Why social impact is a critical issue for CFOs

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With South Africa among the bottom 20 percent of countries when it comes to social impact effectiveness, Kearney experts unpack how CFOs can align purpose with profit to improve the “S” in their ESG impact.

“In a world where business leaders have to bring both corporate value and social impact together, the CFO has the critical role to apply the strategy and financial rigour to increase the impact of the company’s social impact spending,” says Arianna Molino, sustainability manager at Kearney.

Kearney recently conducted its inaugural Kearney Index of Social Performance (KISP) social impact effectiveness survey. BRICS member states performed better than other surveyed countries by a margin of 5.2 percent on average. However, South African companies are in the bottom 20 percent of countries when it comes to social impact effectiveness, countering expectations mentioned in our previous article. What does this mean for South Africa and how can local businesses maximise the effectiveness of their social impact initiatives for the betterment of the company, community and country?

Globally, the private sector invests heavily in social impact measures within their sphere of influence and beyond, aligned to the United Nations’ 17 Sustainable Development Goals (SDGs). Although South African companies are spending more on Corporate Social Investment (CSI) annually, this is only in terms of the nominal value. When accounting for inflation, between 2020 and 2023 there was a R470 million drop in real value invested in CSI. Amid decreasing real spend it is important to evaluate whether CSI investments are effectively impacting the intended recipients. As such, this article aims to equip CFO leaders with the tools necessary to maximise the effectiveness of their social impact which, as we know, is essential during times of lower investment capability.

Recently, there has been a notable transformation in how society addresses social and environmental challenges. Historically, these issues were tackled through philanthropic endeavours and government initiatives. However, a paradigm shift has occurred with the rise of impact investing – a strategy that seeks both financial returns and measurable positive impact. This transition reflects a growing recognition among investors of the interconnectedness between profit and purpose.

Global social impact reports show a steady evolution and maturation of the impact investing industry, with the steady allocation of assets towards impactful endeavours. Data illustrates an increase in funds directed towards renewable energy projects, sustainable agriculture initiatives, and social enterprises tackling poverty and healthcare access.

In 2023, South Africa spent R11.8 billion on social impact – nearly 1.5 percent of the country’s GDP. Local companies have traditionally emphasised creating positive social impact because of South Africa’s history of sociopolitical inequality. And thus, we expect local companies to have a strong understanding of the importance of social impact compared to their international peers. This has been reinforced through public and private programmes and policies, such as B-BBEE, which incentivises action and innovation. However, despite a heightened awareness, the effectiveness of CSI expenditure has space to grow.

The KISP survey encompassed 602 prominent enterprises each boasting revenues surpassing $500 million (R9.2 billion), across diverse sectors spanning 17 global markets. The survey comprised focused questions seeking to address the strategic alignment of social impact programmes, operational efficiency of social impact spending, and impact performance evaluation criteria.

KISP findings revealed that most industries cluster around similar scores, indicating a lack of competitive pressure to elevate social impact. Standout companies often possess attributes like long-standing community engagement initiatives or CEO-driven commitments to philanthropy. The exception: healthcare companies, which boast the highest KISP scores likely due to their inherently social nature. Conversely, the financial services sector stands out for its lower social impact scores, possibly attributed to stringent regulatory requirements and a predominant focus on environmental considerations over social aspects within the ESG framework.

Counterintuitive to South Africa’s focus on social impact and adherence to Corporate Social Responsibility (CSR) regulations, the country’s companies place in the bottom 20 percent of those surveyed. The KISP data reveals only 55 percent of South African companies possess social impact initiatives and targets that align with their overall corporate strategy. Similarly, Trialogue’s research shows a lack of monitoring and evaluation practices, with just 57 percent of companies having a dedicated social impact monitoring policy and only 27 percent utilising specialised reporting software.

In order to have a greater social impact, businesses must allocate resources in a way that aligns with their strategy, ensures efficient implementation and demonstrably creates positive social change.

Alignment of social and business strategy can take a two-pronged approach. Internally-focused initiatives, like a strong DEI strategy, can align your social strategy with current business strategies. Externally, leaders in the space tend to solicit input and feedback from their stakeholder communities to find the synergies between current business operations and potential social impact initiatives.

Alignment of social strategy and realisation of synergies allows businesses to run leaner social impact arms, requiring fewer resources, while maintaining and potentially increasing social impact across the stakeholder network.

Measurement, an important component of understanding CSI, should be treated similarly to the measurement of business outcomes. The aim is to understand what works well, and where the gaps for improvement lie. With this mindset, we enable efficient and effective social impact, while reducing wasteful expenditure and ensuring the desired impact.

Through socially impactful work involving external parties, companies can address societal issues while generating tangible business benefits like attracting top talent, building stronger stakeholder relationships and mitigating risks.

Existing frameworks like King IV and B-BBEE provide a foundation for building robust programmes. These frameworks already require measuring internal and external social impact, creating an opportunity to expand existing structures for cost-effective monitoring and evaluation.

However, South African businesses must move beyond mere compliance. “Conscious capitalism – embracing social responsibility, employee wellbeing, and environmental stewardship – offers a path forward. By aligning goals, optimising spending, and rigorously measuring outcomes, businesses can enhance social impact meaningfully,” says Jo-Ann Pohl, associate director at Kearney and former, experienced CFO. This aligns perfectly with the growing emphasis on ESG factors by stakeholders.

South Africa has a fertile grounding upon which an exemplary ‘consciously capitalistic’ system can expand and thrive. Fortunately, in a world where there is a true need for companies to drive positive social change, there is no shortage of opportunities for impact, and we need not look further than our very own doorstep.

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