Saturday, September 25, 2010

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  on Twitter or via my business website  (BeyondBusiness, an  CSR consulting and Sustainability Reporting firm)

1 comment:

Dwayne Baraka said...

There appear to be some wonderful trends identified in this report - companies trying to understand how well they create value in the communities in which they operate.

There is an interesting tension here - companies that report how much value they create in local communities are increasing their brand value and perception of their ethical stance. But if companies aren't also understanding the complete picture in relation to externalities (that is, cost imposed onto local communities and wider society), they are creating false brand value for which (I'm guessing) some of them will not be able to account. Of course that's not an issue if the companies do all the good that they say they do and don't impose externalities. But it may be an error to take that brand strategy if there isn't a relatively sophisticated understanding of externalities matching the measurement of creation of value.

I really like what I am seeing coming out of the likes of Unilever, SAB Miller and Anglo American. And I want to see that work continuing to develop. So I'm keen to see companies telling us how well they are protecting brand value by minimising externalities.

Keen to hear other thoughts on this!

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