Title: CSR Impact
Course: Corporate Social Responsibility online > Section: Part 4: Evaluating CSR impact

/1h 30 minutes/

Impact assessment

Impact assessment can be generally defined as:

It leads to better decision making by providing information to identify, predict, and evaluate the effects of an action, plan, or project (Lud 2020).

So the famous sentence from Peter Drucker "You can't manage what you don't measure" encouarages us to look for ways in which we can evaluate the impact of CSR.

When talking about evaluating CSR, we need to be very precise about what we mean by CSR. As we've learned in this course, CSR can be understood as philantropic as well as customer-,  employee-, or environment-oriented initiatives. In business projects, we use simple economic measures, like ROI or ROE, for evaluating impact. When it comes to CSR, we need to look for a set of metrics that will indicate the entire ecomomic, social and environmental impact.

The concept of the Triple Bottom Line (TBL), proposed by John Elkington (we discussed it in Task 4: Sustainability as a key goal for business), sets the fundations for sustainability impact assessment, so let us remind you the basic assumptions of TBL:

https://youtu.be/x9WvCJ3oOL0

Source: tutor2u, Corporate Social Responsibility - Elkington's Triple Bottom Line (4:15 min) [access 13.06.2020]. Derived from Youtube: https://youtu.be/x9WvCJ3oOL0

In the next sections, we will discuss all the three dimensions of CSR impact assessment, namely the environmental, social and economic dimensions.

References:

- Lud D. (2020) Impact Assessment. In: Idowu S., Schmidpeter R., Capaldi N., Zu L., Del Baldo M., Abreu R. (eds) Encyclopedia of Sustainable Management. Springer, Cham

- IAIA (International Association for Impact Assessment). (2009). What is impact assessment? https://www.iaia.org/uploads/pdf/What_is_IA_web.pdf. Accessed 20.02.2019.

Environmental impact

Environmental management is central to CSR thinking. This term embraces such aspects as natural resources management, waste management, recycling, marketing green products, and pollution prevention and control.

We can say that a company's environmental performance is the result of an enterprise's environmental management. Firms assess the impact in terms of the environmental consequences (positive and negative) of a plan, policy, program, or actual projects so as to reduce their water waste or energy use. "For example, Unilever has lowered its own worldwide usage of water by 54 % over 10 years and has been working with its suppliers so that, for example, tomato growers have reduced their water consumption by half" (Blowfield & Murray 2014, p. 288).

As usual, while talking about CSR issues, it is crucial to identify the scope of the analysis, i.e. to determine what kind of consequences we take into account and who do we need to involve in the process. Let's learn more about identifying relevant issues in environmental impact assessment:

https://www.youtube.com/watch?v=RWtT0EfhNsE

Source: Inter-American Development Bank, Environmental impact assessments: identifying relevant issues and concerns from the beginning (4:15 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=RWtT0EfhNsE

Recognizing environmental impacts often requires involving different stakeholders to be able to discover their perspectives on certain projects. Due to do this, you can use the methods of stakeholder mapping that you've learned in the section Multiple stakeholder orientation.

After recognizing the scope of impact an organization monitors, it is possible to identify the key characteristics of its operation and activities that can have a significant impact on the environment. Monitoring all its operations requires knowledge about the entire product supply chain. Learning about the supply chains and their environmental (and also social) impacts might be also important for customers.

Please watch a simple example of environmental impacts occuring during T-shirt production:

https://www.youtube.com/watch?v=BiSYoeqb_VY

Source: TED-Ed, The life cycle of a t-shirt - Angel Chang (6:03 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=BiSYoeqb_VY

Are you interested in a specific example? You can explore the website https://purpose.nike.com/protecting-environment, and check how Nike deals with four problems identified by the company field of environmental impact: Carbon and Energy, Water, Waste and Chemistry.

References:

- Blowfield M. & Murray A. (2014), Corporate Responsibility. Oxford University Press, 3rd edition.
- https://purpose.nike.com/protecting-environment

Social impact

Ok, so we have an idea of what environmental impacts are. And how is it with social impacts? What are these?

Social impacts (SI) are defined by the Interorganizational Committee on Guidelines and Principles for Social Impact Assessment (1994, p. 1) as:

Thus, the assessment of social impact (SIA) includes:

“processes of analyzing, monitoring, and managing the intended and unintended social consequences, both positive and negative, of planned interventions (policies, programs, plans, projects) and any social change processes invoked by those interventions” (Vanclay 2003, p. 6).

As capturing of social impact may be difficult, decision-makers often tend to ignore it and don't include it in their considerations.

Therefore, the first methods for Social Impact Assessment (SIA) were developed for nongovernmental or governmental organizations, which are interested in their intangible impact towards society. Because of the importance of human and social capital for competitive advantage, recently the importance of SIA gathers also atention among for-profit organizations (Klimkiewicz 2020).

Going to details, let's imagine a corporate programm where for 3 years a company's volunteers have been working with a foundation that helps poor families get access to education. How would you measure the performance of this initiative? The most common questions we would probably ask are:

How many volunteers have worked for the foundation?
How many families/children have benefited form our programs?

We could also think about questions like:

Which competences did our employees develop while working for the foundation?
What is the program’s impact on children’s educational performance?

However, the core questions should rather be:

How do our activities help to solve this particular social problem?
What is the social return from this investment?

Measuring social impact has recently been gaining attention among both non governmental organizations and business organizations with a social mission, which want to monitor the changes resulting from their social engagement.

As we have already mentioned, we need to be clear about what we want to measure, therefore the first thing to do is to formulate a mission statement:

https://www.youtube.com/watch?v=NZkDGevwDqI

Source: Social Investment Business, Measuring your Social Impact: Mission Statement (2:14 min), [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=NZkDGevwDqI

So when we already know what we want to acheive, we need to admit that something needs to change. How can you measure what has changed? The theory of change well explains how to measure the social impact of initiatives:

https://www.youtube.com/watch?v=dpb4AGT684U

Source: Social Investment Business, Measuring your social impact: Theory of Change (2:25 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=dpb4AGT684U

OK - now we know how the theory of change works, so let's go on to how to create a measurement plan and how to conduct it:

https://www.youtube.com/watch?v=zHLs503L5Lw

Source: Measuring your Social Impact: Measurement plan (2:44 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=zHLs503L5Lw

We have the results - great! Does it mean that we have finished with analyses? Not really. We still need to know how to use these results and how to report them:

https://www.youtube.com/watch?v=38fefskOejk

Source: Measuring your Social Impact: Using Results (2:27 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=38fefskOejk

The social impact can be identified in various projects, not just CSR projects, but wherever you have some intagible effects that are hard to measure in quantities, like trust, loyality, satisfaction, etc. In fact, the measuring of social performace really depends on what you want to measure and how you define it.

Do you wish to explore more, using specific examples? You can check the equity and community programs of Nike

- https://purpose.nike.com/standing-up-for-equality
- https://purpose.nike.com/inspiring-communities

Maybe you wonder what the social impact of this kind of initiative is? Let's look at the Nike's Impact report website: https://purpose.nike.com/fy19-nike-impact-report, or search directly for interesting data in the report: https://s3-us-west-2.amazonaws.com/purpose-cms-preprod01/wp-content/uploads/2020/04/10225416/FY19-Nike-Inc.-Impact-Report.pdf

References:

- International Association for Impact Assessment (1994, May). Guidelines and principles for social impact assessment. NOAA Technical Memorandum NMFS-F/SPO-16. https://www.st.nmfs.noaa.gov/tm/spo/spo16.pdf. (Accessed 31.05.2019).
- Klimkiewicz K. (2020) Social Impact Assessment. In: Idowu S., Schmidpeter R., Capaldi N., Zu L., Del Baldo M., Abreu R. (eds) Encyclopedia of Sustainable Management. Springer, Cham
- Vanclay, F. (2003). International principles for social impact assessment. Impact Assessment and Project Appraisal, 21(1), 5–12.

Economic impact

As we remember CSR is defined as "the responsibility of the firm for its impact towards society" (European Commission 2011).
Therefore, the environmental as well as the social impact assessement is perceived as the future of CSR.

A typical manager, though, will ask a different question, namely:
How CSR impacts a firm's financial performance?

Well, the answer to this question is not easy. Research in this field shows contradictory results or, as we can also say, presents a variety of different possible hypothezes.

A majority of studies advocate for a positive relationship between CSR and finacial performance, yet it is difficult to clarify the interpretation of this result: is it so that CSR helps to increase financial performance or it is rather so that the companies that have good financial results invest in CSR? There are also studies that show negative corralation between CSR and finance, but researchers still struggle with the proper interpretation of these results. Also some studies show that there is no relationship at all, meaning that CSR and financial results don't influence each other.

Companies try to evaluate CSR activities by using marketing and social media measures (e.g. in terms of customer interest, number of likes on FB, brand attraction), HR and employer branding measures (e.g. employees' satisfaction and engagement, diversity scores, training hours, job seekers attraction), or even integrate CSR into a performance measurement system (e.g. by including social and environmental measures into their balance score card).

A comprehensive view on economic impact exeeds, however, the narrow understanding of a company's financial profit. In fact, the distinction between social and economic impact is to some extent artificial, as the economy is actually part of the society. "Nonethless, CSR practice and theory still often make a distinction between the social and the economic" (Blowfield & Murray 2014, p. 292). While mainstream companies think of their economic impact as the consequences of the conduct of their regular business operations, there are also alternative approaches. We can consider a big multinational company that seeks to examine the meaning of economic impact of its operations, e.g. by examining the economic impact of its investments in the local comunity. Also, there are alternative business models (e.g. social entrepreneurships, microfinance models, fair trade), where the rationale for operations itself is that it is an effective means for contributing to the social good (Blowfield & Murray 2014).

Is this hard to believe that firms may seriously take economic and social impact in the course of their decision making? There are lots of approachs to comprehensive impact assessment.

Let's watch a short video on Total Impact Measurement and Management from PwC (3:50 min):

https://youtu.be/CyE5BC1B3y0

PwC. Total Impact Measurement and Management (Access: 15.06.2020) Derived from Youtube: https://www.youtube.com/watch?time_continue=174&v=CyE5BC1B3y0

To learn more details on the Total Impact Measurement and Management, we recommend that you read the full article:

- Measuring and managing total impact: A new language for business decisions from PWC: https://www.pwc.com/gx/en/sustainability/publications/total-impact-measurement-management/assets/pwc-timm-report.pdf (Accessed 25.05.2020)

Impressive, isn't it? However, what you can probaly see now is that the quality of this kind of tools relies on the quality and scope of the data gathered. Therefore, one of the topics that are widely discussed today is CSR reporting.

References:

- Blowfield M. & Murray A. (2014), Corporate Responsibility. Oxford University Press, 3rd edition.
- European Commission (2011) Communication from the Commission to the European Parliment, the Council, the European Economic and Social Committee and Committee of the Regions, A renewed EU strategy 2011-14 for Corporate Social Responsibility, https://www.europarl.europa.eu/meetdocs/2009_2014/documents/com/com_com(2011)0681_/com_com(2011)0681_en.pdf (Accesses 9.06.2020)

CSR reporting

"Financial reporting is acknowledged to be central to the corporate function. (...) However, over last 40 years an increasing proportion of companies in most countries have chosen to report on a range of activities that go beyond purely financial information and include disclosures relating to wider business environment, in which they operate, (...) like: community, product, employees, or environment" (Blowfield & Murray 2014, p. 180).

While the reporting of a company's activity traditionally falls into the accounting department, non-financial reporting requires a broader look and gathering data in different departments.  Financial accounting and reporting are prepared for external stakeholders, and are produced as a legal obligation and as an exercise of accountability to the owners of the business, i.e. its shareholders. "Traditionallty these measures of performance have focused on financial issues (...) and the profit maximization is the goal against which performance is assessed. (...) [In the past,] the measures of profit omit to take account of the by-products of commercial activity for which  others have to pay (externalities), such as pollution, emission, road use, etc. Therefore for companies it was logical to externalize  as much of their activities as possible, as this will help keep profits higher, and prices more competitive" (Blowfield & Murray 2014, p. 181).

As we already know, CSR challenges the traditional way of understanding profit and turns it into the Triple Bottom line. This influences also the way in which a company communicates and reports of the effects of its operation.

Recently, however, companies have been showing increasing interest in a more comprehensive approach to reporting. Why? First, because of the increasing need for transparent communication, as investors and consumers show interest in the details of the social and environmental aspects of company management. Second, because in many countries regulators introduce laws that encouarage, or even in some cases require companies to disclose social and environmental information on their business.

Next, we will present two highly recognized approaches to non-financial reporting:

<IR> Integrated reporting
GRI Global Reporting Initiative

References:

- Blowfield M. & Murray A. (2014), Corporate Responsibility. Oxford University Press, 3rd edition.

Integrated reporting

One example of how reporting on non-financial aspects can be adressed in practice is <IR> Integrated reporting. The <IR> Framework describes six classes of capitals (IIRC 2019):

Financial capital, which is the pool of funds available to an organization or its use in the production of goods or the provision of services;
Manufactured capital - the manufactured physical assets available for use by the organization;
Intellectual capital - organizational and knowledge-based intangibles, including patents, software, systems, and procedures;
Social and relationship capital refers to the relationships and institutions within and between communities, stakeholders, and other networks intersecting with the organization;
Human capital reflects the competencies, capabilities, and experience of the organization’s people;
Natural capital means all renewable and non-renewable environmental resources that the organization uses, including air, water, land, biodiversity, and the health of ecosystems.

Please learn the details from the video:

https://www.youtube.com/watch?v=EFm0sKeBLh0

Source: IntegratedReporting, Introducing Integrated Reporting (2:59 min) [access 13.06.2020]. Derived from Youtube: https://www.youtube.com/watch?v=EFm0sKeBLh0

These capitals play out in the short, medium and long term. This is a significant differentiator from traditional reporting frameworks in that it recognizes that business decisions may operate across multiple timelines in the way they create or destroy value for multiple stakeholders (IIRC 2019).

A detailed presentation of the Integrated thinking model can be found in the Integrated Thinking & Strategy State of Play Report: https://integratedreporting.org/wp-content/uploads/2020/01/Integrated-Thinking-and-Strategy-State-of-Play-Report_2020.pdf

You can note that the 'Spring model of integrated thinking' presented in this report relies on the theory of change, dicussed in the chapter: Social impact

References:

- IIRC (2019) Integrated Thinking & Strategy State of play report. Copyright  by the International Integrated Reporting Council, https://integratedreporting.org/wp-content/uploads/2020/01/Integrated-Thinking-and-Strategy-State-of-Play-Report_2020.pdf (Accessed 25.05.2020)

Global reporting initiative

Another example of non-financial reporting is a framework from GRI - Global Reporting Initiative. GRI reporting framework is one of the most commonly used worldwide sustainability reporting frameworks.

Sustainability reporting is a disclosure on economic, environmental, social and governance performance that is stakeholder-focused, aims at bridging financial and other types of performance as well as at continuous improvement.

The GRI's mission is to make sustainability reporting a standard practice by providing guidance and support to organizations.
The set of GRI standards includes:
3 universal standards, which are aplicable to all organizations, and
33 topic-specific standards, organized into Economic, Envionmental and Social series.

Please watch the following video to discover the details of the GRI framework:

https://youtu.be/6LkrhalWIMc

Source: GRI Secretariat, Sustainability reporting with the GRI Standards (2:40 min) [access 13.06.2020]. Derived from Youtube: https://youtu.be/6LkrhalWIMc

The topic-specific aspects are organized into Economic, Envionmental and Social series. What is especially interesting is the description of specifc indicators that can be used to present the data in certain categories.

The economic category of indicators refers to:

- economic performance
- market presence
- indirect economic impact, and
- procurement practices.

In turn, the environmental category consists of indicators referring to:

- materials
- energy
- water
- biodiversity
- emissions
- effluents and waste
- products and services
- compliance
- transport
- overall
- supplier environmental assessment and
- environmenral grievance mechanisms

The most detailed is the social category, where the indicators are organized into 4 subcategories:

Labour practices and decent work: employment, labor relations, occupational health and safety, training and education, diversity and equal opportunities, equal remuneration for men and woman, supplier assessment for labor practices, labor grievance mechanisms

Human rights: investment, non-discrimination policy, freedom of association and collective  bargaining, child labour, forced or compulsory lobor, security practices, indigenous rights, assessment, supplier human rights assessment and human rights grievance mechanisms

Society: local communities, anti-corruption, public policy, anti-competitive behavior, compliance, supplier assessment for impacts on society, grievance mechanism for impacts on society

Product responsibility: customer health and safety, product and service labeling, marketing communication, customer privacy, compliance.

In order to prepare a sustainability report, organizations select only the relevant topic-specific standards, based on their material topics.

It is possible to download and read the entire GRI Standard from the website: https://www.globalreporting.org/standards/gri-standards-download-center/

The reporting process allows to gain a comprehensive understanding of the risks and opportunities facing a business. Sharing information about policies and performance on environmental, social and governance issues helps to build trust with the customers and partners, monitor and mitigate risk, and find ways to improve efficiency, resulting in a positive impact on the financial results. By reporting with the GRI Standards, firms can better fulfil the compliance requirements of regulations from governments, financial markets and international organizations (https:// www.globalreporting.org)

You can also use the website to explore different case studies in GRI reporting:
https://www.globalreporting.org/information/news-and-press-center/Pages/Corporate-case-studies.aspx

References:

- https:// www.globalreporting.org