“Corporate Social Investment (CSI) has a hard-earned reputation for flakiness,” a blogger for The Economist’s Schumpeter column recently wrote in an article about the business value of CSI.
Unfortunately, the perception of CSI being a light and insubstantial business matter has been one of its many challenges in the past. Thankfully, it is safe to say that today’s business leadership has evolved past the point of discrediting and devaluing CSI for having any business value.
The business world generally accepts that CSI has the potential to improve organisational reputation, improve labour conditions, reduce socio-economic risks in the external environment, grant a social licence to operate, build trust and relations with stakeholders, and may even - when applied strategically - increase company profits. However, linking a concrete tangible outcome such as ‘company profit’ to the abstract variables often related to CSI is a critical business challenge.
Although corporate organisations may intuitively believe in the business value and return on investment that CSI holds, they cannot substantiate these beliefs. As long as they cannot substantiate their beliefs, the actual business value of CSI is immaterial.
Why? Because the business world and the bottom-line is about facts, figures and financial proof. If one cannot quantify the business value of CSI with sound metrics, rooted in business language such as ‘financial value’, ‘return on investment’ or ‘rate of return’, business leadership will always perceive CSI as ‘flaky’.
‘Soft’ issues are not isolated from business
Let us not digress from what CSI sets out to achieve, first and foremost. Although CSI holds many perceived business benefits, the core purpose of CSI is to reduce the negative impact of business on people and the environment. Essentially, it aims to improve the living conditions of communities, and enhance or, at the very least, maintain the quality of the environment.
CSI strives to make an impact. It aims to do good. It aspires to leave a legacy. Even if one cannot prove a single cent of the bottom-line gains achieved through CSI, it needs to achieve these goals. But again, ‘making an impact’ and ‘leaving a legacy’ are intangible outcomes that need to be measured. If organisations cannot prove these outcomes, they can only hope or assume that their CSI initiatives were successful.
Organisations grasp that the business value of CSI and the impact it has on communities are not mutually exclusive concepts. Essentially, the living conditions of communities in which organisations operate can only improve if businesses grow mindfully, and business can only grow mindfully if the living conditions of these communities improve.
This statement specifically resonates with emerging markets and high-impact sectors. The operational risks of organisations operating in the developing world are sky-high - the environment is generally more fragile, communities are generally poorer, labour issues are generally more volatile. These risks require impactful CSI.
In high-impact sectors such as the extractive industries, companies come face to face with communities - sometimes without the presence of a strong government or governance structure. In other instances, communities suffer despite well-governed or over-governed structures, and the onus rests on the organisation to avoid exploitation and address community grievances to gain a licence to operate.
CSI can improve the relationships between the organisation and its local partners and consequently reduce the organisation as well as the community’s risks. It is therefore evident that CSI’s social value is inseparable from its business value. The quest to measure social value has to be as fierce as thequest to quantify business value.
Organisations miss out on benefits because they do not measure
In the past, CSI departments did not rigorously quantify the business value of CSI. Regrettably, this resulted in poor capitalisation on the benefits it holds. Organisations remained blissfully unaware of the positive local impact of their investments while at the same time they struggled to financially justify the spending of capital because they did not understand the true benefits of their investments.
Furthermore, the lack of measuring prevented organisations from comparing and benchmarking investments to other investments they had made. Organisations could therefore not prioritise the most substantial investments and cut out the dead wood. They also lost out on the value of communicating the impact of investments to their stakeholders.
It is therefore no wonder that CSI spend was often considered a pure expenditure as opposed to an investment with tangible benefits. The lack of hard data on the positive returns on CSI investments made it difficult for companies to justify sustainability budgets, which compete head-on with other corporate priorities.
This left sustainability and community initiatives outside the core project and operational planning processes. An exclusion, which resulted in the impediment of cross-functional alignment and the prevention of setting shared operational goals that could elevate the value of CSI initiatives across the organisation.
This exclusion may also be a reason why so many community projects fail. Or why projects simply deliver short-term value to stakeholders. This brings us back to the chicken-egg situation: as long ascommunity projects are futile, the business value of CSI is nullified.
CSI - capitalise on the value
“Measurement is the first step that leads to control and eventually to improvement. If you can't measure something, you can't understand it. If you can't understand it, you can't control it. If you can't control it, you can't improve it”. - H. James Harrington, well-known and respected American performance improvement consultant.
Over the past three years, Next Generation Consultants developed, piloted and tested the business and community impacts of CSI projects in state-owned enterprises, the resources sector, financial services companies and retailers. The collective investment of the various projects assessed was R1 billion. During the same financial year South African companies collectively invested a total of R6.2 billion in CSI projects in South Africa. This is a massive expenditure that - in reality - should effect large-scale, positive social change.
Why do we not see or experience the impact of this change? The truth is that there is some social change, but organisations do not measure and assess the impact of their investments and therefore there is no benchmark to compare to. There is also no understanding of how effective the spending was, i.e. what change was achieved in relation to the spending and whether it yielded value for both the investor and the beneficiaries. Furthermore, due to the lack of scientific assessment, there is no plan to improve the impact of the spending.
The survival of South African businesses explicitly depends on impactful social change at grassroots level. Companies can only be sustainable - in the true sense of the word - if there is an improvement in the collective state of South Africa’s health, employment and education conditions.
Only if organisations know whether their investments are effective and how they can improve the impact thereof, will these investments truly yield long-term value for companies and sustained social change across the entire range of stakeholders.It is therefore crucial that chief executive officers (CEOs) break the mould of one-dimensional measurement, and explore more hard-hitting means of measuring the return on investment of CSI on business and on beneficiary communities.
CEOs know there are perceived benefits related to CSI. This is old news. Now they need to know what the qualified and quantified value of these programmes is. In this lies the value of the Next Generation Consultants modelling and scoring process. A comprehensive set of indicators guide the modelling process and give CEOs a detailed analysis and scorecard of the impact of the CSI programme on the following issues:
- Business reputation;
- BEE scorecard;
- Mitigation of operational risk through reducing negative environmental and health impacts;
- Support and enhancement of business operational requirements, such as skills recruitment andretention;
- Promotion of business synergies - did the CSI programme support key business objectives?
- Support for corporate values and strategies;
- Contribution to enhance market competitiveness;
- Enhancement of public private partnerships;
- Support for government priorities such as the Millennium Development Goals;
- Enhancement of stakeholder relationships, and which specific stakeholder relationships improved; and
- Adherence to global compliance in terms of international standards and commitments.
A quantitative and qualitative answer underpins these issues, based on a thorough scientific methodology. The model applies to every programme within the organisation which leads to an overall scorecard of all the CSI programmes within the organisation’s development portfolio. The assessment process also provides for capacity building within the organisation to ensure ongoing, meaningful measurement and assessment to the long-term benefit of the business and its beneficiary communities.
Measuring efforts often failed organisations in the past, and as a result, reduced their ability to improve CSI programmes and add bottom-line value to the organisation.
Effective measurement will enable feeble CSI efforts to become forceful development interventions with long-term impact.
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- Reana Rossouw is the founder of Next Generation Consultants, a leading boutique Management and Business Consulting firm. She is regarded as a visionary and one of South Africa’s leading experts in social investment, socio-economic development, corporate responsibility, sustainability and sustainability reporting, and integrated reporting.