Reana RossouwWritten by

Best practice in corporate social investment (CSI)

Advisory and consulting| Views: 232

A  well thought through, comprehensive, innovative and creative CSI programme can become a competitive differentiator for a company. A good CSI programme is no longer a nice-to-have, but rather a critical component of business success. 

This article is aimed at assisting corporate social investment (CSI) practitioners through a step-by-step process to ensure:

  • A deeper understanding for the need for CSI
  • A snapshot of the past 20 years of CSI in South Africa
  • Current CSI best practice
  • Current CSI worst practice
The need for CSI

According to the International Standards Organisation (ISO), social responsibility is “the responsibility of an organisation for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour that:

    • Contributes to sustainable development
    • Including the health and the welfare of society
    • Takes into account the expectations of stakeholders
    • Is in compliance with applicable law and consistent with international norms of behaviour
    • Is integrated throughout the organisation and practiced in its relationships.[1]

Corporate social investment (CSI), on the other hand, recognises that a company cannot continue being successful or grow at the expense of the natural environments or local communities within which it operates and that a solid CSI strategy has a strong business case. New paradigms show that CSI is not a hand-out upon acknowledging responsibility, but rather an investment in a company’s stakeholders to ensure that the business remains a going concern, while at the same time contributing to the growth of human and natural assets on which its success relies. The “investment” part of CSI can take many shapes.  It can be financial contributions (sometimes known as cash donations), or in-kind donations of both goods and services, including the loan of assets such as company premises or resources or contributions of time and skills, known as employee volunteering (EV).

CSI [2] has embedded itself into the daily business vocabulary. Over the past 20 years, companies in South Africa and abroad have been increasingly expected to engage in CSI, measure and monitor their CSI activities and report on its impact. CSI has become part of business strategies, operational plans, and group and individual key performance indicators (KPIs). It is a vehicle used to implement “development targets for creating a South Africa where all people are equal and have access to basic services that will assist them in living meaningful lives.” [3]

Currently, CSI projects in South African exist as a result of:

  • Specific regulation and codes, e.g. broad-based black economic empowerment, the Johannesburg Stock Exchange’s SRI Index, the Companies Act and King III.
  • A company’s response to various developmental planning frameworks, e.g. the Millennium Goals, the National Development Plan 2030, the Rural and Youth Development Plan, and the Accelerated and Shared Growth Plan of South Africa.
  • Industry-specific requirements such as IPIECA, ICMM, PRI, EITC, etc.
  • Compulsory or voluntary signatories to international standards such as UNGC, UNDHR, IFC, etc.
  • An increasing need to make a difference and to “give back” to communities and the environment and/or pressure from external stakeholder groups/activists such as Greenpeace, etc.
  • Shareholder compacts or the expectation from shareholders and stakeholders that companies demonstrate corporate citizenship.
  • Government expectations, pressure for support of local economic development activities or industry-specific requirements such as integrated development programmes (IDPs), social and labour plans (SLPs) or the Mining Charter.
CSI 20 years after democracy

Next Generation’s research and work over the past 10 years shows that there are a number of challenges in the execution of CSI, in other words taking CSI from regulatory/mandatory framework into practical implementation that has lasting qualitative and quantitative benefits, not only for the CSI investor but also for its beneficiaries. It is therefore useful to take a look at the beginnings of CSI.

Before 1994 and in the early years of democracy, CSI had been regarded as a “convenient mechanism” to mitigate the risks of doing business internationally as companies wished to be “seen to be doing the right thing”. In many cases, CSI became a distraction from focusing on core business and was awarded to inexperienced staff members with little or no understanding of the real business value of CSI and specific community, as well as no proper mandates to drive CSI. While the actual CSI activities of companies were conducted “behind the scenes”, the responsibility for a business’s CSI reporting was often allocated to the marketing and PR departments, where CSI efforts were treated as a form of philanthropy that enhanced a company’s brand, or a charitable cause contribution to a “feel-good” legacy.

CSI was also used as a tool to externalise an organisation’s environmental and social liabilities. For example, to counter the negative impacts of its mining activities, a company would donate money to charities to build schools and clinics so as to show that they are “giving back”. CSI projects became the pet projects of individuals and received little or no strategic priority. In addition, the projects were isolated from business core activities and were generally quite narrowly focused on specific investment categories/ focus areas, with no real long-term sustainable impact. Examples of such projects are the “school painting brigades”, soup kitchens and blanket drives. These projects, while praiseworthy, are short-term in nature and their impacts seldom leave a lasting legacy or contribute to sustainable community development (note the intention is not to invalidate such efforts).

However, as a result of increasing regulatory pressures, shareholder and stakeholder awareness and international advocacy, among others, companies are recognising that environmental and social issues are affecting a multitude of areas in their business. Companies are not only starting to look more critically at the positive and negative impacts of their own operations up and down their own supply chains, but they are increasingly measuring these impacts and reporting on them. A study by KPMG on the 100 largest companies in 34 countries shows an increase in CSI reporting from 12% to 64% between 1993 and 2011. Companies are becoming increasingly aware that their CSI efforts boost their levels of regulatory compliance and resource efficiency.

From a reporting perspective, there is a growing demand for companies to: articulate what results they aim to achieve from their social/community investments; and track whether those proposed objectives are actually being achieved. That is why companies are now also allocating the responsibility to coordinate CSI activities to a dedicated department or line function that is able to provide the necessary focus, guidance and facilitation (e.g. CSI practitioners). Greater leadership and board oversight of CSI is a key component of a company’s overall strategic and operational planning.  CSI is now more actively integrated into decision-making, management and operations as an important aspect of sustainability strategies.

CSI current best practice

There is no doubt that companies have become more engaged, educated and responsive to CSI frameworks, standards and guidelines but there are only a handful of companies in South Africa and worldwide that are running effective CSI projects. The “best of breed” companies have moved from CSI efforts that are an add-on to business-as-usual and are reactively responding to compliance issues, to integrating CSI into their strategies, policies and operational processes.  These companies have found that effective CSI management programmes can drive change across a broad spectrum of stakeholders groups, including their own employees.

While there are many guidelines on CSI investment, there is no standard “recipe” for a successful CSI programme, as each company’s CSI strategy will depend on for example its industry, resources, complexity, core business function and location. But some best practices that have been observed and researched globally are shared below.

Take the decision

Companies that excel at high-impact, high-return CSI are those that take the decision to align CSI with the DNA/company culture/values as well as business strategies and operational activities.  This can only be achieved if a company is aware of and understands the impacts of its activities and operations on all its relevant stakeholders.

Create CSI capacity within

In many companies, CSI is an essential, integrated business leadership function. The new South African Companies Act requires companies to have a social and ethics board committee (or officer if the company is small enough) to oversee its CSI activities. CSI reports to the board through every level within a company, and should become entrenched in key performance indicators (KPIs) and eventually the company culture. Companies therefore need to ensure that the right people with the right skills are mandated to take responsibility for CSI planning and implementation.

As part of internal alignment and integration, best practice companies provide opportunities for employees to participate in CSI initiatives through initiatives such as volunteering.  Employee volunteering schemes are becoming more popular, especially in instances where the relationships with community stakeholders are beneficial to the company, the employees and the local community members. For companies with local or international footprints, decentralising CSI projects regionally encourages local employees to participate as they are able to impact the communities where they live.

State the CSI purpose

Companies that excel at best practice community development are very clear on the purpose of the company’s CSI programmes. Their CSI programmes:

  • Are aligned to compliance requirements and relevant regulation.
  • Contribute positively to the company’s brand and image.
  • Create a competitive advantage for the company.
  • Assist with building a more sustainable/resilient business.

Communities benefit from these programmes contribution through:

  • Having access to more and/or better resources that over time contribute to more self sufficient, sustainable communities.
  • Better utilisation and leveraging of government resources for local development.
  • Having access to more social services and basic infrastructure.
  • Being more resilient when specific social issues or systemic challenges are being addressed.
Where to focus

As with any other business strategy, which cannot deliver everything to everybody, CSI strategies cannot fulfil every possible community need. Suitable focus areas (or investment portfolios) that are based on the needs of community stakeholders and addresses the impacts of the company’s business activities should be identified. As an example, health, education, safety, skills development, infrastructure development, youth or rural development, vulnerable communities or children, or entrepreneurship are some of the areas that could be considered as suitable and where difference can be made.

In Sub-Saharan Africa, where more than 400 million people live in extreme poverty, targeted developmental interventions are crucial. Only interventions that go beyond the broader benefits of economic growth can overcome the risks and structural barriers that these communities face. The type of aid that is provided also affects the impacts that are delivered. For example, providing food aid in a hunger stricken community will have different economic and social impacts over the short-, medium- and long-term than providing access to basic education or primary healthcare in the same community.

CSI strategies, plans and guidelines upon agreement

Once the purpose and focus areas have been well researched and agreed, a company can formulate its strategies and plans to effectively address the expected outcomes of its CSI programmes. At this stage, best practice development models are influenced by relevant (voluntary or mandatory) guidelines and standards.

These could include:

  • United Nations Global Compact (UNGC)
  • Global Reporting Initiative (GRI)
  • OECD Guidelines for Multinational Enterprises
  • The Earth Charter Initiative
  • ISO 26000
  • JSE Social Responsibility Index (SRI)
  • The Millennium Development Goals
  • South African National Development Plan

Companies need to identify and research and adopt the relevant applicable guidelines and standards for their CSI programmes.

Build CSI partnerships

CSI programmes will be more successful if companies do not re-invent the wheel. This requires practitioners to scan the CSI and social development landscape to identify programmes, causes or interventions which speak to the company’s CSI purpose, vision, values and strategic objectives.  Companies need to consider identifying and engaging possible partners, as very few investors are able to address complex social issues holistically on their own. CSI practitioners should partner with companies that have a track record for successful delivery and have proven its ability to manage, implement, measure, monitor and report on impacts of such social/community interventions/programmes. High-impact investors have built longstanding relationships with partner organisations.

However, partnering is not always easy in a social/community development context. In deciding who to partner with to undertake social/community development initiatives, it might be useful to consider whether the partnership offers one or more of the following benefits:

  • Risk sharing
  • Ability to leverage expertise, skills and resources
  • Scalability and extended reach
  • Enhanced likelihood of successful outcomes (e.g. shared ownership, sustainability)
Find the right developmental models

What works for one community does not necessarily work for another.  Finding the right developmental models will be dependent on understanding the community stakeholders, their rights, priorities, needs, expectations, culture and demographics. Companies leading in CSI are acknowledging that setting up and running CSI projects are not necessarily part of their core business and therefore that it makes sense to collaborate with other development organisations such as non-profits.  As development organisations all have a different focus and approach to development, companies need to match specific community development contexts with the right development models.

Create bankable projects and structures

As with any other type of project management and implementation – IT systems, HR processes and financial systems – CSI projects require structure, good governance, tools and effective management practices. CSI projects should  have clear business cases, project definitions, scope boundaries, deliverables, timelines, stakeholder engagement plans, roles and responsibilities, governance structures, benefit analysis, cost analysis and risk management. In addition, successful projects should have measurable impact, and impacts need to be measured, monitored, assessed and reported on through the entire lifecycle of the project. Ongoing, regular and structured stakeholder engagements and stakeholder management is a critical success factor for any project. Once a project has been successfully implemented and impacts measured, consideration should be given to replicability and scalability.

Communicate well

While integrated reporting has been widely adopted in South Africa, many companies also opt to report their CSI initiatives separately through for example sustainability reports.  The reporting methods adopted by best practice companies need to take cognizance of:  1) who the reports are aimed at; 2) what the specific stakeholder group requirements are; and 3) the detail of information to be shared.  In principle, good CSI reports are transparent, honest, and accurate, illustrate stewardship, and contain time-related information (i.e. focused short-, medium- and long-term results), include indicators that speak to and highlight positive and negative outcomes, and address social, economic and environmental benefits.  Leaders in the field also share lessons learned, insights obtained, success stories and project/programme failures, as this will help others to invest better.

CSI worst practice

Never before has so much money been spent on so many social problems, issues and constraints. In South Africa, corporate entities are spending more than R60 billion per year on social/community and socio-economic development.  The philanthropic/development sector employs more people than the manufacturing and mining industries. Yet the outcome and evidence of social/community development programmes has never shown such poor performance, including increased school drop-out rates, increased unemployment, unprecedented levels of corruption, poor health, low education levels, housing shortages and lack of basic services. Companies are spending more and working harder but failing inordinately.

In order to take CSI practice to advanced best practice standards, the following aspects have been identified and documented by Next Generation Consultants as worst practice:

“Ad hoc” is bad practice

Some companies perceive CSI as “giving” rather than “investing” so their CSI programmes lack clear purpose and objectives and have vague mandates. They consider themes that sound great, but have little impact on the lives of communities. Without fully understanding the socio-cultural context or how their presence and actions can affect the complex dynamics within communities, this could lead to the exacerbation of tensions and create conflict within communities.

Short attention spans kill CSI

It is often easier for companies to take on multiple isolated development programmes that require less input and effort than to take on single, complex, long-term, comprehensive programmes. Due to the complexities, interconnectedness or pervasiveness of social and community investment programmes, very few companies realise that development takes a long time. Because CSI programmes require the involvement of many stakeholders and addresses complex issues, companies need to take a long-term view on their CSI programmes and work single-mindedly to address specific issues.

Understanding time requirements

Commencing activities without planning in advance for the company’s eventual withdrawal has rendered many company-supported programmes unsustainable. The dilemma for such companies is the difficulty that a “social license to exit” presents in times of financial cutbacks or project conclusion. Conclusion and planning for exit is just as important as planning to enter communities.

From outsourcing to out-of-control

While many NGOs and development organisations are very well-equipped to implement and manage CSI programmes, these programmes are doomed to fail if the donor companies do not have a good understanding of the development context and the success criteria required to complete development projects. There is often a misalignment of focus areas and priorities, uncoordinated donor practices, delays in disbursements, lack of standard performance metrics and diagnostic tools, uncertainty about roles and responsibilities, differences in expectations as it relates to the outputs and outcomes, and a lack of knowledge about development issues – to name but a few.

Collaboration

Delivery of social/community projects without sufficient involvement, support, buy-in and contribution of local communities and local government in decision-making has resulted in projects with low relevance to and ownership of local stakeholders. A lack of collaboration between stakeholders to determine development priorities has contributed to many failed CSI projects.

Failure to measure and communicate results

Very few social investment programmes are measured to the same standards that companies apply to their other business investments. This often reflects the low priority given to social/community development by senior management, especially if there is no perceived link or added value to the company’s bottom line or core business.

In many cases the contribution or value to business from CSI programmes is unknown because it has not been systematically tracked or measured the way most other business activities or expenditures would be. Common shortcomings include:  the lack of proper baseline/impact data (i.e. social impact studies); the lack of defined theories of changes (i.e. defined and well-researched investment and development areas); and a focus on measuring the value of spend (inputs) or the number of outputs (number of beneficiaries) rather than the actual quality of the outcomes. Most companies have some form of monitoring and evaluation in place, but the focus is more often than not on monitoring only, i.e. the number of beneficiaries rather than measuring qualitative changes/outcomes and impact.

Although some companies measure the impacts of their programmes on communities, very few actually specify or identify and measure the direct return on investment that CSI contributes to the business. This has become a critical and important aspect, as the concept of shared value is being accepted as best practice in the development industry.

Conclusion

The best practice described above is intended to provide guidelines and stimulate ideas about how to move forward with a company’s CSI programmes and strategies. While companies need to make their own judgments about the level, standard or size of CSI according to their stakeholder needs and market context, it is clear that many companies are interested in improving their own sense of best practice and developing business-wide standards.

Next Generation Consultants are driven by an assured and unwavering pursuit of measurable and high-impact results. We provide specialised formulation of solutions jointly with management. We ensure transfer of skills and building of internal capacity throughout our involvement. In the process of strategic, sustainable community development, we unlock additional value and innovative new CSI opportunities that deliver a blend of value propositions to both the company and their recipient communities.

Our services to ensure CSI best practice include:

  • Socio-economic surveys (baseline studies)
  • Community engagement
  • Impact assessment
  • CSI strategy development
  • CSI training
  • Strategic, operational and programme assessments and due diligence

[1] ISO Guide 82:  Guidelines for addressing sustainability in standards

[2] More commonly referred to as Corporate Social Responsibility (CSR) in international literature

[3] www.nextgeneration.co.za/investment-impact-index

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