How Measuring Impact Can Facilitate Responsible Businesses

Impact measurement, often seen as a task of quantifying a company’s social, environmental, and economic effects, is much more than a regulatory compliance or a CSR checklist. It's a powerful tool that responsible businesses can employ to gain a deeper understanding of their operations, uncover areas of improvement, and communicate their commitment to societal and environmental betterment in a transparent manner.

I had a chance to talk to Slav Dunaev, a long-term IT professional, CTO, and co-founder of  Impactful, an analytics platform for measuring impact, and Opinions.fyi, a tool for discovering context-specific content. Throughout his career, Slav has worked as a software engineer at a leading IT company, headed technically challenging and high-traffic projects, and played a pivotal role in building educational services from the ground up.

Currently, he is developing a digital platform aimed at quantifying and articulating the impacts businesses have on the environment and society. In our insightful discussion, Slav generously shared his perspectives and expertise on these subjects.

Slav, could you please share how your IT journey began and how it led to the creation of Impactful?

Initially, my education began at a physics and mathematics school, followed by studying applied mathematics, physics, and information technology at the university. As a result, I started programming during my university years. Subsequently, I enrolled in the Yandex School of Data Analysis, a top-tier institution preparing data scientists and data analysts,

and then naturally transitioned to Yandex as a software engineer. There, a lengthy developmental journey unfolded before me, both as a developer and a tech lead.

By that time, I had contemplated extensively on the domains where new technologies should be applied, and also pondered on social issues and impact. Hence, I realized the importance of education, and as soon as Yandex launched educational services, I transitioned to that new team and assumed a technical leadership role. Initially, our team was small with only a few experienced individuals, so I was involved in various aspects — technical, architectural, team recruitment, and process establishment.

This experience was enlightening and interesting, yet I constantly yearned for something more, an eagerness to influence the unfolding events. Particularly, I became intrigued with the social responsibility of businesses. Large corporations like Tesla, Amazon, BMW, and Yandex, annually invest efforts to create extensive ESG reports, showcasing their contributions towards sustainability. They highlight their energy savings, tree plantation initiatives, recruitment from vulnerable communities, etc.

On the one hand, it demonstrates corporate responsibility, but on the other, it brings about a trust issue with such reports due to a lack of transparency and verifiability. Moreover, these reports are usually complex to decipher, and I believe, an average consumer of these companies wouldn't delve into these hundred-page annual reports.

Another concern is that these affluent companies have the resources to maintain dedicated teams for handling this manual reporting work, a luxury most organizations can't afford. This scenario affirmed our belief that the existing tools were lagging, inspiring us to create Impactful.

Eventually, alongside my role at Yandex, I began working on this project with a co-founder. However, about a year in, I realized that to achieve significant results, a full-time dedication was imperative. Thus, I parted ways with Yandex and immersed myself completely in our startup.

Could you tell us more about how this shift toward the philosophy of impact came about? What hurdles are encountered along the way?

Generally, humanity realized a few decades ago the necessity of evaluating our impact on the environment and society. We live in a capitalist society with industrial production, where people manufacture goods, build factories, and develop industries. Over time, the repercussions became apparent—pollution of the environment, adverse social phenomena, workers dying from hazardous working conditions, polluted rivers, desiccated land regions, and so on.

Initially, on a governmental or supra-governmental level, efforts were made to embark on large, expensive, and long-term projects to evaluate the impact of various human interventions on ecological and social conditions. Over time, investor interests gravitated towards these issues, giving rise to the ESG (Environmental, Social, and Corporate Governance) concept that supports businesses aligning with the United Nations’ sustainable development goals.

Hence, businesses began to be evaluated by investors, including major ones, based on their adherence to these criteria, affecting their investment in these companies. I’d say, this trend towards assessing impact emerged a couple of decades ago, and it's been growing quite rapidly ever since.

However, we’ve noticed that the impact assessment tools are barely evolving; decades pass, but the approaches remain the same. Processes in the ESG sector are mostly non-dynamic, non-digitized, labor-intensive, expensive, and complex to comprehend. This might suit large corporations or large governmental or supra-governmental projects.

But the reality is that a significant part of the impact on our environment is made in our daily lives by businesses and individual actions. For instance, one can agree with sustainable development goals and yet shop daily at a local chain store, which generates tons of waste and sells non-ecological products—spending money on services that harm the environment daily.

For these daily processes, which indeed create the core effect, there are no suitable tools yet. Everything discussed earlier is very complex, expert-driven, and expensive. We realized there's no suitable tool for small businesses wanting to stand out by elevating their processes and products to a high level of eco-friendliness concerning both the environment and society.

And it's not just about businesses—the number of responsible consumers is also increasing. Additionally, as I mentioned, there are more and more investors who don’t want to invest, for instance, in coal or a tech company that employs child labor in African mines for mineral extraction, and so on.

How do you address the issue that often, businesses are reluctant to become more responsible and eco-friendly—since it's more expensive, requires reporting, introducing separate metrics, to put it briefly, it's always cheaper to stick to the old ways rather than implement innovations?

One of the goals of our approach is to reduce the cost of this transition. We know that there are already businesses that want to operate sustainably, even though currently, it's indeed more expensive. But the reality is that it's only more expensive now because others are footing the bill. In other words, if a business has many negative impacts, they aren't without cost. It's just that the same consumers end up paying for it indirectly through a long feedback loop.

For instance, if a business pollutes the environment, over time, the pollution levels reach a point where people start falling ill, and healthcare costs rise. There might even be a costly government program later on attempting to clean up the environment, but once again, the same consumers are the ones paying. And in the end, this turns out to be more expensive for everyone.

So, what's our aim? We want to provide these responsible businesses with an accessible tool. In a way, it's a marketing tool that will help them demonstrate: look, irresponsible businesses do it this way, and it actually costs everyone more. It’s true that our business is slightly more costly in its operations, our cup of coffee costs $3.30 instead of $3. Here's our scheme, here are our calculations, here are our bills. Please pay us these extra 30 cents, whether you're a customer or an investor because in doing so, you'll actually save and not spend an additional $2 on healthcare in the future.

We believe that when this kind of information becomes available and transparent, and easy to perceive, it will begin to affect public opinion. Which includes creating pressure on unethical businesses to stop producing unethical products and generating these hidden costs.

Right now, for an ethical business to be more competitive, it needs to somehow convey this value to consumers. This is gradually happening, just everyone is doing it in their own way. There are loads of brands, like Patagonia for instance —a well-known brand that makes cool, but quite expensive clothing from recycled materials. They do everything sustainably, and those who buy their products know what they are paying for. This is especially popular among affluent middle-class individuals in the US and Europe.

Can you elaborate on the concept of your product?

At this stage, we have a concept, pilot implementations, and we aim to evolve all these into a functioning digital platform.

Within the impact assessment methodologies I mentioned, there are many useful tools. Specifically, there's a tool called Theory of Change. It allows any organization, or any process of goods or service production, to sketch out a scheme comprising columns, representing the flow of the company’s activities from left to right. For instance, on the left, there are available resources. Then there are actions performed with these resources. Next is the so-called outputs—the direct results of actions. The fourth column is outcomes—some results of direct outputs. And the final, fifth column is impacts, the long-term results these outcomes lead to.

Currently, this approach, this model of Theory of Change, is used in social entrepreneurship for evaluating projects in the NGO sector. This scheme enables any organization to describe their practical processes with this accounting model. It’s called an accounting model because one can clearly state the amount of resources coming in and calculate the efficiency of all processes because it’s visible how many outputs we get per ton of input, like wood, and from these outputs, we get certain products—outcomes—and all of these lead to specific long-term impacts in the end.

So, we are taking this approach and transforming it into a dynamic product akin to Google Analytics or something similar, with which one could link the company processes to this scheme and dynamically update it.

Another innovation we propose is to enhance transparency by adding figures and calculations that will dynamically display the results of the company’s activities. The idea is to make these schemes public. Thus, a company can easily convey the value, convey the impacts of its activities in a comprehensible language, including the difference in how its product and process differentiate from competitors.

What does it look like from the consumer's perspective?

In the basic version, a consumer will be able to visit public pages of companies and vividly see the impact that the company is making. Let's say there's a hypothetical coffee shop claiming to conduct certain processes in an eco-friendly manner. So, the consumer can go to its public page and see that, for instance, they sold 10,000 coffee cups over the year. But, instead of generating two tons of trash like everyone else, they opted for slightly more expensive cups and later recycled them into fertilizer.

This way, the information becomes public and people will understand, first, what they paid the extra 30 cents for, and second, that other companies don't do this. Responsible consumers will go to another coffee shop and inquire whether their cups are disposable or are they recycling? This will create the necessary pressure from the market side.

Secondly, it can be arranged so that when a consumer comes to the coffee shop, their receipt or the cup could have, for example, a QR code, which when scanned, would show the impact calculated specifically for their purchase. You come in, buy a coffee cup, and you are given a receipt or the QR code printed directly on the cup. You paid these extra 30 cents, but now instead of trash somewhere in a ravine, there will be a flower bed with fertilizer, and this will improve the relationship with this brand and worsen the attitude towards brands that don't do any of this.

Any company that understands that it's investing additional efforts and resources to make a process more ethical, more eco-friendly, should be interested in such transparency, as it helps them compete in the market.

As we all well know, the impact can be negative as well, and there might be consequences from a business's operations that the business wouldn't want to showcase. How do you deal with that?

Yes, that's true, and it's precisely what is happening now. Meaning, responsible companies talk about how good they are, how many trees they've planted, what initiatives they've undertaken, but don't really disclose where they fell short. That is, any, even somewhat responsible production can and will have negative sides. Of course, our tool is unlikely to change this directly.

However, we believe that a certain social process should emerge, in which companies would want to talk more openly about their positive sides. They will do this much more publicly than they do now. And this information will be available to the public, to buyers, to clients, to investors, to journalists. This will create pressure on companies, basically, to not lie too much.

The bigger goal is to create an open discussion among entrepreneurs, consumers, and investors about all this, so it becomes a norm to talk about how exactly various products or services are produced, to talk about the good sides and try not to lie too much about the bad ones.

For instance, if I have a company, I want to talk about the good part and don’t want to talk about the bad, like I treat workers well, but dispose of chemicals poorly. I might not disclose this, but my competitors, who know that they spend money on chemical disposal, may talk about it in their communications. In this case, if I haven't said anything about disposal, I will need to respond in some way. Consequently, there will be pressure on my business not to do something too bad in this area because people will already know about the possibility of misconduct in this area and can raise this question. This is a direct consequence of transparency.