Over the past 10 years, many companies have been turning their attention to the social impact of their operations. The reasons are many: enhancing brand image, attracting and retaining top talent, and more practical concerns about the continuing availability of material supplies – natural resources – and ways to reduce the risk of future scarcity. Some companies are investing significantly in these initiatives. But how do they measure performance?
Deloitte Consulting LLP recently released a report on its evaluation of the 2014 Fortune 500 global public companies, representing six industries and 40 countries. The report outlines the benefits that most companies see in integrating social impact programs into their business strategy:
- Exploring new market opportunities
- Taking a more proactive approach to regulatory relationships
- Inspiring, attracting, and retaining talent – especially millennials
- Enhancing brand value with stakeholders
- Building resilient, sustainable supply chains
According to the report, only 3% of Fortune 500 companies state that social impact is “integral” to their overall business strategy, while 33% consider social impact “integrated” with strategy. For the other 64%, consideration of social impact is driven by external relationships (with government, regulatory boards, or the public in general) or to maximize shareholder value on a short-term basis. But Deloitte’s research shows that this situation is rapidly shifting.
Deloitte identifies four social impact archetypes:
- Social innovators: For these companies – the 3% – social impact is part of their fabric, embedded in programs across business units. These businesses create and provide goods and services that are socially conscious. They measure their social impact metrics and elevate them to the level of financial metrics.
- Impact integrators: These companies, which represent about one-third of Fortune 500 companies, include social impact in their strategy with the goal of opening up new business opportunities. They measure both business and social value, and hold business units accountable for their metrics.
- Corporate contributors: This is the most common archetype. Here, the primary goal of social impact activities is building a good relationship with customers and other stakeholders. Although it may represent significant investment, strategy is typically directed by individual business units, with activities like volunteering in the community or supporting foundations or causes. Or it operates independently through a corporate social responsibility or sustainability office.
- Shareholder maximizers: The main motivation for these companies is short-term shareholder value, and few resources are devoted to social responsibility initiatives. Strategy is generally limited to risk mitigation.
As more companies invest significant resources in social impact programs, CFOs are in the best position to work with internal stakeholders to develop measurable goals for performance and ROI. Finance can play an active role in building a robust social impact strategy and programs that help the organization achieve its business goals accordingly.
To learn more about how finance executives can empower themselves with the right tools and play a vital role in business innovation and value chain, review the SAP finance content hub, which offers additional research and valuable insights.