A Deep Dive on Positive Impacts: different views and interpretation challenges

The Core Debate: What Constitutes a Positive Impact?

The discussion around what constitutes a positive impact versus a mitigation effort reveals ongoing challenges for those starting the implementation of CSRD. While EFRAG sets a clear distinction—positive impacts should only be considered after all related negative impacts have been identified and mitigated—this definition does not fully resonate with all stakeholders.

Key perspective of ESG professionals:

Amanda Koefoed Simonsen , Founder of ESG & Corporate Sustainability Network, highlights the importance of distinguishing between impacts and actions during DMA. She explains that negative impacts result from a company’s actions within a reporting period, while mitigation efforts are not positive impacts but steps to reduce these negatives. Positive impacts should only be recognized after negative impacts have been fully identified and mitigated. Amanda warns against mistakenly classifying planned mitigation as positive impacts and stresses the need to assess the scale and scope of impacts objectively before prioritizing actions.

Phillip Blumenthal , Head of Sustainability at Code Gaia, emphasized during our CSRD Community brainstorm session, the importance of a clear and consistent definition of the value chain in sustainability reporting. This clarity helps differentiate between impacts that are within the value chain, which are the company’s responsibility to mitigate, and those outside of it, where new opportunities for positive impacts might arise. Mitigating a negative impact within the value chain should not be mistaken for a positive impact; instead, true positives come from actions that extend beyond the company’s existing responsibilities, such as convincing non-customers using fossil fuels to switch to renewable energy. Consistency in defining and applying the value chain across all impacts is crucial for accurate and transparent reporting.?

Luca Bonaccorsi , Sustainability Director at PwC and EFRAG expert, states that many companies incorrectly label actions like pollution control as positive impacts, though these are merely mitigations. While defining positive impacts is straightforward in environmental contexts, it’s more challenging in social areas, where mitigation efforts are often misclassified. EFRAG is working on a clear formula to distinguish positive impacts across both domains.?

Interpretative Challenge: Nettability of Impacts

There is a significant debate over whether positive and negative impacts can be netted against each other. EFRAG’s stance suggests they should not be netted; however, this can lead to confusion, especially when a company’s overall contribution to sustainability is positive despite certain negative aspects of its operations.

The general consensus is that mitigation efforts, especially those driven by regulatory requirements, should not be classified as positive impacts. However, this does not entirely address the complexities involved.

Meeting regulatory standards should be seen as a baseline, and anything above this could potentially be classified as a positive impact. However, this interpretation varies, leading to inconsistencies in how companies report and view their sustainability efforts.

For instance, Dinah A. Koehler, ScD mentions that pollution levels regulated by law often allow certain emissions, and companies that reduce these emissions may wonder if this could be seen as a positive impact.

The Debatable Understanding of Positive Impacts in Different Contexts

During regular Palau Project CSRD community roundtables, were discussed the following examples of positive impacts that could be considered such if analyzed on a deeper level:

1. Converting Non-Customers to Renewable Energy:

A company can create a potential positive impact by converting non-customers who currently use fossil fuels to customers who use renewable energy. This switch can lead to a reduction in emissions outside the company’s existing value chain.

2. Telecom Industry Example - Switching to Video Conferencing:

A telecom company that helps its customers shift from traveling (a high-impact activity) to using video conferencing (a lower-impact activity) can create a positive impact. This is especially true if the company was not previously involved in providing travel services, making the switch an introduction of a new, lower-impact service.

3. Biodiversity Enhancement Beyond Restoration:

When a company rehabilitates an area after environmental damage (e.g., mining) and goes beyond the original ecological baseline, enhancing biodiversity, this action can be considered a positive impact. For example, creating a more diverse habitat or introducing endangered species in the rehabilitated area.

4. Economic Impact in High-Unemployment Areas:

A company that invests in startups in an area with high economic concentration and unemployment can create a positive impact by reducing unemployment and diversifying economic activity. This is particularly significant if the company’s business model inherently contributes to these positive changes without being responsible for the initial negative conditions.

Yet, there were also examples of positive impacts that are not clear and depend a lot on the context and defined value chain:

1. Improving Working Conditions:

? Enhancing working conditions within a company raises questions about whether it constitutes a positive impact. If these improvements are merely addressing previously poor conditions, they might be better categorized as mitigating a negative rather than creating a positive impact. The distinction depends on whether the actions go beyond correcting past issues and instead set a new, higher standard of workplace practices.

2. Diversity and Inclusion Efforts:

? Efforts to improve diversity and inclusion, such as striving for gender balance in the workplace, are another example where the classification as a positive impact is debated. If these efforts are simply correcting an existing imbalance, like achieving a 50-50 gender ratio, they might be seen as mitigating a negative rather than creating a true positive impact. The challenge lies in determining whether these initiatives represent a significant advance or are just aligning with baseline expectations and regulations.

3. Training and Education of employees on ESG:

Education and awareness campaigns within a company can lead to actions that eventually result in positive impacts. However, these campaigns themselves are actions, not impacts. The actual impact is realized when these educational efforts translate into concrete initiatives that prevent or mitigate negative effects.

Conclusion and Last Remarks:

The ongoing debate about what truly counts as a positive impact in sustainability reporting really underscores how tricky this whole process can be. Some impacts, like improving working conditions or diversity efforts, are particularly debatable, and it’s hard to say if we’ll ever land on a one-size-fits-all definition of a positive impact. There are just too many variables and exceptions to consider.

This is where Carlota de Paula Coelho and Dr Victoria Hurth brought to my attention that defining and aligning with a clear purpose becomes essential. When a company’s purpose isn’t clearly understood, it becomes much harder to pin down what truly constitutes a positive impact. Without this clarity, there’s a risk that sustainability efforts could just end up being marketing spin or bragging about minor achievements rather than driving real, meaningful change.

Ultimately, nailing down a clear definition of your company’s purpose and value chain is what will help you distinguish between actions that simply mitigate issues and those that genuinely make a positive difference. It’s about ensuring that your purpose isn’t just a buzzword, but a real guiding principle that drives sustainable impact in everything you do.