

Take a child born in 2022. What is the most predictive factor of that child’s wellbeing in 30 years’ time? The answer, you might be surprised to hear, is their mother’s mental health. And what determines the mother’s health? Many, many factors go into this, some of which are genetic. However, one of the big determinants, if she is in employment, is who she is working for, whether she is stressed out or happy in her job, and whether she has a good relationship with her boss.

Just telling someone to do something different does not necessarily result in them doing it.


So now that companies know who to talk to, how do they actually go about measuring doing good? What are the actual mechanisms through which they can make the world a better place?

Words are not enough here. Just telling someone to do something different does not necessarily result in them doing it. There has to be an intrinsic motivation to change behaviours.

ESG (Environmental, Social, Governance) metrics are certainly gaining popularity right now. But to be frank, I see a lot of businesses getting caught up in measuring these items, rather than acting on them.

There is a rush to prove that they have great ESG credentials, but too often businesses are just measuring what they can measure without reference to what really matters. Answering “what matters” is of course not straightforward. But philosophers, academics, economists, and many others, have a lot of solid conceptual as well as empirical thinking to offer here.

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Bigger picture

Are businesses therefore in danger of missing the bigger picture? For instance, measuring workplace accidents is all well and good, but I would argue that, for society at large, measuring the effect of the workplace on employee mental health has a far greater impact on overall wellbeing. 

For example, according to the UK’s Health and Safety Executive, there were a total of 142 fatal injuries at work in 2020/21. In contrast, almost a million people suffered from work-related stress. And these figures are probably underestimates. In a recent Understanding Society study 46% of people said their work had made them feel tense, worried, uneasy, gloomy, miserable, or depressed at least some of the time. In other words, in the modern workplace, work is making many more people mentally unwell than physically sick.

Companies need to find out what metrics they are missing and be more rigorous when deciding which ones to choose. The UN’s Sustainable Development Goals (SDGs) can provide a useful starting point here, but there are other useful frameworks, such as from the OECD or SASB (Sustainability Accounting Standards Board). However, in my view, none of these put enough emphasis on mental health which is, after all, the biggest driver of people’s overall satisfaction with their lives. Indeed, the literature on wellbeing and life satisfaction is another great source of quantitative evidence on “what matters” to humans.

We are still very much at the beginning of this ‘doing good’ journey and deciphering which metrics are most relevant. I can safely predict that in years to come we will see the emergence of a huge industry, driven by investors and stakeholders, around modernising audits and transparency statements in order to verify that businesses are doing what they say they are doing. As these developments take place, we will all collectively get better at understanding and measuring businesses’ social impact.

What really matters

Businesses are at the heart of sustainable, inclusive growth. They make a huge contribution to peoples’ lives – through their products and services, through employment and incomes, and by acting as anchors in local communities. They also have great potential to improve broader environmental and social outcomes, while still creating value to shareholders.

But to do so, they need to get clear on what really matters and to avoid getting tangled up in a thicket of metrics. Instead, they need to quantify and prioritise the most important impact pathways, and then take decisive action on these.

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