Recognition of Potential Impact Targets
As the first step, you’ll need to determine the areas to which your activities or business are relevant. Many companies already showcase their alignment with SDGs or other external indicators for each of their businesses or activities, indicating a certain level of awareness regarding the impact areas their efforts relate to. However, to define impact in detail, start by setting the target impact areas.
At IMPACTLAKE, we define impact areas for ‘Society,’ ‘Environment,’ and ‘Economy’ in a way that covers social issues both domestically and internationally. You may find this helpful as well.
Confirmation of Impact Definitions
Next, you’ll need to confirm what specific impacts each of the previously defined areas represents. If you are considering multiple impacts, you’ll need to determine the boundaries and recognition points for each. For example, you should clarify points such as:
- Whether ‘Care’ should be considered within ‘Medical and Healthcare’ or treated as a similar concept, or should it be included under ‘Unpaid Work (household and childcare)’ or divided based on where the issue is placed (as a social security issue or as an issue of individual empowerment).
- Whether issues related to ‘Energy’ should be perceived as a single concept related to the ‘Environment’ or as an element of ‘Urban Planning and City Development,’ etc.
While there may not always be a definitive answer, you need to consider the impacts that activities or businesses under evaluation bring in the areas you defined above. You should establish the definitions of these areas and specific boundaries (boundaries) while taking these impacts into account. Additionally, at this stage, you should be aware of points like:
- Whether there are obvious trade-offs when creating a unified impact model.
- Whether KPIs that could be anticipated within the same impact model are converging.
Detailing and Breaking Down Impact
nce the definition of the impact has been reasonably established, you will proceed with the breakdown of the impact. In this phase, you structurally break down the related impacts (or outcomes, etc.) for the root impact that you set as your major goal. You will also understand and organize how far you should consider the issues that need to be resolved or can be addressed.
An important point here is that conducting a more detailed and comprehensive issue organization at the outset helps prevent omissions in the variables when considering and designing impact KPIs in the later stage. This allows you to focus on the more important and appropriate KPIs. Simultaneously, it reduces the risk of considering KPIs solely from a bottom-up perspective based on the closed understanding of your company and stakeholders, which might lead to irrelevant metrics.
Furthermore, in impactlake™ Standard Plan, we have defined standard logic models for each area, allowing for a comprehensive exploration of the impacts that specific businesses or activities can generate.
Assessing the Feasibility of Impact Creation
Once the impacts that should be created or have the potential to be created have been determined, you will assess, from a comprehensive perspective, whether the businesses or activities under evaluation can genuinely contribute to these impacts and whether they are assessable. Specific factors to consider in this assessment include (indicated in parentheses are indicators or criteria used for judgment).
In addition, in the domestic context, certain guidelines have been presented as of 2023, as part of a study group organized by the Financial Services Agency. (Reference: Study Group on Impact Investment and Related Matters)
Additionality
Is the element highly contributory to impact creation, such that if the business or activity did not exist, the likelihood of achieving similar outcomes would significantly decrease?
(e.g., if the anticipated effect is substantial, or if it is a bottleneck in problem-solving, etc.)
Continuity and Sustainability
Is the business or activity characterized by a quality that ensures its continuity for a certain period, and does the resulting impact also have a certain level of sustainability?
(e.g., if it has a certain number of years of continued operation or a certain useful life, etc.)
Agency
Is the entity conducting the business or activity, or the entity investing resources and inputs, consciously engaged in activities with the intention of creating the impact that results from the business or activity?
(e.g., intentionality, the proportion within the business segment, relationship with strategy, etc.)
Uniqueness and Competitive Advantage
While partially encompassed in the ‘additionality’ point, does the business or activity possess some uniqueness or competitive advantage in impact creation compared to other activity entities?
(e.g., having a certain market share in a specific industry, clearly higher impact creation efficiency compared to others, etc.)