I run a data company, and I’m often asked, when speaking to a new client, what our customers do differently because of the data.

The implication often seems to be:

Before they didn’t have the data, so they were doing one thing.

Now, they have the data, so presumably they’re doing another thing.

Of course, we have plenty of examples of concrete changes that clients have made when they get our data, as in:

A solar home system company learned that a huge proportion of customers were experiencing product defects and poor after-sales support…so the company reinvented after-sales support and addressed the issue, and saw massive improvements in both customer satisfaction and social impact metrics.

But the more nuanced answer is this: the immediate actions companies and funds take, when we get them new data, are largely focused on the biggest, most surprising, or most troubling findings—the headlines.

Beyond that, what the data allow them to do is to ask a new and better set of questions.

The Path from Ignorance to Clarity is Not Flat

Our misconception is that we think we can go directly from ignorance to clarity (the drawing on the left).

In reality, for any topic that matters, as we learn more we embark on a journey. Over time, we will climb a mountain of increased complexity—with new insight, new inquiry, new investigation—until ultimately, after a great deal of focused attention, we begin seeing the world more clearly and, ultimately, arrive at deeper understanding and the simplicity that we seek.

Social and Environmental Impact Measurement Isn’t Simple, Yet

I often hear the concern, in conversations about social impact measurement and ESG, that “this social and environmental stuff is all awfully complex, isn’t it?”

This effective defense mechanism communicates, “I’m all for measuring my social impact, it’s just that it’s too much right now. Once it’s simplified, I’ll get on board and take it seriously.”

And yet, the person finding social impact measurement or ESG too complex is the same person who undoubtedly manages tremendous complexity in other areas of their professional life. Why, even the most simplified presentation of an income statement, cashflow and balance sheet is mystifying to most folks. Just look at this:

So the question isn’t whether something is simple or complex. The question is whether a domain is important enough to merit sustained time, effort, and spirit of inquiry to scale the Peaks of Complexity.

Coming back to social and environmental impact, my take is that the trillions of dollars flowing into ESG, and the pressure on brands to differentiate themselves for their social and environmental stewardship, speak for themselves.

The question isn’t whether sophisticated data and a nuanced understanding are needed.

The question is who will start on this journey first, thereby establishing an insurmountable lead on those who are happy to dawdle at the base of the mountain, in search of a way around or through.

It also helps to remember that a desire for quick and easy answers is nothing new. If anything, it is a normal and natural outgrowth of the beginning of every journey. If we’ve never walked a path before, we’ve no idea what it’s going to be like: we don’t know how high the mountain goes, how much jungle we’ll have to hack through, whether bad weather will come our way.

But the unavoidable, optimistic truth is that, should we walk this path we will, inevitably, arrive at better questions, deeper insight and, ultimately, the simplicity we are seeking.

You’d think, in 2022, that the answer to this question would be simple enough to discover, but it’s not.

Most labels on the food we buy—coffee, chocolate, fruits & vegetables—focus on environmental practices. They ignore the well-being of the more than 1 billion farmers who put food on OUR tables.

This is why, even if I’m paying $20 a pound for coffee, I still have no idea if the farmer who cultivated and picked my coffee can put food on HIS table.

That might be surprising. Shouldn’t someone have figured this out by now?

Unfortunately, we’re stuck with a food labeling system that prioritizes farming practices (“is the fertilizer organic?”) over farmers (“how much of my $20/pound actually goes to the farmer, and is it enough?”)

The good news, you might think, is that ESG (“Environment, Social and Governance”) is coming to the rescue. After all, capital invested in ESG increased 10-fold from 2018 to 2020. Bloomberg estimates it could be a $54 trillion market — 1/3 of all capital invested globally — by 2025. Surely this means that the market is coming to the rescue to solve this massive inequity.

Not so fast. As my colleagues and I shared in an article we published last week in Stanford Social Innovation Review, there are two massive problems with ESG. These problems could undercut everything good that might have come from this movement:

If it doesn’t matter to shareholders, it doesn’t matter. Standards bodies have agreed that the only things that are relevant to rating the ESG performance of a company are things that affect returns to shareholders.
We should probably call it “EG investing,” because the S doesn’t exist. That’s very bad news for farmers, for employees, for communities.

If it doesn’t matter to shareholders, it doesn’t matter.

This is by far the most surprising thing about how ESG has been defined.

You’d think the notion was: “environment, social and governance factors are inherently important. That’s what makes this different!”

But instead it is: “we’ll figure out which of these things might impact shareholder return and report on those only. Nothing else matters.”

The impact of this decision is that, as we say in our article:

“…there are many companies that are mistreating workers and worsening health outcomes—doing obvious harm to society by improving their bottom line—while still garnering top ESG ratings. How else could one explain the fact that British American Tobacco has been part of the Dow Jones Sustainability Index for the past 20 years, garnering top scores along the way.”

This is the core of the ESG mirage as it exists today.

We should probably call it “EG investing,” because the S doesn’t exist.

My hope is that this is a function of time. The initial thrust of EG investing was the Environment, so that’s where we started. Corporate Governance, which is relatively easy to define and quantify, can come along for the ride.

But if we don’t make a fuss about the missing S, it will never get a seat at the table.

And this is not a small technicality.

Two billion or more people grow the food we eat, produce the clothes we wear, assemble the electronics that power our lives.

And, a generational shift is taking place in how we think about investment capital.

Yet this shift, from day 1, is largely ignoring the well-being of these 2 billion people.

That is one of the biggest missed opportunities the world has ever seen.

We propose a number of ways to fix this in our article, perhaps the simplest one is this:

We should return to having separate categories and frameworks for E, S, and G. Currently, companies focused on E or G but neutral or even negative on S can get a high aggregate ESG rating. This incorrectly implies that they perform well on all three. Separate rankings on environmental, social, and governance factors should be clearly distinguished so that both companies and investment funds could be selected and evaluated based on their performance on individual dimensions.

This way, at least, we can avoid the biggest risk of all: the illusion that we are solving a problem, instead of just papering it over.

Coming Back to Our Farmer

The first step to addressing any problem is to see the problem clearly.

The second is to gather the data you need to start fixing the problem.

My company, 60 Decibels, is working to do just this. We want to make it as easy as possible to collect, understand, and compare data on farmer well-being, and then make these data as transparent as possible for consumers.

If this might interest you or someone you know, here are two ways you can help:

If you know of specific, progressive companies that are treating farmers well and need better data to tell that story, please let me know, please email me to let me know, I’d love to talk to them.
If you have ideas about how to raise awareness, to consumers, about the importance of this issue and the need for more transparency, I’d also love to hear about that.

By now we’ve all learned about the interconnectedness of our world: our health, our supply chains, our markets, are all deeply intertwined.

Imagine if we could, bit by bit, find the leverage points that would shift how these markets work and, in so doing, unleash more prosperity and well-being for billions of people around the world.

That’s what I’m working towards, and I’d love your ideas about how to make that happen.