In my job, I’m on the road a lot. That’s both good and bad. Of course, no one likes being away from friends and family but discussing the issues of the day with leaders from different organisations in different countries and different sectors never gets old.
One thing I’ve noticed recently is that companies are increasingly pivoting away from the traditional priority of maximising total shareholder return for investors. Sure, that’s still important but today, they are also looking at their total societal impact (TSI), a collection of measures and assessments which incorporates the economic, social and environmental impact of their products, services and so on.
Look, I know I would say that. After all, I’m a social impact director at The Boston Consulting Group. It’s my job to go out and persuade companies to focus more on their social and environmental footprint. I get it.
But fortunately, you don’t have to take my word for it. We have just concluded a big study of how companies in five industries are integrating societal impact into their strategies and operations. Mixing quantitative analysis with more than 200 interviews, we found clear links between non-financial and financial performance. Our quantitative analysis showed that non-financial performance on certain environmental, social and governance topics had a statistically significant impact on company valuations and on margins.
So, what’s behind this? And where does government come in?
Rethinking the role of business
I was in South Africa last month. It’s one of my favourite places – not without its challenges, sure – but nonetheless a country that exerts a magnetic allure to travellers far and wide. Me included. I was there to check out one of its government programmes, Enterprise Development, which ensures that banks must direct 0.2 percent of their profit to support black-owned small and midsize enterprises (BSMEs).
Although this requirement is generally met by making donations or grants to black entrepreneurs or BSMEs, Standard Bank has taken a different approach. The bank invested a portion of the money into an independent trust to be used as collateral for loans to aspiring black entrepreneurs, none of whom would have qualified for loans. The bank used other enterprise development funds to provide support such as technical advice and services to those businesses. This approach allowed the bank to provide business loans to a larger number of BSMEs and to help improve the performance of those businesses.
This is exactly the type of innovative initiative that is becoming more and more common. Their prevalence, though, is not down to any one issue but rather a chorus of intertwined issues. Firstly, pressure tells. Employees, customers and governments are increasingly calling on companies to play a more prominent role when it comes to critical challenges such as economic inclusion, global health challenges and climate change.
It has also become widely accepted that meeting the UN’s Sustainable Development Goals (SDGs) will not be possible without the private sector’s involvement. As a consequence, governments expect companies to do more to solve economic and social problems – particularly when it comes to funding. The annual gap between the cost of achieving the SDGs and the available public funding is projected to be as much as $2.5 trillion – no wonder they’re looking to the private sector to step up.
Secondly, investors’ expectations are on the move. I don’t want to get too technical but evidence is mounting that companies’ performance in social and environmental practices affects returns over the long-term. Again, you don’t have to take my word for it – just look at the numbers: in 2016, global assets in the category of socially responsible investing hit nearly $23 trillion, up from $18 trillion in 2014.
And thirdly, transparency is on the up. Data on environmental, social, and governance (commonly referred to as ESG) is becoming increasingly available and reliable. This puts companies’ actions in those areas under greater scrutiny, thus reinforcing investors’ ability to track performance.
Why total societal impact works
But this is really about far more than just dollars and cents. Companies that work to support a country’s economic and social development goals can strengthen relationships with governments, regulators, and other influential parties. In turn, this can help them scale up their initiatives to have a wider, more positive impact.
Take oil and gas companies, for example. Often operating in remote, less developed regions where their business practices have significant implications for the local population, they often work with local governments and other groups to support the development of local businesses that can become suppliers to the company. But some take it to the next level.
As part of its exploration and production activities, BP works with national governments to agree on local content requirements for materials and services, align on local workforce targets, and collaborate on economic development. BP’s collaborative approach to government partnership helps earn the company a seat at the table with government leaders around the world.
Such examples are why I am increasingly heartened by what I am observing across the international corporate landscape. But while good progress is being made, that’s no reason to take our foot off the gas. There remains much to do before TSI gains universal acceptance amongst businesses large and small.
Let’s get to work.
Want to learn more? Download Total Societal Impact: A New Lens for Strategy
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- What next for South Africa’s social impact bonds? The first wave of social impact bonds has hit South Africa’s Western Cape, focusing on early childhood development, explains Aunnie Patton Power
- Surging social investment in the UK. Investments don’t just have to be about financial returns. Social investment – which also aims for an improved social outcome – enjoys increasing prevalence and importance. Cliff Prior tells us why…
- Advancing impact investing in Australia. Impact investing is taking root as a key tool in Australia’s approach to achieving social and financial benefits for its citizens and institutions. We hear from Daniel Madhavan about the story so far
- How tech can make social impact work, work. Sam Applebee explains how tech agencies can best work with civil society organisations to strengthen their impact.