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Capturing impacts of companies in a consistent, comparable way is at the essence of Impact Institute’s methodological core. This would not be possible without the concept of “Impact Pathways”. They lay the foundation for how we measure and value impacts. Impact Pathways are a systematic approach to identifying and assessing company activities, to evaluating their impact, and they provide a reliable framework to reach data-backed conclusions. This article further explains what Impact Pathways are, what their different elements mean and why they are important. 

Every action comes with its impact. Be it going out for dinner or approving a loan for the opening of a new business. As you can imagine, the impact of a bank approving a loan is much larger than the impact associated with an individual’s dinner out. With complex value chains and large-scale activities, corporate activities are bound to have significant consequences. For this reason, awareness of the different aspects of corporate activities and their consequences is highly important. A good way to take impact information into account is by implementing Impact Pathways.  

Impact Pathways are a systematic methodology designed to unravel activities’ effects. What are the positive effects stemming from the activity, and for whom are they positive? In contrast, what are the negative effects caused by the activity and whom do they concern? By following the four steps of an Impact Pathway, your company will get a 360° view of your activities and their impacts.  

Understanding impacts is the key to understanding the world.  

What is an Impact Pathway? 

An Impact Pathway is a technique for thoroughly outlining corporate activities and assessing their effects. The goal is to evaluate the impact of the activity, in other words, the activity’s effects on society and on the environment. To follow an Impact Pathway, we must pass through four steps:  

1. Define the corporate activities and mapping out their inputs and outputs 
2. Determine the activity outcomes
3. Carry out steps 1 and 2 for a reference activity 
4. Compare the activity to the reference to determine impact  

Before we look at an example demonstrating how to apply an Impact Pathway, let us elaborate on each of these four steps a bit further. 

Impact Pathway diagram

In the first step, we list activities, their inputs, and their outputs. By activity we mean anything that the company does, creates, or delivers. We can choose to look at many activities, or only at one. Inputs are all things necessary for the activity to take place. Inputs can be tangible, like raw materials, or intangible, like employee time. Lastly, outputs refer to the immediate results yielded by the activity. If our activity is a production process, then the product is the output. 

In step two, we identify the activity outcomes. Outcomes are the effects that the activity has on valuables of stakeholders. Let’s break this definition down. A stakeholder is every individual or group for whom the company or its activities can be of concern. A valuable is anything important for stakeholders. For example, human wellbeing is a valuable for employees, so the effect that a company has on human wellbeing is an outcome.    

In step three, we select a reference activity and repeat steps one and two for this reference scenario. Reference activity is an activity that would otherwise have occurred in the chosen timeframe had the organisation not undertaken the actual activity. It is what the organisation’s activity is compared to. There are two types of reference activities/scenarios: the organisation’s activity is compared to no activity (‘absolute reference’), or the organisation’s activity is compared to a reasonable alternative (‘marginal reference’). Much like a control group in an experiment, a reference is an alternative we compare our activity to. Specifically, it is an alternative that would have occurred in the chosen timeframe had our activity not taken place. Let’s imagine that our company’s activity is generation of solar power. For our reference, we could choose to compare the activity to generation of wind power, we could compare the activity to grey energy generation, or even to no energy generation at all. The reference scenario we pick can differ based on the situation and needs of our case.  

The last and fourth step is determining impact. We now have lists of inputs, activities, and outputs for our activity and for our reference. We also identified the outputs for our activity and for our reference. In most cases, the activity and reference outputs will differ from each other. The difference between them indicates the activity impact. Let’s say an activity of paying farmers premiums for collaborating with a company is compared to paying farmers no premiums. The output of paying premiums is an increase in farmer financial wellbeing, while the output of not paying premiums is no change in financial wellbeing. Based on these two outputs, we conclude that paying premiums to farmers has a positive impact on farmer financial wellbeing. Once we know our impact, we know where we need to improve as a company.  

Example case: Impact Pathway for Schneatzel Inc.   

Let us illustrate the Impact Pathway using a hypothetical company, Schneatzel Inc. As a manufacturer of soy-based alternatives to meat, Schneatzel Inc. aims to make good food for people using ingredients which are good for the planet. Schneatzel Inc. would like to assess whether the use of soy in its products yields a lower environmental impact than similar products made of meat do. 

To help Schneatzel Inc. do so, we follow an Impact Pathway focusing on Schneatzel Inc.’s activities. In line with Schneatzel Inc.’s interest, we decide to look at the market average of companies in the meat production industry as our reference.  

We embark on the Impact Pathway by looking at inputs, activities, and outputs. Schneatzel Inc.’s activities are processing of soy, production of soy products, packaging of products, and employment of staff. Inputs necessary for these activities are ingredients (soy, spices, etc.), resources to grow the ingredients (water, pesticides, land, etc.), means of getting the ingredients and processing them (transportation, machinery, employee time, etc.), and the like. Among Schneatzel Inc.’s outputs, we list the soy products themselves, soy leftovers, employee salaries, and emissions and waste generated during production.  

Next, we turn our attention to the reference. As per Schneatzel Inc.’s request, our reference is the production of meat products. The reference activities include the processing of the meat, packaging, and employment of staff. The inputs necessary are growth of livestock (land use, water, feed, time, etc.), means of obtaining the meat (slaughter of livestock, machinery, transportation, etc.), employee time, and more. Some of the outputs are the meat products, employee salaries, emissions, etc. Just like Schneatzel Inc., meat production outcomes are emissions, land use, providing consumers with food and contributing to a good diet.  

Meat and soy are expected to have very different impacts.

If we compare Schneatzel Inc.’s outputs with the reference outputs, however, we can see that land use and emissions generated by soy products are lower than those of meat products. The products are comparable with regards to nutritional and health value. We can therefore conclude Schneatzel Inc.’s soy product production has a positive impact.   

Now to the real case: are you ready to embark on your Impact Pathway?  

We have looked at the logic, steps, and benefits of Impact Pathways, and saw how they can be used to assess impact. Identifying and assessing impacts requires a thorough and systematic analysis of inputs, of corporate activities, of their outputs and outcomes, and of a reference scenario. While this process may seem complicated at first, our fictional corporate friends at Schneatzel Inc. demonstrated that it is not too difficult to understand, and that it is worth it.  

If Impact Pathways still sound daunting, never fear. The most knowledgeable experts about your Impact Pathways are the people in your company! Once you get started on your Impact Pathway analysis, you will see that progress is easier than it seems. If you come across obstacles, don’t despair, they are part of the journey and we are here to help. Our top-tier research and advisory teams are ready to help companies like yours in assessing impact and improving.  

Intrigued by our methodology and want to learn more? Being ‘Impact-Pathway-based’ is one of the ten key principles we follow within our Impact-Weighted Accounts Framework (short: IWAF), which sits at the core of our methodology at Impact Institute. IWAF provides key concepts, requirements, and guidance for the quantitative assessment of impacts of organisations. Published by the Impact Economy Foundation (IEF), IWAF has and is being developed in partnership with the Impact-Weighted Accounts Project from Harvard Business School (HBS), Singapore Management University (SMU), Rotterdam School of Management (Erasmus) and Impact Institute.