Measuring socio-economic impacts : new report

Social and Economic Impact : Measuring Evaluation and Reporting. A must-have guide for companies operating in vulnerable communities. This is the title of the fascinating new research paper written by Peter Davis and published this month by Ethical Corporation, and which I promised to blog about when released. Now it the time to deliver on that promise :)

Ethical Corp sent me a free review copy but they didn't tell me (or ask me) what to write.

"Corporate interest in socio-economic impact is increasingly driven by much more important drivers than simply external reporting. Certainly reporting remains important, but more and more companies are realising that understanding socie-economic impact - the interrelationships beteen the company and the societies in which they operate - is also a vital tool for strategic and operational management and decision making."

This quotation from the introduction to this study of socio-economic impact proves that it's not just about numbers for numbers sake. It's about deriving value from measurement and reporting. This is quite heartening, despite the fact, as is also mentioned in the report, that at present, there is only a very small pool of (primarily large) companies who even get close to the level of measurement and reporting that actually delivers value. However, the authors of this report point to a fundamental redefinition of the role of business in society and the engagement of business in what otherwise might be known as "development projects" (as the NGO community tends to refer to them) such as poverty reduction, healthcare and human rights.

The report was developed using data from a wide range of sources including a literature review, 2 anonymous surveys of CSR professinals and practitioners (116  and 50 respondents), a round table discussion atended by 100 experts, review of 60 MNE's CSR communications and reporting and around 30 telephone interviews with key CSR practitioners. Enough to get a good overview of the key issues, I would have thought.

The report identifies four models of socio-economic impact monitoring:

Meeting global standards - selecting which performance indicators to measure, eg. the GRI

As we all know, there is a plethora of external standards and indicators used by companies ranging from the loosely structured UN Global Compact, through various specific initiatives and indexes such as DJSI, CRD Global 1000 and more, and culminating in the  "ubiquitous" Global Reporting Initiative which claims that over 1,500 companies use its framework. Most companies use some sort of framework in deciding how to measure and report their social performance and economic impacts. There are upsides and downsides to this approach, described in the report.

Managing supply chains - standards which govern labor and procurement such as Sedex

This tends to be prevalent in apparel, coffee, tea, timber, chocolate and footwear industries, to name but a few, with a focus on human rights rather than wider economic impacts. There are well known frameworks including the ILO Labor Conventions and others which address these issues, with auditing being one of the most widely spread tools. Sedex offers a plaform for inputting audit data so that customers can evaluate the manufacturer's performance in this area.  A case study from Nike described in the report helps understand the implementation and issues surrounding such auditing processes. Another case in point is the recent hullabaloo around the Hershey's cocoa sourcing supply chain, which you can read in my blop here, and the supply chain sourcing standards established in this industry sector.

Assessing integration into the local community -  such as the Anglo American SEAT toolbox

This type of assessment tends to be used by companies which have a strong socio-economic footprint in a particular geographic area and is particularly relevant for the extractive sector. The report cites the Anglo American Socio-Economic Assessment Toolbox as one of the best-known tools to help companies understand their local impacts. In addition, a number of multi-stakeholder partnerships operate in specific sectors or industries to ensure consistent development of standards, management of expectations and a sort of level playing field for all. The report assigns primarily a commercial interest to the development of this type of assessment becuase the proximity to local communities creates a kind of interdependency which is critical to the success of the project or venture.

Contributing to social and economic development -Unilever in Indonesia or Heineken in Rwanda 

This type of assessment is rare, and adopted by companies who have a sustained long-term interest in coutries or territories in which they operate. Unilever, Procter and Gamble, Vodafone  and Heineken are cited as examples in this area. Heineken for example employs 1,000 people directly in Rwanda but estimates that its activities in that country provide employment for over 35,000 people. This is a significant level of influence and Heineken has developed a tool to help them understand their impacts in more detail which is discussed in this report. You can also read about this in Heineken's Sustainability Report.

One of the things that surprised me in this report is the assertion that, whilst there are various states of play in measurement and evaluation of socio-economic impact by the corporate players, as mentioned above, there is much greater discipline and advancement in this area by the NGO community, including the DCED Standard for Results Measurement in Private Sector Development programmes, which focuses on the scale  of initiatives, the increase in income by the targeted enterprises and the net additional jobs created. This seems to be a very interesting tool, though the extent to which  it is effectively used is not quite clear to me. Other frameworks such as the WBCSD model which was published in 2008 are also discussed in some detail. The use of these tools in the corporate sector is extremely fledgling, though there may indeed be some relevance to the argument  that there is learning to be gained from NGO's in this area.

Some of the key findings which are quoted in the Summary Report which can be downloaded free from the Ethical Corpporation website include:

67% of 116 corporate sustainability professionals who responded to an Ethical Corporation survey said their company “measures social and/or economic impact of their business on the communities where they operate”

 

73% of respondents indicated that communication of their business impacts is one of the main reasons for conducting the studies. 71% of survey respondents said that the results of impact studies directly affect their

business strategy.

What are the things most companies are measuring ?

The summary report also covers some practical information which gives some benchmarking value to practitioners as they decide to embark on their own impact study. 30% of those who have performed such studies confirm they are not a five  minute job, but take longer than 20 days to develop. (This surprised me, I would have thought that any serious study would take significantly longer than 20 days!) . 28% pay $10,000 or less for such a study, and 18% pay between $30,000 and $100,000 (40% didn't spill the beans).

All in all, this 55 page report provides a very interesting overview of most of the key points in this vastly complex area of CSR and Sustainability practice, which is growing in importance. To quote the report, "Where the leaders lead, others follow", and there is no doubt that some of the advanced practices by the more forward-thinking companies are catching on. The report offers suggestions as to the directions this enitre field of  activity is taking and some recommendations for those thinking of developing their own practices. It's a good piece, informative, thought-provoking and educational. I personally gained important new insights from this report. I hope many companies will do also.  

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Author of CSR for HR: A necessary partnership for advancing responsible business practices.  Contact me via www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en  (BeyondBusiness, an  CSR consulting and Sustainability Reporting firm)

Response to the Case Against CSR

I suppose a response on this blog is preaching to the converted, but I still couldn't let pass the professorial post from Dr. Aneel Karnani, associate professor of strategy at the University of Michigan's Stephen M. Ross School of Business.. Dr. Karnani explains why CSR is flawed in his article of 23rd August 2010: The Business Case Against CSR.  The flavour of his piece, which at the time of posting already generated 52 responses, some for, some against, can be seen in the following excerpts:

"Can companies do well by doing good? Yes—sometimes. But the idea that companies have a responsibility to act in the public interest and will profit from doing so is fundamentally flawed. Large companies now routinely claim that they aren't in business just for the profits, that they're also intent on serving some larger social purpose."

"Irrelevant or ineffective, take your pick. But it's worse than that. The danger is that a focus on social responsibility will delay or discourage more-effective measures to enhance social welfare in those cases where profits and the public good are at odds. As society looks to companies to address these problems, the real solutions may be ignored."

"Still, the fact is that while companies sometimes can do well by doing good, more often they can't. Because in most cases, doing what's best for society means sacrificing profits."

"Executives are hired to maximize profits; that is their responsibility to their company's shareholders. Even if executives wanted to forgo some profit to benefit society, they could expect to lose their jobs if they tried—and be replaced by managers who would restore profit as the top priority."

"In the end, social responsibility is a financial calculation for executives, just like any other aspect of their business. The only sure way to influence corporate decision making is to impose an unacceptable cost—regulatory mandates, taxes, punitive fines, pubic embarrassment—on socially unacceptable behavior."

So, ok, stop, think. It amazes me actually how many business people actually think like this, that money is the sole thing that interests shareholders. It frightens me that a Michigan professor thinks like this. I doubt that any amount of rational retorts will change the mind of this CSR-dissenter, and I guess he is entitled to his opinion and I guess the Wall Street Journal is entitled to print it. For the record, the Wall Street journal is owned by the Dow Jones Company, who has both a Code of Conduct and a Corporate Environment and Safety section on its website, which includes voluntary contributions. Not a wholehearted leap into CSR practices and transparency, but a toe in the water.

The fact that regulation, taxes and fines will not comprehensively change corporate behaviour and never have done, should be clear enough to a Professor of Strategy, I would have thought. The fact that CSR is a financial calculation, just like any other aspect of the business, is not really in dispute - CSR should support delivery of stronger financial returns over time, and data shows this to be the case. The key flaw in this prof's argument is the trade-offs between short and long term. Many generally believe that shareholders want to maximinse SHORT-TERM profit at almost any expense (though there is a growing body of evidence that this is not the case) whilst CSR is by definition focused longer term. Yes, there is an element of sacrifcing short term profit for greater long term profit, which continues to be in shareholder real interests. Talk to Ray Anderson of Interface, Stuart Rose of Marks and Spencer, Jeff Immelt of GE and many others, and they confirm that CSR-type activities repay themselves many times over. How can a professor of STRATEGY be so hooked in the short-term vision box? Perhaps he is a professor of monthly strategy ?

The other core flaw in Dr Karnani's writing relates to the fact that the adoption of business of social policies will delay governments doing it themselves. Excuse me ? Is not the response by business to social and environment global issues required precisely because governments have not resolved these issues, and almost certainly never will. The essence of this argument pits businesses against governments and civil society, ie that each has a role and each should stay in their own corner, ne'er the twain shall meet. What we are seeing today as the concept of CSR matures, is the convergence of these roles, the fuzzying of these boundaries and the coming together of the complex interplay and multiple influences in which law influences business, business influence law, and both are influenced by effective NGO activism. In fact, I have just read an outstanding book (my review to be published soon on www.CSRwire.com)  called The New Corporate Accountability - Corporate Responsibility and the Law in which these issues are discussed intelligently and cohesively. I recommend this book to Dr. Karnani. The more we try to keep business in splendid isolation to make as much money as possible, governments in splendid impotence to prescribe social and environmental regulations and NGO's in splendid righteousness, accusing and condemning, our planet will not be sustainable. CSR is much more than a business strategy, it is a convergence strategy of partnership within and across sectors, and across narrow-minded artificial boundaries.

The good news is that the arguments of short-termists are good only as long as their thinking lasts. Fortunately for us, and the world, in the case of Dr Karnani, this is about a month. Then we can get back to doing the business in a way which benefits people and environment, in other words, we can revert to the case for CSR.

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Contact me via www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)

A merger of value and values

Now that I have got the hang of embedding slideshare presentations in my blog posts, I wanted to share with you the story of a non-profit merger which I have been supporting in my consulting work for the past 9 months or so. I am referring to the establishment of Leket Israel, Israel's only non-profit umbrella organization whose mission is to alleviate food insecurity through providing hundreds of food non-profits (who provide meals and food supplies directly to the needy) with a consistent supply of safe and nutritious food of all types, and supporting these non-profits through capacity building training, advice and resources. Leket Israel's operation is truly outstanding and an exemplary social AND environmental net positive impact organisation. Leket's positive Social impact comes through ensuring more people have access to basic nutritional requirements and increasing levels of food security in Israel. Leket's positive Environmental impact comes through massively reducing food waste by rescuing food and ensuring it gets to people who need it.  

The food comes from 4 sources:

• Gleaning of agricultural fields and salvaging fruit and vegetables which would otherwise be left to rot, or salvaging fresh produce which cannot be sold from packing houses.
• Rescuing catered meals from a wide range of venues including large catered events,  corporate dining drooms, restauraunts and even Army bases. The rescued meals are, of course, those which have not been served to the table and remain in their original catering packing.
• Collecting unsalable manufactured food products from food manufacturers and importers - these are typically products which are close to sell-by date but risk reaching expiry date by going through the regular supply chain to groceries, or products which have wrong labels or similar issues which don't affect the quality of the contents. 
• Operating a collective purchasing program, whereby food non-profits can purchase food (which they will distribute to the needy, to supplement donated food) as part of a collective operation run by Leket, and achieve up to 30% in savings versus regular food purchase prices.

Leket Israel employs around 70 staff and engages tens of thousands of volunteers each year in the gleaning program and food rescue collection and distribution (much of which is at night time). In 2009, the combined organisation  provided over 10 million meals in this way. That's one meal per day every day for over 25,000 people suffering from food insecurity. That's over 12 million lbs of food which would otherwise have become carbon-emitting organic waste.

At the beginning of 2010, Leket Israel was formed through the merger of two organisations, which you can see in the following presentation :

Non-profit Merger - Leket Israel

View more presentations from elaine cohen.

Back in 2006, I had the privilege of consulting to one of the merger partners ("Leket: the Israel Food Bank" - the collective purchasing arm)  (and in doing so, getting to know the other merger partner as well, "Table to Table", the food rescue arm). At this time, I supported the establishment of "Leket: The Israel Food Bank" after a year long and complex process of market research and dialogue with a wide range of stakeholders including facilitating several group discussions. I led the formulation of a comprehensive business plan which was used to secure funding for the establishment of "Leket: The Israel Food Bank" . Having completed my role, I was pleased to see the organization develop and increase its activity year on year.
 
During 2009, I was approached by the Chairmen of the two merger partners to assist in reviewing the viability of a merger between the two, and, if agreed, support the merger process and post-merger operational development. The result is a new organisation, "Leket Israel", bigger, better, more efficient,  and with a strong and optimistic future, as it consolidates the merger, drives synergies and significantly expands its activities. The name Leket refers back to the biblical commandment of leaving behind for the poor any grain that the harvesters’ sickles have missed.
 
The process of the merger is described in the presentation, so I won't dwell on that here. Suffice it to say that this is social entrepreneurship at its best. The issue of resource inefficiency in the non-profit world should not be underestimated. Non-profits, which look beyond the personal interests of the founders, or the ego of the key players, to focus on the optimal way to further a social mission, are the true leaders of this sector. In recent years there has been much talk about the convergence of the non-profit world and the business world. M&A's (mergers and acquisitions) are still a rare thing in the charity sector. I am sure that Leket's pioneering progress sets an example for many others. 

As a consultant, I have to say that this sort of work is both challenging and  immensely rewarding. The ability to work with philanthropists who are committed to a better future, visionary social leaders and  motivated and capable staff and volunteers is humbling. It remains  for Leket Israel to deliver their challenging 3 year work-plan  (supported by  a Scorecard measurement and metric process), and improve the understanding and measurement of the true scale of this organization's positive direct and indirect impacts . I am sure that, once an appropriate total measure of overall impact is established, the scale of positive contribution to society and environment will surprise even the founders.

elaine cohen is the joint CEO of BeyondBusiness, a leading reporting and social-environmental consulting firm. Visit our website at: www.b-yond.biz/en  

A special kind of non-profit

I am dedicating this post to Beit Issie Shapiro. Beit Issie Shapiro is a non-profit organization based in Israel  that develops and provides services for children and adults with developmental disabilities. It has played a leading role in promoting the inclusion of people with special needs in society and advocates for better legal provisions for people with special needs.
The organization was founded in 1980 by Naomi Stuchiner, currently President of Beit Issie Shapiro, as a way to fulfil the dream of her late father to contribute the quality of life for people in Israel. Beit Issie Shapiro is currently managed by the CEO Jean Judes, the inspiring and forward-thinking leader of this organization which employes over 300 staff and and has a measurable impact on some 24,000 people, annually. 
I invite you to read about the wonderful work that is done by Beit Issie Shapiro, in caring for those with disabilities, in developing awareness, knowledge and best practices through care programmes, research, training and community outreach. I have a special admiration for the open and responsible culture fostered by Beit Issie Shapiro which i was privileged to experience at first hand though work i have done with the organization on the subject of ethics.

In this post, i wanted to express a particular sense of awe, after i participated in a Special Evening last week celebrating the 30th Anniversary of Beit Issie Shapiro. The organization funded a thank-you event for partners, donors, employees, friends and community members - one of the most special evenings I have attended in a long long while. The highlight of the event was the China Disabled People's Performing Arts Toupe (CDPPAT) and their incredible show "The Dream". . All the performers of this unique group are hearing, visually or physically impaired. The precision, talent, energy and style which which they performed are an example to us all.The performance was incredible - moving, so,so professional, and thoroughly inspirational.
More than the performance itself, I wanted to applaud Beit Issie Shapiro for staging this evening, for the benefit of the community. It is not often we see non-profits, who are so engaged in fundraising and solliciting donations to promote their cause, assign a portion of their funds and energies in generously providing a different kind of value to the community.

I just wanted to share that with all my readers.

elaine cohen is the joint CEO of BeyondBusiness, a leading reporting and social-environmental consulting firm . Visit our website at: www.b-yond.biz/en 

8 reasons non-profits should write sustainability reports

BSR – Business for Social Responsibility – a leading light in the field of professional non-profits (they might prefer to be called an NGO) produced their second public report earlier this year, which you can download here. I won't take up your valuable time by analyzing this report, excellent though it is. I will however express my respect for an NGO who adopts a policy of public disclosure and reporting.
Far too often in the non-profit world we see a reluctance to adopt professional practices of social and environmental responsibility and transparency. NGO's, who are often so critical of business, and who campaign businesses to improve their impacts, often feel that this doesn't apply to them. "We are promoting a social cause, why should we be transparent?" is the cry.""How better than this can you get? is the implication. I fail to see the logic here, of course. All organizations, for profit, not-for-profit, for a better world or for a better environment, for better or for worse (or for chunky monkey) should behave sustainably. One could argue that non-profits should be even greater models of transparency than we might expect of business. In the case of an organization whose mission is to promote sustainable business practices, such as BSR, this an absolute necessity. Similarly, one cannot fault the Global Reporting Initiative for not behaving with integrity. Their Sustainability Report for 2007/2008 is proudly presented and follows GRI methodology to the letter. The Global Compact produces an annual report which can be found here for 2008.
Why is it important for non-profits to report? Is this not a duty (and a privilege?) reserved for corporations? Corporations report because they have a responsibility to account for their impacts on stakeholders, and in doing so hope to enhance trust, relationships, engagement and improve business processes to yield greater overall sustainable impact. Are these objectives equally valid for non-profits ? Of course. So why is reporting branded corporations only?

I looked for non-profits who produce a sustainability report (i excluded academic institutions, professional assosiations and governmental bodies from this analysis in order to focus on social and environmental cause-based non-profits only).

The UK based World Wildlife Fund published its latest an Annual Review in 2008. This is a great overview of their emvironmental impacts covering issues such as Earth Hour, climate change, sustainable investment and the way we all live as earth people. But it says nothing about internal procedures such as governance, budget allocations, people management, people diversity, community involvement, purchasing policy. Governance is covered on the website, in headline terms, and their 2008 annual financial report covers management , strategy, performance against targets and financial statements. All in all, a pretty good disclosure. There are gaps, mainly relating to their internal policies and decision making processes, support for human rights, human resources management and policies etc, and the fact that you have to read two reports to understand the totality of the organization's non-financial impacts is a minor inconvenience.
Oxfam International , another UK based non-profit which brings together 13 country Oxfam organizations, has its 2007 Annual Report available on their website ,an accountability section with some further detail and a 125 page report assessing Oxfam's social impacts. But all this falls far short of a sustainability report. Very little on governance, ethics assimilation, the way they employ people or the way they impact on the environment. I couldnt find a number of how many people are employed by this organization. And what about their purchasing budget ? Any ethical purchasing? How do they manage suppliers ?
Thumbs up for Save the Children, also a UK registered charity, you can read their Annual Report for 2007/8 - this comes very close to sustainability reporting with a strong section relating to internal governance and processes, people management, equal opportunity employment, disclosures related to ethical investing, risk management and more. They also have a Global Children's Panel, a kind of stakeholder dialogue process made up of a panel of 14 young people between the ages of 12 and 17 from 9 countries. 46% of the leadership team are women (go girls!). A great report !!

Enough with the UK, I say to myself , let's look at the USA , I answer myself. Fast forward to Feeding America. Nothing more than financial statements on this website. Yet this is a massive organisation which oversees an enormous network of foodbanks, logistics, trucks, people and more. Environmental impacts here are significant. And also environmental benefits with the amounts of food waste they avoid or reclaim . Another neat non-profit came accoss my radar in the form of StrongWomen , Strong Girls. Surely a feminist organization would be more transparent, right ? Wrong. Nothing, not even financial reports.Come on, girls, lets show 'em how its done. Global Giving is a great organization improving our society. We are treated to detalied biographies of the 22-strong executive team, and an annual report for 2007, which covers the projects GlobalGIving supports, but no additional details. How many staff are employed at this non-profit? How do they manage their carbon footprint ? How do they select, hire and fire people ?

So far, i find my search for reporting non-profits to be rather disappointing. Then i had a brainwave. I waved back. I zoomed off to the GRI reporting website and downloaded their Reports List. Of the 454 GRI reports listed as published in 2009, 9 are non-profit (one of these is the GRI itself, mentioned above.). 2 % of the total . I had a look at one of them: The Ruah 2008 Community Services Accountability and Sustainability Report. , whose mission is to
"To redress disadvantage and enhance the human spirit. Based in Australia, Ruch provides community mental health services, housing and homelessness services, and works with issues of domestic violence, addiction, employment, and family support." What a delightful report!!! It is a self-declared C level report and meets the requirements for the UNGC Communication on Progress. They have 160 staff, use Bokashi bins for composting waste in their office locations, they have assessed their human rights compliance and developed an improvement plan, they spent 1.4% of salary budget on training, and employees receive annual performance reviews. This is an organization which is focused on their overall impact and not just the social mission which is their core "business".

The GRI has produced a NGO sector supplement, now in final draft form for public comment. The rational for NGO sustainability reports is stated as : " The public benefit nature of the NGO sector creates an additional responsibility to demonstrate that operations are consistent with the values represented." One additional indicator for NGO's for example is the issue of ethical fundraising policies and practice.

Anyway, to sum up what has become a rather long post (NB: Now is the time for ChunkyMonkey, helps keep you focused) the 8 reasons for non-profits to engage in sustainability reporting are similar to for-profit organizations:

1. build trust with stakeholders and manage reputation proactively
2. create a tool for structuring the process of stakeholder dialogue and engagement, and defining materiality
3. understand, manage and improve their economic, social and environmental impacts as an organization (in addition to the effectiveness of their social/environmental programs which is their "core" mission and which they currently addressss to some degree)
4. drive internal employee engagement
5. support recruitment of employees and volunteers
6. operate transparently - they have a responsibility to do so
7. gain competitive advantage in the fundraising war
8. ensure their own sustainability through robust internal governance, ethics and risk management practices

All these are relevant whether the operational profits are directed to the pockets of investors, or back into the community for the benefit of all. But this sector is largely unaware and unengaged in the true meaning of sustainability and the need for transparency beyond compliance and marketing.
This is why we decided, as CSR consultants with a mission to drive awareness and transparency, to offer one non-profit in Israel a FREEBIE sustainability report which we hope will start a REVOLUTION in this sector. (you can't fault us on optimism!).

elaine cohen is the joint CEO of BeyondBusiness, a leading reporting and social-environmental consulting firm . Visit our website at: www.b-yond.biz/en