Advancements in Measuring Workforce and Human Capital Impact

Increasing evidence demonstrates that a focus on building a sustainable workforce can deliver both financial and socioeconomic impact. As the compliance landscape continues to evolve, including new CSRD (Corporate Sustainability Reporting Directive) regulations, standardizing the measurement of each component of environmental, social, and governance (ESG) will be fundamental to managing and reporting impact performance. Although disclosure requirements are growing, technical limitations remain a concern for many companies in how impacts, human capital & workforce in particular, are measured. Lunum aims to solve these technical limitations by standardizing workforce impact.??

Measuring & monetizing impact differs from traditional measurement of initiatives in that it looks beyond input, outputs, and business activities. It seeks, instead, to understand the financial value of the outcomes derived from a business activity or initiative. This value may be positive or negative. Once impact is understood, it can be used as a tool to evaluate whether an approach was successful or if opportunity for improvement exists.??

This paper summarizes the initial findings of our analytical approach, informed by our extensive research and development process. To strengthen key foundations of impact management, we set out to uncover alternative views and opportunities for strategic data-driven decision making.??

During this process we identified three common challenges facing companies today:?

• Reporting Complexity: Companies struggle with diverse reporting standards, navigating social metrics, and managing overwhelming data requests and they do not have the in-house expertise to address these requirements.??
• Data Incomparability: Variations in industry, location, and calculation methodologies lead to incomparable impact data, limiting meaningful comparisons and increase reputational risk.??
• Interaction with Ratings Agencies: Lack of transparency from reporting agencies restricts effective utilization of impact data, undermining performance evaluation.?

Our Approach?

Lunum has built an analytics engine, Brightstar, that transforms workforce data into workforce impact scorecards in the dimensions of wage quality, diversity, opportunity, and positive economic job creation. The core of this engine was developed by adapting and operationalizing the International Foundation for Valuing Impacts (IFVI)s Impact Accounting methodology, originated at Harvard Business School, which monetizes the aforementioned impact dimensions. We then procured workforce data from every company in the Russell 1000 Index across 11 sectors and 70 industries.??

Results & Learnings?

Lunum measured the Total Employment Impact per Employee for all companies and sectors (Effectiveness). We then calculated a throughput ratio of this value divided by the average wage paid (Efficiency).?

Our analysis uncovered the following meaningful insights:??

• There are clear gaps between sector performances with the largest opportunity for improvement in the Consumer Discretionary sector of the Russell 1000. (see figure 1)?
• Relative performance benchmarking is necessary as the primary methodology to evaluate impact performance, due to its capacity to contextualize metrics across complex frameworks of diverse industries and corporations. (see figure 2)??
• Alternatively, the use of absolute measures to assess impact performance faces inherent limitations, impeding meaningful comparisons and making evaluative judgments questionable.??

Related to our finding on industry-specific benchmarks, consider the example reduction of carbon emissions: while a fixed reduction may appear commendable for a technology firm, it may inadequately reflect the complexities inherent in mitigating emissions for a heavy manufacturing entity operating within a carbon-intensive sector. Such disparities underscore the necessity of considering industry-specific challenges and benchmarks. Moreover, absolute measures neglect critical determinants such as company size, geographical variations, and sectoral impacts, thereby obscuring nuanced evaluations. By contrast, relative performance benchmarking facilitates a rigorous comparative analysis, enabling stakeholders to delineate sustainability progress within the appropriate context of industry peers and established standards, thereby advancing more accurate and insightful assessments of impact performance.?

Looking Ahead?

Measuring impact is not just about setting standards; it is the tool for transformation to turn the intangible into the undeniable when it comes to sustainable workforces that bring about the financial ROI for all stakeholders. Partner with Lunum to illuminate opportunity within your organization and throughout your supply chain.??

About Lunum??

Lunum helps companies put a value on their values by understanding how complex supply chains impact individuals, economies, and communities. We use data to help companies realize a return on investment in people and communities and recognize how their practices can have a positive impact on the world.??

Interested in knowing where your company ranks in your industry, please reach out to us at [email protected]!

www.lunum.io and follow our journey on LinkedIn