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Review of the Impact Analysis Tools for corporations and banks by the UNEP FI

What if there was a tool that automatically analysed how any large corporation or investment portfolio impacts humans and the environment? The prototypes recently developed by the United Nations Environment Programme Finance Initiative (UNEP FI) are claimed to be among the frontrunners globally. Hereby we´ll provide an analytical look into the tools, pointing out their main strengths and weaknesses in their methodologies and usability.

The UNEP FI has recently published not just one but two impact analysis tools, one to assess banks´ and investors´ client and investee companies individually, another to analyse banks´ portfolios in their entirety. 
Previously, we have created following materials to better understand these tools: 

Figure 1. The review of the tools in a nutshell

The tools are mostly about (valuable) suggestions instead of (in-depth) analysis

Both tools focus on combining the specific economic activities of the companies with the needs in the specific countries that the companies are operating in. What you have to keep in mind as a user is that the more suitable name for the tools would be “the Impact Priority Suggestion Generators” instead of the current title “the Impact Analysis Tools”.

The built-in methodology of the tools directs their users´ attention in a straightforward manner: 

  • If you are undertaking a considerable economic activity A in a country B, then your impact focus should be on tackling the specific needs C and D that are related to human well-being and / or environment.” 
  • “As you need to focus on the societal needs C and D, evaluate your corresponding performance so far and describe any respective improvement plans.” 

Taking advantage of existing classifications and research, the tools save the users lots of time and resources while assuming the role of a demanding consultant. Instead of letting the users choose swiftly the impact topics that they perceive to be the most important ones, the tool steers them towards considering the sectors and countries where the users are undertaking their core operations that potentially have the biggest (positive and negative) impacts. 

For example:

  • If a company is growing grapes, the tool directs the company’s attention primarily to the core impacts like the use of water and energy together with the issue of pesticide use. 
  • If a bank is serving students, the tool invites the bank to consider its impacts on facilitating access to education (e.g., by student loans) as well as the accompanying risk of systemic debt burden.

The downside is that the suggestions provided by the tools may remain too general or prove to be even irrelevant for any specific company with a specific history operating in specific regions and utilizing specific technologies. 

  • The suggestions are very general. Each one of them consists of a few positive and negative aspects per each economic activity. For example, being reminded of the fact that serving high-income populations may create a risk of contributing to fiscal evasion and money laundering may prove to be advice far too generic to be perceived by most banks as helpful. 
  • The tools don’t help to capture the impacts of the areas of corporate social responsibility (CSR) that are not directly related to the typical impacts of the business sector and the perceived needs of the countries they operate in. For example, the companies systematically hiring people living with special needs or the banks contributing to advancing financial literacy may have a hard time to reflect such priorities in those tools.   
  • Similarly, the tools don’t enable demonstrating the CSR activities that may fall outside of the firm’s core business but may still be very impactful. For example, if an IT company supports STEM educational programs at schools or is engaged in advocacy related to bridging the digital divide, there is no easy way to include such impacts to the tools as the main priorities. 

Usability has its ups and downs

The tools have been developed as Excel files with interlinked worksheets. The structure and the questions of the forms that need to be filled in have been predefined and accompanied by lots of guidance. The general logic of the tools is easy to grasp as the user moves from one worksheet to the next one. The are a number of built-in graphs that automatically visualise some of the data and suggestions about setting the impact priorities.

Some of the raw data has already been prefilled (e.g. the interlinkages between the ISIC sectors and societal needs). Much of it still needs manual input, frequently involving preceding research and decision-making. It may have been very useful to develop a simple software prototype in parallel. As it stands, the Excel tables may look too complicated and time-consuming to fill in. 

Even if a user decides to concentrate only on a few economic sectors and geographical regions, working with the tool will definitely prove to be a time-consuming affair. As of now, the biggest constraint is the need to insert country needs, a task that may be well beyond the motivation and competence of many of the potential users. 

Examples of inconsistencies and issues to be solved

The UNEP FI has emphasized that the tools are the first prototypes of versions to come. When using the tools, the users may indeed start feeling frustrated by a number of inconsistencies and unclear aspects. 

While the tools do have a similar structure and methodology, there are a number of dissimilarities that cannot be explained only by the difference in the approaches (bottom-up as in the Corporate Tool or top-down as in the Portfolio Tool). For example, the Portfolio Tool skips the impact management capabilities section and the Corporate Tool misses the possibility to analyze the user´s impact by customer types. There are also some technical inconsistencies between the tools: in the Corporate Tool there is an option to amend values but not to add comments in the section of impact profiles, and vice versa.

There are a number of smaller methodological details that may start hindering filling the forms and interpreting the results in a comparable way. For example, a number of impact areas have been covered by more than one indicator (e.g., “Housing” and “Integrity & security of person”) on the worksheet “Country Need Scores” of the Corporate Tool. While the user must insert one single score per impact area, there is no guidance concerning the calculation formula in case the scores of different indicators that form one impact area differ. Simply calculating the average of two or three scores may lead to exceedingly imprecise results.

The criteria for achieving PI status

The final step before completing working on the Corporate Tool is the assignment of the Positive Impact (PI) status of the company as “PI”, “PI Transition” or “Not PI”. There are a few issues with the algorithm that may confuse the users.

  • Why does >50% of the revenue need to be generated in low income countries? Merely generating revenue in a country with low income does not automatically indicate any positive contribution to its society at large. Also, many of the serious challenges related to the Sustainable Development Goals (SDGs) are rarely limited to low income countries.
  • What about the companies belonging to the IFC Exclusion List who would like to use the tool to improve the impact management of their core business (e.g., companies engaged in 3518 – Nuclear electric power generation, transmission and distribution)? What are the conditions under which they would be welcome to use the tool? How would they be able report the progress related to their core business if it is automatically classified as “not PI”?

Hopefully most of those issues will be addressed in the updated versions, enabling the tools to fill their potential as the helpful guides for mapping, analyzing and improving the impact of banks and large companies.

If you need any help with your own impact targets and activities, do get in touch with us at info@storiesforimpact.com or using our contact form.

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