Consumers and regulators are calling for companies to actively contribute to society. In both industrialized and emerging markets, people increasingly think that business leaders should take the lead in addressing social challenges, while regulations on socially responsible business conduct are rapidly evolving. There is a steadily increasing number of large and small companies that commit to creating a social impact through their business activities. However, many other companies ask themselves: what’s in it for us if we change from profit-only to profit with social value? In this article you’ll find 8 answers to that question.
This is a blog post in the FairChange series Social Impact: Strategies for Success, about 5 key areas of opportunity to upscale the value you create for society – and for business.
A survey by Accenture and the UN Global Compact among 1,000 CEOs from 25 industries in 100 countries found that 80% believe that demonstrating a commitment to social purpose is a differentiator in their industry. The Global Leadership Survey 2019, issued by YPO, a global community of chief executives for better leadership, reveals that this commitment is most notable among young successful top executives: 93% of CEOs under 45 years of age think that a business should have a positive impact on society beyond pursuing profit and wealth. It’s no coincidence that a growing number of experts predict that for-profit social enterprise is the impact model of the future.
The statistics are compelling. But even so, shifting from a focus on business as usual to business with a social purpose is not always easy. If you’re a large company, you may find that the organizational culture and established procedures and systems stand in the way. And if your company is small or medium-sized, with little time and resources to dedicate to strategy development, why should you embed social impact into your day-to-day activities?
Well, here are 8 business opportunities that your company can seize when it commits to creating a positive social impact, and that we’ll detail in this article:
- Increase trust and revenues by demonstrating positive social impacts
- Improve worker’s productivity through responsible social management
- Reach more customers who prefer goods and services that create social value
- Promote dialogue with communities by preventing social conflict
- Attract capital through profit-making with a social purpose
- Address social challenges to drive sustainable growth
- Stay ahead of new regulations on business and social impact
- Spur innovation through social impact business models
Do you prefer to read this post as an eBook, updated with new information and completed with extra bonus tips? Get the eBook on Social Impact Management here!
But before we’ll detail 8 reasons to scale up your company’s social impact, let’s first see what creating and managing social impacts are all about.
What is social impact management?
Social impacts – in other words, the positive or adverse effects on people´s lives and society – can result from your company´s commercial operations, supply chain activities, corporate governance practices, and business relations.
In addition to the foreseen and desired impacts, any action can create unplanned and negative effects. This can even happen with social investment programs, despite their good intentions. Through solid social impact management, your company helps prevent negative consequences and enhance the positive effects of its actions.
The goal of social impact management is to achieve positive changes in people’s lives and society, contributing to sustainable and inclusive development in the areas of influence of your company. You can do this by applying the different steps of the social impact management cycle: analysis, planning, implementation, measurement and communication of performance and results. For more details and practical advice, check other blog posts and resources on our website!
Social impact management goes far beyond philanthropy and donations to social causes. It’s about incorporating value creation for stakeholders into your company’s day-to-day actions, strategies and – depending on its core activities – business model. The famous concept of shared value, which was introduced by Porter and Kramer is central to strategic social impact management. By coupling profit-making with purpose, your company can benefit both its business and society.
Doing business with social impact: from commitment to action
There are many compelling reasons to create or improve your company’s positive social impact. In this article we’ll detail 8 of the business opportunities that can be opened up by sound social impact management.
1. Increase trust and revenues by demonstrating positive social impacts
If your company creates positive social impacts through its commercial activities, social investment programs, or business relations this will benefit sales and firm value. According to meta-analysis of hundreds of studies into corporate responsibility by IO Sustainability and Babson Innovation Lab (2015), companies that integrate social responsibility into their business can increase sales revenues by up to 20% and enhance their brand and reputational value by 11%. Every dollar in philanthropic contributions can generate six dollars in increased sales revenue.
Conversely, incidents related to a lack of social responsibility such as corruption scandals and breaches of customer privacy affect trust and put revenues at risk. In an age where there are increasing trust incidents involving businesses and a public far beyond their direct operating areas takes notice via news services and social media, careful reputation management has become a number one priority. The Accenture Strategy Competitive Agility Index 2019 quantifies the value of trust for companies. While 54% of surveyed organizations experienced a material drop in trust during the preceding two and a half years, significant earnings were at stake, equal to at least US$180 billion in lost revenue.
2. Improve worker’s productivity through responsible social management
Sound social responsibility practices can increase the commitment, affinity, and engagement of your employees. In turn, improved workers’ engagement enhances job performance, lowers absenteeism, and can even reduce acts of corruption in the workplace.
The 2015 IO Sustainability and Babson Innovation Lab study reveals that the positive impact on human resource performance resulting from effective corporate responsibility approaches can lead to an increase in productivity of up to 13%. Average turnover rates can be reduced by 25% to 50%, and the annual quit rate by 3% to 3.5%, saving replacement costs between 90% and 200%.
Actions organized by employees to stop their companies from being involved in unethical practices demonstrate the growing importance of social responsibility for the workforce. In 2018 and 2019 in the United States, hundreds of employees from tech firms including Google denounced contracts that involve work for the controversial border protection policies of the Trump government. Angered employees of cloud-services firm Salesforce stated that these contracts put the company’s core social values on the line given the inhumane separation of migrant children from their parents.
Committing to social responsibility and being consistent when it comes to “walking the talk” is not only important to secure loyalty from your current employees. Different studies and rankings show that companies that put social responsibility into action score higher among job seekers. And this, in turn, has a positive relationship with company value. According to global index provider FTSE Russell, the “Fortune 100 Best Companies to Work For” outperform the market. These companies returned 11.66% annually from 1998 through the end of 2016, nearly 5% more than the returns of equivalent companies that were not on the list.
3. Attract new customers who prefer goods and services that create social value
Developing products and services that contribute to social well-being means your company can reach growing customer segments willing to spend money for a positive impact.
While trust in businesses is deteriorating around the globe, social expectations of good social conduct from companies are on the rise. 76% of the general population surveyed in 27 markets are looking for CEOs to take the lead to improve social challenges, rather than waiting for the government to take action, according to the 2019 Edelman Trust Barometer.
The expectation of good social conduct from businesses is reflected in consumer behavior. IO Sustainability and Babson Innovation Lab find that corporate responsibility can improve customer satisfaction and loyalty by 10% or more. Data analyzed by Tully and Winer (2012) shows that people are willing to pay a significant premium of 17% on average for goods that contribute to a positive social impact. This percentage is higher for goods manufactured in a way that benefits people – for example, respecting good labor conditions – than for goods that benefit animals or the natural environment.
The 2019 Porter Novelli/Cone Purpose Biometrics Study among 1,000 Americans finds similar results for advertising and customer loyalty. Purpose-driven advertisements –those which show an organization’s authentic role and value in society– turn out to be more effective, with higher levels of attention and emotion than ads focusing on product features or technical specifications. They also build deeper bonds and inspire brand advocacy, amplifying the positive message: 81% of respondents indicated they would support that company in their community and 70% wanting to work for it.
A positive relationship between a focus on social impact and customer interest is also found in emerging markets. A study by data analytics company Nielsen (2015), which polled 30,000 consumers in 60 countries, finds that on average consumers in Latin America, Asia, the Middle East, and Africa are 23% to 29% more willing to pay a premium for sustainable offerings than consumers in developed economies. According to the researchers, this higher appetite for socially responsible offerings can be explained by the fact that consumers in developing markets are often closer to and more aware of the needs in their surrounding communities. As they are reminded of the challenges around them each day, they are more willing to give back and help others.
4. Promote dialogue with communities by preventing social conflict
Creating or contributing to adverse social impacts on workers and local populations can lead to disputes that are time-consuming and costly. Preventing these conflicts by acting in a socially and environmentally responsible way can save your company money, in addition to promoting positive impacts on society.
Disputes between a company and neighboring communities often lead to a considerable amount of human and financial resources spent on reputation management to prevent or address the consequences of negative publicity. It can also imply budget increases for relationship management aimed at building or restoring collaborative relations with NGOs and civil society groups that represent or support affected populations.
Often, these NGOs, action groups, and human rights lawyers can spur widespread public indignation via social media campaigns and actions to mobilize cross-border civil society networks and political contacts. For the company involved, this means increased risks to reputation and therefore, business value. A recent BSR report on the future of stakeholder engagement predicts that this trend will increase in the future. Companies in sectors such as agriculture, extractives, and infrastructure, which historically have differentiated between project-level community engagement and corporate reputation management, find it increasingly difficult to draw this distinction.
At the same time, local populations who feel their natural environments, livelihoods, and human rights have been harmed by companies are increasingly finding their way to national and international justice bodies. A study by Queensland University and Harvard Kennedy School shows that administrative proceedings when stakeholders submit complaints to national or international entities and litigation in the case of legal claims, frequently result in considerable costs for companies. The researchers, who analyzed large amounts of data for the extractive industry and have reached conclusions that are important for other sectors too, found that disputes between companies and communities can incur costs of US$20 million per week.
Other costs attached to the management of company-community conflicts include security interventions to address violent on-site protests, blockades, and damage to company assets, the study registers. However, the greatest costs of company-community conflict are the opportunity costs in terms of the lost value linked to future projects, expansion plans, and lost sales.
5. Attract capital through profit-making with a social purpose
A sound business case that combines profit-making with the creation of social impact can open up new opportunities to attract investors.
In a high-profile 2019 letter from Larry Fink, CEO of the major investment firm BlackRock, he called on companies to step up their contributions to society and do business while committing to benefit communities, the environment, and the workforce. Fink stated that there is an “inextricable link between profit and purpose” and that purpose not only drives consistent decision-making but also “helps sustain long-term financial returns for the shareholders.” These affirmations illustrate an increasing interest in social impact among financial investors.
Social impact investment, according to the Organization or Economic Co-operation and Development (OECD) definition, provides finance to organizations addressing social and/or environmental needs with the explicit expectation of measurable social and financial returns. This is a rapidly growing field. The Global Impact Investing Network GIIN (2019) calculates that today, the market amounts to over 1,340 organizations managing USD 502 billion in impact investing assets worldwide. The market includes many types of investors —from family offices to foundations and from banks to pension funds— based in every region of the world and investing in both developed and developing countries.
While some have an inclusive focus on financing solutions to social and environmental challenges, a growing number of mainstream investors are including social impact in their decision-making processes. The GIIN Impact investor survey 2018 finds that 84% of traditional capital funds are making more impact investments and are demonstrating a greater commitment to measuring and managing their impact, compared to just three years ago.
The well-known Dow Jones Sustainability Index (DJSI) which tracks the stock performance of the world’s leading companies in terms of corporate responsibility criteria, puts a strong emphasis on evidence demonstrating listed companies’ positive social impact. Robinson, Kleffner, and Bertels (2008) find that being included in this index results in a market value increase of almost 4%. According to the authors, a likely explanation for this boost in value is that investors use inclusion in the DJSI as a signal of higher expected returns from the firm and that the DJSI label helps to attract new investors.
Especially if you’re a large company, this growing interest from capital providers in rewarding quality social impact management can also impact your organization in other ways. The past decade has seen a significant expansion of so-called shareholder (or investor) activism. An analysis of 450 shareholder proposals filed at the 3,000 largest publicly listed companies in the United States (known as Russell 3000 companies) in 2017, demonstrated that more than two-thirds of these proposals were related to social or environmental issues, overshadowing governance and compensation-related proposals. Although the United States tops the list of countries with activist shareholders, followed by Europe, developing economies will most probably see an increase in investor activism as well, according to a publication discussing the road ahead for stakeholder activism on the Harvard Business School Forum on corporate governance and financial regulation (2019).
6. Address social challenges to drive sustainable growth
According to the Deloitte study “The rise of the social enterprise” (2018) 65% of 11,000 leading global companies surveyed rate “inclusive growth” as one of their top three goals, eclipsing strategies like “growing market share” or “being the category leader.”
Whether you’re a large or a smaller company, actively supporting sustainable development creates social and commercial value, and there are many ways to do this.
Social impact bonds are an example of business sector engagement in innovative solutions for societal challenges. These are alliances where private funds intervene in collaboration with governments to increase an impact in areas such as health, housing, and education. The investments are repaid only when the agreed-upon targets are met. Social impact bonds are being implemented in many developed as well as developing countries. In October 2019, the Brookings Institute calculated that impact bonds in 30 countries have raised 408 million USD, benefiting 13,055 persons.
The UN Sustainable Development Goals (SDGs), launched in 2015, have been applauded by many as a key framework to help companies contribute to long-term inclusive growth. The SDGs are part of the Agenda 2030 for sustainable development that was adopted by 193 governments to achieve full economic growth that benefits everyone, environmental protection, and just and inclusive societies by 2030. Conceived after a three-year international consultation process with multiple stakeholders including businesses and industry representatives, the 17 SDGs are a call to action across countries and sectors. “Leave no one behind” is the central pledge of the Agenda 2030.
Since their launch, a growing number of businesses around the globe have started to incorporate the SDGs into their strategies to promote inclusive and sustainable growth in their operating areas. According to a study by BSR/ GlobeScan (2018), in Europe, 49% of surveyed companies are currently using the SDGs for setting performance targets. In Asia, Latin America, and Africa, around 40% of businesses do so today, while 31% are planning to use them in the future.
If your company isn’t yet engaging with sustainable development, now is the time to start. The Business and Sustainable Development Commission (BSDC) estimates that “first movers” who align their resource use and workforce management with the Sustainable Development Goals now, will have a 5 to 15-year advantage over companies who don’t.
7. Stay ahead of new regulations on business and social impact
With the growing uptake of corporate social responsibility (CSR) across the continents, the number of binding regulations and voluntary initiatives around social impact creation and measurement by private companies has been rapidly expanding. It has clear advantages if your company stays ahead of this trend.
It doesn’t matter in which sector or market your company operates, there’s a large number of guidelines and frameworks available that help your organization create a positive impact on people’s lives and society, beyond just profit-making. Examples are the ISO 26000 Guidance on social responsibility and the Ten Principles of the UN Global Compact – the United Nations body that promotes commitment to sustainable development among businesses – which are the most widely adopted CSR framework by large corporations and SMEs around the globe.
More recently, governments and multilateral bodies –such as the European Union as well as stock exchanges and other regulators– have started to introduce mandatory regulations for transparent disclosure of information about responsible social conduct by businesses. Although there is a lively debate about the benefits and pitfalls of this “legalization of CSR”, as is detailed by Berger‐Walliser & Scott (2018), your company should be prepared for even more mandatory regulations around social impact in the future.
Legal provisions around business and human rights are among the fastest expanding. Responsible supply chain management is another topic that is addressed by both voluntary industry-driven initiatives and government regulations in different geographies. The growing interest in responsible operations within the global supply chains of leading international brands as well as smaller international businesses focuses, among other challenges, on promoting the rights and well-being of local producers and preventing so-called “conflict minerals” from being used for the production of mobile phones and other goods. Putting an end to modern slavery in the workplace and value chains of private companies is another topic addressed by a growing number of legal and voluntary initiatives.
Providing transparent information is critical to demonstrate your company’s social impact. Many government regulations include references to sustainability reporting, and there are a large number of international reporting frameworks on the market that help you organize and process relevant social and environmental data to inform your stakeholders. Corporate responsibility reporting has become a standard practice for businesses around the world. Around three-quarters of the top 100 companies by revenue in 49 countries researched in the KPMG Survey of Corporate Responsibility Reporting 2017 issue such reports. According to the study, Latin America stands out for its surge in the publication of this type of reports, driven by regulation, foreign investor demand, and the need to build and protect public trust.
If you are a small or medium-sized company, there are also significant benefits to elaborating sustainability reports. As Stichting Global Reporting Initiative (GRI) and the International Organization of Employers (IOE) point out, it enables smaller businesses to place their purpose, vision, and strategy into the context of global sustainability. It helps them improve relations with stakeholders, detect threats and opportunities early on, and provides clear competitive advantages.
8. Increase your potential for innovation through social impact business models
More and more companies understand that business models that put the creation of social impact at their core make perfect commercial sense.
Tech companies are among the front-runners to adopt the new social impact business model with the potential to create positive change on a large scale. And while the sector of startups providing technology-driven goods and services that benefit society is growing exponentially in industrialized countries, “tech-for-good” enterprises are rapidly entering developing markets as well.
From app developers that help customers move safely through cities plagued by violence and insecurity in Latin America to providers of solar home systems and mobile payment services for isolated communities in Africa, innovative business models address urgent social issues while seizing profit-making opportunities. The new tech-solutions for social good often scale well, with the possibility to spur development in many countries. These enterprises operate in markets that in many cases are expected to be some of the largest growing economies in the near future.
Although tech startups have been quick to jump into the expanding market for profit-making by providing solutions for society, the social impact business model is not limited to new companies or specific activities. Established companies across sectors can transition over time to adopt their existing approaches. Doing so will clearly pay off. Data collected by MIT Sloan Management Review and The Boston Consulting Group based on surveying tens of thousands of managers and interviewing more than 150 executives and thought leaders demonstrates that nearly 50% of companies have changed their business models as a result of sustainability opportunities. The study finds proof among countries across the globe that business innovations aimed at promoting sustainability drive efficiency and create lasting business value.
Creating value through social impact management: your next steps
In this article we’ve mentioned 8 opportunities your business can seize when it starts coupling social impact with making a profit, or if it already does, scaling up the value it creates for people and society. Would you like to know more? In our free eBook: 8 Business benefits of upscaling your social impact – and some essential steps to achieve this we’ve included more details about the opportunities for social impact management that benefits both society and your business. Download it here.
Would you like to learn more about your opportunities for creating social impact?
Then download the other free eBooks in our FairChange series Social Impact: Strategies for Success on the FairChange Academy Digital Learning Platform.
Sources
- The UN Global Compact-Accenture Strategy CEO Study 2016
- The YPO Global Leadership Survey 2019
- Forbes Article: “The Forprofit Social Enterprise Is The Impact Model Of The Future”
- IO Sustainability and Babson Social Innovation Lab, Project ROI study: “Competitive and Financial Advantages of Corporate Responsibility and Sustainability”
- Harvard Business Review, article by Michael E. Porter and Mark R. Kramer: “Creating Shared Value”
- Accenture Strategy Competitive Agility Index 2019
- The Mercury News: “Salesforce workers demand company stop working for U.S. border agency: report”
- Fortune: “100 Best Companies to Work For Are Beating the Market”
- Edelman Trust Barometer 2019
- Study: “Are People Willing to Pay More for Socially ResponsibleProducts: A Meta-Analysis”, by Tully and Winer (2012)
- The 2019 Porter Novelli/Cone Purpose Biometrics Study
- Study of the Commitment to Sustainability by the data analytics company Nielsen (2015)
- Queensland University and Harvard Kennedy School study
- BSR Report: “The Future of Stakeholder Engagement”
- 2019 Larry Fink’s letter: “A Fundamental Reshaping of Finance”
- OECD Social Impact Investment Initiative
- Global Impact Investing Network GIIN (2019)
- GIIN Impact Investor Survey 2018
- Dow Jones Sustainability Index (DJSI)
- The Value of a Reputation for Corporate Social Responsibility: Empirical Evidence”, by Robinson, Kleffner, and Bertels (2008)
- “An Overview of U.S. Shareholder Proposal Filings”, by Harvard Law School Forum on Corporate Governance
- “The Road Ahead for Shareholder Activism”, by Harvard Law School Forum on Corporate Governance
- Deloitte study: “The rise of the social enterprise” (2018)
- Brookings Institute Report: “Social and development impact bonds by the numbers”
- UN Sustainable Development Goals (SDGs)
- Resolution adopted by the UN General Assembly on 25 September 2015: “The 2030 Agenda for Sustainable Development”
- GRI and IOE: Small business big impact
- “State of Sustainable Business 2018”, a study by BSR/ GlobeScan (2018)
- Business and Sustainable Development Commission: Better Business Better World
- Guidance on social responsibility – ISO 26000
- The Ten Principles of the UN Global Compact
- Article: “Redefining Corporate Social Responsibility in an Era of Globalization and Regulatory Hardening”, by Berger‐Walliser & Scott (2018)
- KPMG Survey of Corporate Responsibility Reporting 2017
- Tech Nation Website: Tech for social good in the UK
- **LATAM TECH: Street Crime app
- TechSavvy: “How fintechs can make social impact and accelerate growth in developing countries”
- Report: “Corporate Sustainability at a Crossroads“, by MIT Sloan Management Review and The Boston Consulting Group
