How to create business value through social investment

How to create business value through social inves...

This article first appeared on cfo.co.za   Whether social investment is central to your business or not, it is undeniable that all companies have social touch-points, which mean that companies influence, and are influenced by the societies in which they operate.   This is an expert insight by Neil Morris, Yoliswa Msweli and Sarah Ball. Neil is Director, Financial Risk Management at KPMG South Africa, Sarah is Senior Adviser Strategic Social Investments and Yoliswa is Strategic Social Investment Services Lead.

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Reasons for focusing on social development differs from organisation to organisation. For some, social investment and stakeholder engagement is centred around maintaining a social licence to operate and reduce stakeholder risks, while for others it may be more relevant in terms of galvanizing employee morale and engaging staff, or showing visible commitment to national imperatives such as the National Development plan. Many companies carry out social investment activities to strengthen their pipeline, both of material supplies and skilled employees.

Regardless of the motives, these are all strategic imperatives for your company and should be taken no less seriously than other decisions made at a strategic level. Social Return on Investment (SROI), which quantifies the impact of your social investments and determines the socio-economic returns it creates, is one way of elevating conversations about social investment appropriately. It allows the formation of a ratio between the investment made and the return achieved, as well as being able to identify to which stakeholder this value has accrued.

Our experience working with social investors, and more specifically, working with SROI has revealed a number of ways in which these types of analyses are able to add value to businesses directly:

  1. It feeds directly into your business strategy: Knowing which initiatives achieve the most impact and have the greatest positive effect on the intended stakeholders allows the decisions around social investment to be made from the same sound fact-base as other business decisions. This means that funds can be spent more effectively, achieving greater value for money, and essentially allowing a company to ‘do more with less’.

    SROI evaluations can also be carried out predictively, giving an indication of the likely benefit of an investment, and a clear understanding of which stakeholders are positioned to benefit most. This can save significant waste of social investment funds as the initiatives are far more likely to achieve the desired impact if they have been selected on the basis of their predicted ability to do so.

  2. It is able to ascribe a financial value to social impact of development activities, which enhances the reporting capacity and degree of transparency in the integrated reporting process. Although most of the capitals lag far behind financial capital in terms of their ability to be objectively reported, understood and compared, the momentum being gained by tools like SROI bode well for a more holistic approach to understanding the value being created by business, increasing the value of the Integrated Report.

  3. It helps to identify risks in your social investment processes and implementation plans. This is particularly relevant where separate legal vehicles such as Trusts, Funds and Foundations are used which, completely unlike any other business functions, are penalised for underspending. As a result, these vehicles often disburse money under pressure which leads to it not being spent strategically, and without appropriate due diligence processes.

    If the intended return is not being achieved, or if it is accruing to stakeholders other than those intended in the project design, a flag is raised as to possible irregularities which, if identified early, mitigate reputational and stakeholder risks.

    Leading from this, it affords members of the Social and Ethics committees the tools to treat their fiduciary duties with regard to social investment with the same gravity and objectivity as other board committees manage their respective portfolios.

  4. It gives you a clear understanding of WHO is benefiting from your investments, and how much of this benefit is attributable to you: Is most of the value accruing to the company? To project beneficiaries? To government? Is this who you were hoping would benefit? Knowing this helps provide a platform to create partnerships with the beneficiary stakeholders, or leverage the positive impact you are making on them to achieve greater value for your own business. It also gives you grounds to alter your investment if the desired beneficiaries are not being reached.

    In order to work out what percentage of the impact achieved is attributable to you, the SROI methodology takes into account attribution and counterfactual information (information that tells you about the contribution of others, as well as what would have happened regardless of your intervention). This informs the degree to which you are responsible for any impact experienced. In this way, you are able to understand how much credit you are able to take for impacts created, as well as to know who is responsible for the remainder, once again forming a valuable basis for decision making and the creation of partnerships. If this information is taken into account predictively, it is able to enhance impact, decreasing any waste that would have taken as a result of duplication and laying the foundation for constructive partnerships before the project begins.

  5. It provides a consistent measurement tool: Although the number of SROI assessments carried out to date is not large enough to have allowed for the development of robust benchmarks and points of comparison, the growing body of case studies is building a sound basis for shared learning and year on year comparison of the social investment portfolio of an individual company. Eventually, this will translate to a large enough pool of studies for companies to compare their projects with one another, strengthening the response of business to the country’s most pressing social issues and, in turn, creating a more stable society in which business is able to function more effectively, as well as continuing to drive improved value for money in the social investment arena.

This article first appeared on cfo.co.za

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