In the past decade, Corporate Social Responsibility (CSR) initiatives have become more visible within most large companies. Many businesses have already established new policies and practices to improve their impact on Environmental, Social, and Governance (ESG) externalities, as part of a larger move toward longer-term value creation for all stakeholders.
In his latest Forbes article, Jason Stern describes The Business Benefits of Corporate Social Responsibility (CSR) Impact Assessments. As businesses expand their view beyond pure short-term profit, they are finding new ways to measure their performance. The best way to do this is to start integrating impact assessment metrics into the reporting framework.
Organizations that measure their CSR activities find it easier to manage them effectively. Annual impact assessments, in combination with other CSR practices, can create value and support returns related to share price and market value, sales and revenue, reputation and brand value, human resources, risk reduction and compliance.
By learning more about how CSR initiatives impact financial performance, corporate leaders can gain a better understanding of their influence on the value of the business. They will also gain a new lens through which to evaluate CSR proposals.
By learning more about how CSR initiatives impact financial performance, corporate leaders can gain a better understanding of their influence on the value of the business. They will also gain a new lens through which to evaluate CSR proposals.
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Recent research from Project ROI, an endeavor spearheaded by research firm 10 Sustainability and the Babson College Social Innovation Lab, shows that CSR practices have great potential to deliver financial Returns On Investment (ROI), as well as related business and competitive benefits. Here are some of the ways Project ROI quantifies the potential business benefits of CSR initiatives:
- Increase market value by up to 4-6%
- Increase valuation for companies with strong stakeholder relationships by 40-80%
- Over a 15-year period, increase shareholder value by USD $1.28 billion
- Reduce the cost of equity by 1%
- Reduce systemic risk by 4%
- Reduce share price volatility by 2-10%
- Avoid market losses from crises
Simfoni has created a comprehensive impact assessment framework that analyses 6 key externalities of an organization and assigns a monetary value, in terms of impact:
1. Business Model Impact
This dimension considers all stakeholders impacted by the company through its business activities and the customers it serves. What is the underlying nature of the business? Is it a hospital or a weapons manufacturer? To what extent are its activities harmful or helpful to society at large?
2. Environmental Impact
This measures the company’s impact on the world’s stock of natural resources, on an ongoing basis.
3. Supply Chain Impact
This widens the scope of influence by examining the company’s entire supply chain and its impact on nature and society. Does it operate in an ethical, low-carbon way? Does it have good policies, in terms of recruitment and employment?
4. Corporate Social Responsibility & Social Impact
What kinds of social programs donations and contributions does the business make—financial or otherwise—to society at large? Does it sponsor the arts or community events? Has it contributed to any environmental clean-up projects?
5. Human Impact
To what extent does your organization improve the quality of life for the people who work for it? Does it offer training and development? What impact does it have on the local community?
6. Non-shareholder Externalities Impact
This includes financial contributions such as taxes, business rates, and other tariffs that do not go back to the company’s shareholders but do contribute to society at large through better roads, better quality educations, etc.
At first glance, some of these aspects may seem hard to quantify. But if you drill into it a bit, you can find ample documentation to support the impact of certain actions, based on statistical evidence.
If your business hasn’t yet implemented annual impact assessments as part of its CSR program, or if your initiatives aren’t tightly integrated with your business strategy, this is the perfect time to start. Smarter spending habits designed to improve environmental and social impact can simultaneously drive business benefits across your organization. Business leaders can drive real, actionable change by using data from impact assessments and supplier diversity reporting.
