Just as the 1929 stock market crash revealed the need for standardized profit reporting (GAAP), today's social and environmental crises necessitate standardized impact reporting. This creates the transparency required for investors, consumers, and employees to make informed decisions and for markets to function efficiently.

People focus their environmental efforts on highly visible but low-impact items like plastic bags and recycling. The climate and environmental impact of the food products they purchase—particularly meat—is orders of magnitude greater. This reveals a massive misallocation of public concern and effort.

Citing a Harvard Business School study of 1,800 companies, Sir Ronald Cohen reveals the staggering scale of negative externalities. A third of these firms (600) cause environmental damage equivalent to a quarter or more of their profits, while 250 create more damage than they make in profit, highlighting the financial materiality of impact.

The true financial benefit of ESG or sustainability factors may not be in mitigating drawdowns, but in accelerating recoveries. Factors like employee satisfaction and a smaller environmental footprint contribute to a company's resilience, allowing it to bounce back faster after a crisis. This is the key link between ESG and long-term performance.

Instead of treating ESG as a subjective measure of corporate virtue, view it as a risk management framework. Its true value lies in identifying and quantifying material risks—like poor labor relations—that function as off-balance sheet liabilities, ultimately impacting a company's cash flows or discount rate.

Aggregate profitability can mask serious issues. A company's positive bottom line might be propped up by one highly profitable offer while another "bestseller" is actually losing money on every sale. This requires a granular, per-product profitability analysis to uncover.

Impact data isn't just a niche metric for investors. Sir Ronald Cohen reframes it as a basic human right. He argues that every employee, consumer, and investor has a right to transparent, standardized information about the good and harm a company creates, moving the conversation from finance to ethics.

A UK watchdog banned Nike's sustainability-focused ads for making misleading claims, a practice known as "greenwashing." This action highlights a growing global trend of regulatory scrutiny over environmental marketing. Brands must now provide hard evidence for their sustainability claims or face significant legal and reputational consequences.

Investment research suggests the significant performance signal in governance isn't achieving a perfect score, but rather avoiding companies in the worst decile. The key is to steer clear of clear red flags—like misaligned boards or poor capital allocation—as this is where underperformance is most clearly correlated.