In a world where stakeholders are tired of corporate spin, what is needed for business to show that it cares?
When companies started funding social upliftment initiatives in the 1990s, the response from investors, employees and customers was positive. Corporate reputations soared on the back of successful projects. Corporates were seen to be philanthropic, taking it upon themselves to uplift downtrodden social groups that had no financial means to play a role in the companies’ future.
No longer. Fast forward to 2020 and those same investors, employees and customers have significantly ratcheted up their demands on corporates. Those companies seen to regard contributions to social and environmental development as mere largesse run significant risk of reputational and even corporate valuation loss – a fact to which many mining companies could attest.
Given the extent of negative news events and trends globally, the pressure is growing. The extent of the Covid-19 coronavirus pandemic, labelled by the World Health Organisation as a “defining global health crisis of our time”, should prompt companies to show that they care about their biggest asset – their employees – especially during this challenging period. It is, now more than ever before, imperative that companies demonstrate that they care about their environmental and social impact.
The question from several leaders of companies I interact with is how they should start showing their companies to be good corporate citizens.
Today, it is a given that companies should attend to corporate governance policies, practise and reporting. That is seen as a mere hygiene factor.
Instead, the areas on which investors and other stakeholders will focus frequently relate to a company’s social and environmental impact. As a network of some of Africa’s largest companies, we see repeated demonstrations that what matters to stakeholders of a company is the extent to which it manages to place its social or environmental impact initiatives at centre stage in its business strategy.
The transition needed is for companies to address the tension between financial returns and meeting wider societal needs. What we have seen – which world-renowned Harvard University academics and economists Professor Michael Porter and Mark Kaplan first pointed out in a 2011 article in the Harvard Business Review – is that the best results come from those companies that place upliftment of society and/or environment at centre stage in the company’s business strategy.
To illustrate with a few examples:
Companies from across the continent – including Discovery, the KCB Group, Safaricom, Absa, Old Mutual, Enel Green Power and others – demonstrate that creating business strategies from solving social challenges does indeed generate profits as well as social returns. Those companies which have turned social upliftment into a core operation – think of Discovery’s Vitality wellness programme and KCB’s responsible lending and financial inclusion operations, among other initiatives – generate economic returns as well as investor, employee and customer recognition. Why? Because they have taken social upliftment initiatives from the realm of corporate spin to a genuine desire to use corporate muscle to solve social challenges at scale.
There are several drivers moving business in that direction. Increasingly, board members want a company’s community upliftment activity to not only reduce reputational risk, but also to improve the company’s sustainability. This is aligned with the rise of ESG investing – the increasing investor interest in a company’s environmental, social and governance impacts as signalling possible unmatured future risk.
Investors use environmental, social and governance analyses to focus on a company’s ability to sustain competitive advantage over the long term. Areas assessed include environmental management to minimise externalities and reduce consumption of energy, water and other resources. A company’s once-off reduction of its carbon footprint is useful, a company building of a school is heart-warming, but only a sustained effort to focus on reducing environmental and social harm, as well as living up to corporate governance requirements, will generate positive investor interest.
The other side of this trend is that investors are increasingly unwilling to accept corporate spin, wanting to see that companies are sincere in working towards social upliftment. Take those banks that resolved to improve their environmental impact. The response from civil society organisations was to demand that the companies reduce investment in initiatives that are harmful to the environment, such as coal plants. Only a decision to stop investment in coal altogether would be regarded as a genuine demonstration of environmental concern.
The logical end point is for a company to demonstrate that its business operations are built around profit with purpose, by using the business to solve a social or environmental challenge.
Until about 2000, philanthropic work was a simple matter of finding one or two worthy causes and making well-publicised donations. By 2010, that approach had transitioned into a corporate social investment team directing donations towards organisations in the company’s sector, along with demands for report on how funds were used. By now, rising societal concern about inequality, social need, environmental degradation and climate change has translated into a demand for professional investors to include assessment of social and environmental impact with the traditional focus on financial returns.
Investors are tired of spin, as are the very people who give companies license to operate – consumers, employees and the general public. Employees want to work for companies that care, consumers want to support brands that demonstrate that they care. Companies take note, it is time to show genuine concern or to understand that your business has a shelf life.
Barnard is CEO of business network Shared Value Africa Initiative