CFOs can play a vital role in supporting the integration of social impact into how businesses operate and report to shareholders, says Cathy Duff, Trialogue director.
Speaking at the first CFO Summit of the year, Trialogue director Cathy Duff made the point that businesses need to embrace their mandate and speak out as leaders on sustainability and social issues.
Cathy said value needs to be created when it comes to social impact, and CFOs are responsible for accountability around how funds are spent. “This can only be achieved if your company is not just writing cheques, but truly integrating its social work into the strategy and business.”
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"Social impact and the importance thereof, especially when it comes to companies working with communities for collective benefit, was one of the silver linings of the pandemic, as there was an accelerated shift to more responsible business practices,” she noted. “We have seen this movement gain such momentum in the past few years as business leaders have strongly experienced, often for the first time, the impacts of climate change and how interdependent business and society truly are. For a business to prosper and thrive, it needs to operate in a thriving society.”
This shift has many names, such as inclusive capitalism, shared value, stakeholder capitalism, purpose-driven organisations, inclusive growth, just transitioning, triple bottom line, as well as environmental, social and governance (ESG) aspects, said Cathy.
"The concept across all of these, however, is incorporating material environmental, social and governance considerations into every aspect of business."
Apart from the external factors of climate change, growing inequality, geopolitical instability and the pandemic, there are other drivers towards what Trialogue calls integrated thinking. One of these, Cathy explained, is increasing investor pressure. “As CFOs, I'm sure you've seen first-hand how investors are increasingly integrating ESG factors into their investment decision-making, with responsible investors now representing more than half of global institutional investment.”
Driving forces
Moreover, Cathy added, there are many codes for responsible investment, to which asset owners and managers are subscribing. These include the UN-supported Principles for Responsible Investment, as well as South Africa’s Code for Responsible Investing in South Africa, which came into effect in 2012 in response to the King III Report. Its principles are aligned with those of the Principles for Responsible Investing.
“Between the various regulations, frameworks and reporting requirements being drafted and implemented globally and in South Africa, every organisation will be impacted, and if your company is not thinking about its transition strategy for a low-carbon, more inclusive world, it should start soon. Fundamental shifts in business models, trading, investing and ways of operating are needed for the new low-carbon world of inclusive capitalism.”
Another driver for more environmentally friendly business practice is consumer and employee choice.
“We've all heard that Millennials and Gen Z want to buy from, and work for, responsible companies, and this trend has only become more pronounced. As many as 90 percent percent of Gen Zers believe companies must act to help social and environmental issues.”
The third driver Cathy cited was regulation. “Globally and locally, there is a groundswell in regulation and guidance regarding ESG issues and disclosure.”
Among these, in terms of governance in South Africa is the King Codes of Governance, which have been around for a substantial amount of time.
The Companies Act of 2008 requires large companies to have a ‘social and ethics committee’, which has elevated social issues to a board level and, to some degree, legislated corporate responsibility.
On the social side, there are the B-BBEE codes of good conduct for transformation in South Africa, which include a target spend of one percent of net profit after tax on socio-economic development as well as targeted spend on enterprise development of black-owned small businesses.
More recently, the Companies Amendment Bill will require companies to disclose the details of the highest- and lowest-paid employees, average remuneration, the median remuneration, and the gap between the top five percent of highest-paid employees and the bottom five percent of lowest-paid employees in their remuneration reports.
On the environmental side things are moving rapidly towards the global economy’s transition to net-zero.
"The codes encourage more integrated thinking, and integrated reporting alongside that," she said.
Moving towards social impact
Trialogue – in collaboration with CEOs for Corporate Purpose, in New York, and its Global Exchange Country Partners – conducted primary research for the annual Global Impact at Scale report. The 2023 report drew on survey data from 134 companies from 15 different countries, including some through Trialogue’s research.
The results showed that almost all large companies now have board oversight of ESG issues —even if these aren't linked to remuneration. Most companies align their business strategies with ESG issues, says Cathy. She viewed this as being important because ESG should not be a separate issue.
This global research, she says, found that community investments increased for most companies over the last three years. In line with this, Trialogue’s South African research estimated total social investment was R11.8 billion in 2023 with more than 50 percent of companies reporting an increase in the past year. Almost half this funding goes towards educational initiatives, followed by broad social and community development and food security initiatives.
Maximum impact
Cathy said, to achieve maximum social impact, and business benefit, social investment must be integrated into the company and aligned with its activities. “Any social investment activities have a far greater impact, and greater sustainability if they are well aligned with the business and integrated into the business, drawing on its competencies, skills and products and creating both social and business value. Whether it be access to skills or new markets or innovative products and/or solutions.
“It’s up to each of us to stand up, speak out, and act to achieve our collective vision of a just, equitable and sustainable society. CFOs have such an important role to play in social impact.”
