Question #1: Importance of social inclusion data for the private sector

[Kelly Fish, MarketShare Associates]

Hello Everyone,

Now that the Experts have introduced themselves, we are ready to dive in to the first question!

This is a question for everyone to respond to, including experts and participants: 

 

Why is it important for the private sector to capture and measure both the financial and social impact of their inclusive business practices?  

 

Looking forward to the conversation! 

[Yaquta Fatehi, William Davidson Institute]

Hi everyone

This is a great question to kick us off on this series because we often focus on one or the other! 

Here are some of the many reasons why this is important: 

1) You need to measure both for accountability and transparency to your stakeholders (investors, customers, etc.); 

2) Strategic decision-making on whether to adjust the operations or, more particularly, continue them;

3) Convince leaders and critics of the business benefits of gender-inclusive processes to continue funding such programs/ directing resources towards them (many times, social impact alone is not convincing enough); 

4) Including social impact measurement ensures companies track any possible, unintended negative consequences, especially gender-based violence, and intimate partner violence (if companies only tracked financial benefits, they could miss tracking and addressing critical negative externalities of their actions);

5) By tracking both and finding positive impacts, companies can seek out partnerships with actors such as civil society organizations and NGOs that prioritize social impact, opening up new and creative alliances; they can also showcase their competitive advantage and brand loyalty, especially among customers who are increasingly demanding companies to care for the environment, be sustainable, etc.

6) Measuring both can also reveal connections between variables, as the one my team and I found between self-efficacy and sales among last-mile distributors (low-income women) on a social enterprise impact evaluation project in Mexico City! Here we used multivariate regressions to identify the positive association between self-efficacy (that increased through life skills training provided to the women salespersons) and product sales.

We mandated measuring financial and social benefits on the G-SEARCh project because these were often business-first, gender-inclusive technical assistance engagements with the SMEs.

Looking forward to hearing other reasons!'

Best

Yaquta

[Javaid Rafat, Resonance Global]

Wonderful question to start with.

 

I believe systematic and intentional capture and measure of the social impact of business practices are as critical and vital to the success of companies as the data about their financial results of day-to-day operations.

Companies are investing a lot of resources to accurately capture the financial results of their activities because their ultimate purpose is the engine of long-term profitability and because they need to have clear records of any profits or losses to be able to transparently present the financial status of their business. But Deloitte Consulting LLP’s 2019 Global Human Capital Trends survey found that, for the first time ever, CEOs named social impact as the top success factor for annual performance. Although it sounds promising to see a shift in the priorities of the CEOs and the private sector, a late start in paying attention to the social impact of businesses shows the existence of a gap in understanding the importance of the social component of business operations by the private sector. 

Research shows that consumers are motivated to purchase from companies that are more conscious of their responsibilities to people and the planet. Environmental, Social & Governance (ESG) are the three key dimensions that, together, define a company’s overall societal impact.

By understanding how to measure business returns of societal impact, business leaders can translate and demonstrate their value into the language of business and can make sure that they are appropriately included in strategic and resource allocation decisions. Companies can use the improved measurement techniques and data analytics available to not only gain a more complete picture of social impact’s business value but also find increased incentives to expand their social impact efforts and integrate social purpose into their core strategy.

Overall, measuring both the financial and social impact of business practices is crucial for private sector organizations to effectively attract customers, engage their stakeholders, foster innovation, and ultimately drive sustainable growth and contribute to positive societal outcomes.

Regards,

Javaid

On Thursday, June 15, 2023 at 8:57:43 AM UTC-4 Kelly Fish, MarketShare Associates wrote:

[Donald Ocen]

Donald’s Responses: Importance of Social Inclusion data for the private sector

Thank you very much everyone for your lovely submissions. It would seem I have been posting outside this platform. I hope this can still be of use though submitted late

 

1)    For Project Design/ Strategy Development: With the emergence of social impact as the top success factor for annual performance, companies cannot afford to ignore capturing, measuring and analyzing both social and financial dimensions even at the Project/investment Design/ Strategy Development stage explaining the emergence of Hybrid Companies with both Business and Social Goals blending/ Integrating/aligning their Business models to their Impact Models. As mentioned by Rafat, Environmental, Social & Governance (ESG) are the three key dimensions that, together, define a company's overall societal impact.

ESG-linked investments: The ESG investment market will continue to grow. Stakeholders at all levels have recognised both the social value and the opportunity around sustainability, as it increasingly becomes a factor that influences decision-making. Boards, investors, and consumers are ever more driven by ESG, meaning that firms that fail to repivot themselves could be risking longer-term growth.

Some firms are also looking at offering green bonds to finance the transition as part of their sustainable finance strategy. This will grow into a much larger market and financial firms should be aware of both the opportunities and risks of exposure to these types of investments.

The demand for ESG-driven investment will certainly need robust data (financial, social etc in nature) to support decisions. Firms may struggle to rely on rating agencies that have different methods and weightings to score companies. Data inconsistencies and the risk of greenwashing are still rife, and firms will have to find ways to navigate this.

Due diligence also needs to adapt to the needs of the market. Firms must consider the ESG exposure of mergers and acquisitions (M&A) and develop a framework to quantify sustainability-related risk within these transactions as they target financial gains.

Some leading global investors have already warned business leaders that they will hold them accountable if fail to deliver on ESG goals and targets. Stakeholders will also pressure firms to adjust executive remuneration depending on ESG-related performance.

Organisations across various sectors also need to focus on climate finance adaptation to support organisations in addressing the climate risks and opportunities. Firms must set up frameworks to manage on how public and private funding for climate adaptation is to be applied, measured and monitored. All these call for both social and financial data.

The Social element of ESG will likely start to spark some conversation in relation to employee engagement. Social issues are increasingly becoming more important to employees and firms will find it increasingly difficult to attract and retain talent with a poor ESG record.

Employees want firms to have a stance on social issues and can turn into a difficult cycle in the ESG space, where employees feel that the firm is not doing enough on sustainability and could potentially leave, which could accelerate the current workforce shortages. Firms that act too late or do not do enough to improve their sustainability strategy could suffer the most from this.

The social impact assessment of a firm needs to consider the direct and indirect activities conducted. Geopolitical events need to be taken into consideration as can impact companies supply chain, production and distribution. The sector must consider how to offer opportunities that are aligned with social values, not just financial growth.

The financial service sector should assess the social impact of companies when reviewing their portfolios.

What can firms do now? Firms should define their ESG strategy along with the purpose of their business. Those that have defined their strategy should build upon specific initiatives and define a roadmap. Those that have communicated their sustainability initiatives should continue to build tangible steps with clearly defined metrics and targets. Ensure that your ESG strategy is embedded across all areas of your organisation. Provide transparency on how your firm is performing against your set targets (both financial and social goals)

 

The strategic analysis & Choices  i.e.:  the vision & mission statements,  core values, strategic objectives, critical success factors, key performance indicators, the problems, challenges, to be solved and addressed, the needs and wants to be met and filled, the products & services and solutions, the business and impact models and how they’re to be integrated, the market segments and marketing strategies etc. will pretty much depends on the financial and social data collected and analyzed during the Investment/project proposals development  

2)    To be able to measure, manage and or control performance & take strategic decisions to ensure progress towards meeting the vision, mission and strategic social & financial objectives are being made/ achieved appropriate changes, if need be, are being made and good performance are being maintained and or improved.

3)   For Stakeholder analysis and management. Companies have growing numbers of stakeholders like shareholders, management & staff, customers, suppliers, development partners, financial institutions, government, civil society, local communities etc. Refer to point number 1 above for more details. These stakeholders have   varying degree of interest in the affairs of the companies which may be social or financial in nature and powers over the affairs of the company thus with varying degree of influence. The multiple and many times conflicting interest & varying degree of influence could be very complex and challenging to manage.

A carefully well-thought-out system to capturing and measuring both the financial and social impact of their inclusive business practices could help companies appropriately analysis & strategically develop strategies, competencies & capabilities, processes, products and services etc. that will not only help them achieve stakeholders’ satisfaction but also help them receive the much-needed stakeholders’ contributions very vital for the success of the companies. This could result into favorable financial investments, technical assistance, partnerships, collaborations, entry into & competitive advantage in new markets, loyal and motivated staff, tax and investment incentives, customer loyalty etc.  

On the other hand, if both social and financial considerations are not taken care of, this could result into to Product boycotts by customers, sanctions by governments, civil actions by pressure groups or strikes by staff and trade unions or even litigations, labour

 

 

4)    To gain competitive advantage: By developing Environmental Management System (EMS) and production systems in line with  ESG standards like Cleaner Production and work towards attainment of the ISO 14001 Standard Certification  with the goal of capturing & measuring environmental indicators in order to manage their environmental foot prints to acceptable levels (achieve environmental Best Practice Benchmarks) ie address ESG issues, alongside tracking financial indicators, companies can gain competitive advantages.

The EMS provides the company with a decision making structure and action program to bring cleaner production into the company’s strategy, management and day to day operations thus provides opportunities at all levels to make appropriate decisions that directly impact on overall efficiency, reduction of risks  to human and the environment, conservation of resources, elimination of toxic raw materials and reduction of waste & emissions  leading to environmentally sound products & packaging as well as improved overall company image.

·         The environmental benefits of ESG occasioned by Environmentally Sound Products and Packaging, can be translated into the increasingly growing market opportunities for ‘greener’ products which are the delight of customers in a number of target market niches. Companies that factor environmental considerations into the design stage of a product will be well placed to benefit from the marketing advantages of any future ecolabelling schemes. This can significantly impact positively on revenue generation and profitability of the company in the long term.

·         Improved overall company image: This improves the company’s ability to attract and retain talented Human Resources, Financial Resources, and other invaluable resources, that can give it competitive advantage in the industry; access to new and developed markets, increased sales, thus ultimately increasing revenue generation and profitability of the company and market share.

5)    2)ESG and Sustainable Development: Application of both ESG Concept financial perspectives allows companies to set goals across a range of sustainability issues which leads to ‘win–win’ situations that benefit everyone and ultimately guarantees sustainable development that can only be made possible by increasingly sustained generation of revenue and profits. This can be achieved due to the fact that addressing ESG issues can reduce or eliminate the need to trade off environmental protection against economic growth, occupational safety against productivity, and consumer safety against competition in international markets.

The opportunities for sustainable developments are demonstrated below:

·         ESG protects the environment and thus allows economic growth & development to go hand in with the environment thus ensuring long term sustainable development.

·         ESG protects customers thus guarantees quality products & customer safety enabling companies meet the more and more stringent consumer expectations and at the same time thrive in the increasingly competitive international business environment. This has the multiple positive impact on customer satisfaction which essentially & invariably not only determines whether a customer will be willing to pay a premium price, but more importantly, determine whether or not the customer will buy a product in the first place. These ultimately significantly increases sales volumes and values, competitiveness, market share, efficiency and ultimately lead to high profits in absolute terms and profit margins.

·         ESG guarantees the health & occupational safety of the workers thus significantly improving the working environment, staff motivation & morale, staff availability at work. This improves the company’s ability to attract and retain talented Human Resources. All these together significantly improves staff productivity which ultimately lead to increased level of production and sales, cost savings and ultimately profitability of the company. This could guarantee productive employees for life.

·         ESG improves industrial efficiency that impact directly and positively on the company competitiveness and profitability. This can be used as a strategy for accessing and accelerating growth in the increasingly competitive international market by leap-frogging the more established industries saddled with costly pollution control.

6)    5)General Cost Reductions & operational efficiency benefits of tracking & measuring both Financial ESG indicators: By preventing inefficient use of resources and avoiding unnecessary generation of waste through addressing both financial and ESG issues companies can benefit from cost reductions in the following areas which ultimately significantly improve profitability:

·         Reduced operational costs due to savings on raw materials, energy & water etc.

·         Reduced costs & liabilities associated with the storage, treatment and disposal of hazardous waste

·         Reduced costs of end-of-pipe solution as investing in ESG to prevent pollution and reduce resource consumption is more cost effective than relying on the increasingly expensive “end-of-pipe” solution.

·         Reduced costs and liability associated with legislations with respect to the health & safety of employees, consumers etc.

·         Reduced cost related to reduced effluent discharge and reduced rendering costs

Kind Regards

 

Donald Ocen

Managing Director

The Business Accelerator Consulting Group