The Business Benefits Of Corporate Social Responsibility Impact Assessments
Jason Stern is Chief Executive Officer of Simfoni Analytics, the digital solutions provider for procurement analytics and spend automation.
In the past decade, corporate social responsibility (CSR) initiatives have become more visible within most large companies. Many businesses have established new policies and practices to improve their impact on environmental, social and governance (ESG) externalities. Some businesses have announced plans to become carbon neutral in the near future and have already published reports about progress and future goals, whereas others are just beginning to conduct environmental impact assessments by implementing a structured measurement of the effects of their business activities.
Fewer organizations have announced plans to provide social impact assessments, which measure the “net effect of an activity on a community and the well-being of individuals and families.” But over the past 18 months, world events have caused many business leaders to rethink their current policies and define a clearer strategy to support diversity, equity and inclusion (DEI). One way to do this is through supply chain assessments that measure supplier diversity and establish key performance indicators (KPIs) for projected spending with minority-owned, female-owned and small businesses. Based on my professional experience working with businesses that are setting KPIs for supplier diversity, most companies are looking to drive a 200% to 300% increase over the next five years.
These kinds of KPIs are easy to manage internally and they send a clear message regarding corporate values. They are, however, more challenging to reinforce throughout the supply chain on a global scale. For most organizations, the supply chain accounts for as much as 90% of the business’s environmental impact. That’s why, in order to truly understand the impact of an organization’s spending habits, it’s critical to achieve a solid understanding of the business practices of suppliers and make sure that they reflect your organizational values.
Impact assessment typically begins by surveying vendors to determine whether they’re meeting your standards for environmental sustainability, diversity and other important metrics. A first glance, this may seem like a daunting task to undertake, but it’s well worth it because there’s a clear trend emerging toward increased shareholder value and other business benefits at organizations that have established good CSR practices throughout their supply chain.
What Gets Measured Gets Managed
Environmental and social sustainability used to be viewed as costly investments, even for organizations that cared deeply about these issues. The traditional perception was that doing the right thing would come with a heavy loss of cost efficiency and eat into profits. But product and technology innovation has now progressed to the point where it’s very possible for organizations to improve their impact and recognize business benefits, even to the point of competitive advantage.
The results of recent research from Project ROI, an endeavor spearheaded by research firm 10 Sustainability and the Babson College Social Innovation Lab, show that CSR practices have great potential to deliver financial returns on investment (ROI), as well as related business and competitive benefits. These benefits include increasing a company’s market value up to 6% and stakeholder value by $1.28 billion (over 15 years), as well as reducing systemic risk by 4%.
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 can also gain a new lens through which to evaluate CSR proposals.
Cross-functional collaboration helps to maximize the business benefits of CSR initiatives. Having CSR teams work closely with purchasing and finance departments, for example, can help in implementing strategies for achieving CSR goals while maximizing profitability through better business performance. Collaboration between departments can produce significant gains in terms of improving both external impact and shareholder value. Over time, the development of valuable cross-functional insights can help shape the overall business strategy.
A Case In Point
A procurement professional at a high-end device manufacturer recently noticed that the cost of printing installation instructions and keeping them updated in 25 languages was more than $250 thousand per year and increasing over time. Through her dual CSR and purchasing experience, she knew that the real cost was substantially higher, including the need to maintain inventory and the wasted paper associated with every product change. She presented her case to the business leaders, and they decided to make the installation instructions available digitally, via QR codes and on-demand via the company’s website.
This is an excellent example of how a CSR-driven decision also had a direct impact on financial performance. By conducting a cost-effectiveness analysis (CEA), taking a simple multiple of 15 times earnings before interest, taxes, depreciation and amortization (EBITDA), after minimizing the cost and adding in the efficiency gain, this change resulted in a $10 million increase in shareholder value for this company.
This kind of data-driven methodology can ultimately improve decision-making, resource allocation and operational optimization. Understanding the different ways in which information can be gathered and applied can help any organization make better decisions in the midst of a complex and ever-changing global economy.
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. And business leaders can drive real, actionable change by using data from impact assessments and supplier diversity reporting.
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