Corporate Impact Management

Impact Assessment

 

Impact Assessment is an over-arching term which embraces a range of specialisms. Perhaps the best developed is the field of Environmental Impact Assessment (EIA) which has a basis in law in many parts of the world – particularly the USA & Europe. The advance of EIA has helped develop a range of related specialisms such as Health Impact Assessment (HIA), Equality Impact Assessment (EqIA), Socio-Economic Impact Assessment (SEIA), and Human Rights Impact Assessment (HRIA).

Much of work on Impact Assessment has been driven by the need to understand and regulate the impact of major construction projects and so there is a well-established EIA industry in this sector. However businesses of all sizes and from all industries have been developing related tools and processes for well over 30 years. During this time impact assessment has moved from being a specialised niche activity into the main-stream. While it is certain that most managers will not need detailed expertise in this field, they will need to understand basic concepts so as to protect against risk and demonstrate good practice.

Some of the key concepts in Impact Assessment include:

  • Causality, materiality & proportionality
  • Direct impacts, in-direct impacts, & cumulative impacts
  • Options appraisal & mitigation
  • Formal impact assessment processes
  • The future of impact management and reporting

 

Causality, materiality & proportionality

Causality is the simple fact that one event can cause another i.e. recognising that the actions of a business can lead to intended and unintended consequences. As such any business might have to accept some responsibility for causing changes to communities in which it operates. These might be changes to people or places or both. In some instances these changes might be almost entirely due to actions of the business. For example, the decision to build a new factory may lead to the clearance of land and the loss of natural habitat. In other instances the business might only be partly responsible for changes. For example, if a small business is forced to close because a large local business it supplied has recently closed; it seems unfair to hold the smaller business entirely responsible for further jobs losses and any later impact on its suppliers.

Considering who might be responsible for which change and to what degree is closely associated with the concept of ‘materiality’.  If one thought hard about all the possible impacts a business decision could have on different people and place, you could create a very long list! The principle of materiality can help you decide when to stop. An issue is only material to your decision making process if it clearly relates to the decision and is significant to you or the others that it effects. The exact point at which to draw a line is always a matter for debate and judgement. However, as a rule of thumb, if, in the first instance, your organisation’s role in any change seems minor; and the results of those changes are barely notable then the issue is unlikely to be material to your considerations.  As such you do not need to spend valuable time and other resources on further assessment – your energies should instead be focussed on more significant issues. In other words, your response and consideration of an issue should be proportionate to its materiality. The principles of materiality and proportionality are particularly important to Small and Medium-size Enterprises (SMEs). Such businesses would otherwise be regularly expending disproportionate resources assessing their impact on situations in which they have little influence.

 

Direct impacts, in-direct impacts, & cumulative impacts

A corporate impact can be thought of as a change in status of an aspect of the environment or a group in society as a result of a corporate body’s actions. Such, impacts can be immediate and directly affect some people or a part of the environment, and then have a secondary or ‘knock-on’ indirect impact on others. For example, if a company closes a manufacturing plant it may result in devastating consequences for some of the individuals who lose their jobs and their families. Such closures usually also have a significant effect on the local economy and the wider community. However, in the example above, if the factory was not well run and had been polluting the local environment its closure may benefit the local (and global) environment. While this is unlikely to be much comfort to those suffering the immediate effects of the closure, there may be longer-term benefits for the community. For example, if other local industries were dependent on resources from the natural environment – such as a local fishing fleet needing healthy breading populations of fish – then these industries might prosper through less pollution. There may even be a long-term overall (or cumulative) benefit for a community from an action that seems negative in the first instance. Understanding the complexities of interrelating impacts over-time – known as ‘cumulative impacts’ – is the highest level of impact assessment.

 

Options appraisal & mitigation

Impact assessment should ideally be used as a business tool to aid decision making. It is easy to see how it might be used after an event to understand the implications and accountabilities in a worsening situation. However it is most powerful if it is used throughout a planning process in order to help compare the impacts of different options. Obviously impacts need to be considered alongside other business priorities. But it would be foolish not to take them into account in some form at a time when design modifications could be made to reduce the potential risks associated with various possible impacts. It is hoped that through this approach the worse impacts can be designed out and some potential benefits enhanced prior to a projects implementation. However if significant impacts have been identified that cannot be eliminated for some reason then impact analysis also creates an opportunity to plan for other activities to mitigate negative impacts.

In order to address negative impacts a ‘mitigation’ hierarchy has been established:

  • Avoidance
  • Minimization
  • Abatement
  • Repair
  • Compensation

As can be seen from above the ideal option is to avoid negative impacts all together while in the worst case scenario compensation can be offered to those affected. The relative costs and benefits of these options can also be taken into account when assessing the suitability of various options.

 

Formal impact assessment processes

As mentioned earlier, impact assessment and particularly EIA have become established practices. As such there are now widely recognised principles and processes in place for practitioners to follow. When planning an impact assessment, no matter how basic, it should help you to know that most follow a simple six step format:

  • Screening – deciding if an assessment is needed
  • Scoping – deciding what it is important to consider within the assess
  • Impact identification – considering potential impacts and examining those deemed significant
  • Mitigation method – deciding how to tackle issues
  • Reporting – openly stating the issues still associated with your best option
  • Monitoring – comparing actual impacts with forecast impacts to identify further mitigation requirements

In reality the process is cyclical with brief passes through the early steps required to build up an outline picture of issues and options. As the options are narrowed down, more and more detailed analysis may be used to develop the final proposal. While the idea of such a process may seem daunting, it is important to remember that the resources expended on an assessment need only be proportionate to the project under consideration. It’s also worth considering that it would be far better to have even a brief assessment than no assessment.

 

The future of impact management and reporting

The likely results of a complex cocktail of short-term effects and longer-term outcomes can be challenging to understand. Regardless of these challenges, there is increasing pressure on organisations from all sectors to demonstrate they are giving due consideration to the consequences of their actions. The good news is that no-one is expecting perfect predictions of the future. But managers do need to be able to show that they have taken reasonable measures to think their actions through.

Pressure is building through:

  • Legislation
  • Customers
  • Social Investors
  • Commercial Investors
  • Pressure Groups
  • Public Expectations

A great deal of this pressure is being applied to larger corporation, for example the UK Government has created a legal requirement for quoted companies to report their annual greenhouse gas (GHG) emissions in their directors’ report. This obligation stems from the Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013. While it will only directly affect large corporations, this and other requirements are likely to be passed down the supply chain to smaller suppliers. As such, the outlook for the future is one of widespread and wide-ranging reporting regimes that your organisation may need to begin preparing for now.

 

 

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