Nov 30, 2021

Impact: Why ESG ratings are not enough

Impact goes: boom! If you’re looking for a more technical analysis of how we are measuring impact, this blog’s for you.


Impact: Why ESG ratings are not enough

A business is not just about money, but also about impact. It consumes natural resources, it pollutes – or invents stuff to protect the environment. It might treat its workers badly – or teach and train them. Environmental, social and governance activities of businesses change the world for good or worse. Here at Echo, we call this change ‘impact’.

You want to know what the impact of a company is? Then ask yourself: what would the world look like if the company did not exist in and act in the way it does? The change that comes about because, after all, the company does exist and act is its impact.

Five impact dimensions

At Echo, we don’t particularly care about firms’ financial impact (measured, for example, in terms of their sales and profits). That’s what the regular stock market is all about. Rather, we use impact as a short-cut for companies’ environmental, social and governance performance.

To be more precise, we measure impact in five different dimensions: environment, education, equality, health, and corporate citizenship. Of course there are other ways to categorize an organization’s impact (e.g. according to various frameworks for ESG ratings, which employ some variant of Environment, Social and Governance (ESG) indicators). Our five dimensions are tailor-made to capture the impact companies are most likely to have.

By the way: if you want to, you can also distinguish between the internal impact of companies (e.g., how they treat their employees) and their external impact. External impact is closely related to a firm’s business model – and tends to be much bigger than internal impact. An easy way to see why is to consider that companies tend to have more customers than employees. And they also affect the community they do business in.

The (bad) state of the art of measuring impact

At the moment, impact investments are based on ESG ratings. But there are no global common standards, results are inconsistent between rating agencies and it’s unclear if they can actually identify sustainable and ethical businesses – but the information provided by biased analyses or companies’ own reports prevail. This is why it is so difficult to really put your money where the impact is. It’s just so hard to come by reliable information.

We think that impact measurement needs to be more transparent, inclusive and objective. With our decentralized impact trading platform we want to make this a reality. Instead of listening to what some people decide in backroom meetings, we want to hear everybody’s voice. Your voice. Together, we are Echo.

Curious about Echo Impact Exchange?

Echo is a trading platform for impact rating. That’s right: you can rate companies’ impact by trading their impact certificates. Joining Echo is free for the time being and the profits you make from trading will become convertible to other currencies in 2023!

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