The Social in ESG: aligning corporate, community, and investor interest through a common framework
By Dmitri Kharitidi and Sabrina El-Chibini, The Collaboration Vector Inc.
Recent research has made it clear that corporate ESG (Environment, Social, and Governance) policies have a profound influence on business performance. Companies with strong ESG programs financially outperform their peers and reduce business risk (1, 2, 3). Robust ESG performance is usually accompanied by an improved top line, decreased costs, productivity uplift and reduced risk (2,3). This outcome can be explained by a variety of factors including demand for responsible products by consumers, workforce pressures on companies to be socially and environmentally responsible, tighter environmental regulations, and increased scrutiny of corporate governance.
Of the three pillars, the Social one has been the most daunting with respect to consensus among ESG investors and business stakeholders on how to deliver it, evaluate it, and whether it should always be quantified. While interest in this pillar had already been growing, the global pandemic has cemented its importance among investors and companies alike.
In 2020, an increasing number of companies worked to solve social problems through traditional philanthropic means (e.g., donations to food banks) and revenue-generating ones (e.g., delivering more medication and hygienic supplies to people in need). Innovation and speed of execution grew despite unstable social and physical conditions. The world saw unprecedented levels of collaboration directed towards addressing urgent social needs. ESG investors looked for new opportunities and demanded more from existing investments in an effort to propel solutions and outperform in keeping with these developments (10, 11).
Defining the “who” - crosstalk between community and employees
Every business has the potential to favorably impact specific groups of people.
In this article, we define a company’s social impact as that which is generated for its employees and the people living in communities within which it operates.
Social impact can be evaluated through the collection of quantitative and qualitative data that together paint a full picture. It encompasses an increasingly interrelated set of employee and community indicators that extend beyond amount of money and time invested, towards an understanding of the overall value generated. This supports a hypothesis that company performance correlates directly with value generated for people.
This definition is especially fitting during a pandemic that has seen the rise of work from home models which blur the distinction between an “employee” and “a person in our community”. It is very likely that the integration of employees within the community and the merging of community and worker interests will evolve and grow. Remote work allocation is expected to be maintained in the future according to Gartner, whose survey of company leaders suggested that 82% of them will allow their employees to do some remote work and 47% will shift to full “out of office” employment (8).
These trends coupled with long-established evidence linking strong community programs with better employee indicators (3), present an important opportunity for companies to reinvent their corporate community programs as a means of developing their social pillar.
Companies that successfully engage employees in meaningful and purposeful social programs stand to maximize the social and business value of their investment in a diverse range of areas. Our original research at The Collaboration Vector Inc. has shown these benefits include better employee engagement, top talent retention, stronger sense of culture, soft skills development, diversity and inclusion, and much more.
Developing the Social pillar of ESG through community programs
Given the discussion above, it is possible to identify a few fundamental needs of companies that want to embrace impactful community programs to help develop the Social part of ESG.
The following are not only applicable to companies without community programs, but also to those that already have community partnerships in place and hope to extract the most societal and business value from their efforts.
Proactive alignment with employee, community, and investor interests
Framework to develop sustainable community partnerships
Robust social programs that are sustainable over the long-term
Flexible and pragmatic approach to understanding and communicating social impact
Transformative Community Involvement (TCI) Framework
The Collaboration Vector Inc. (TCV) proposes its Transformative Community Involvement FrameworkTM as a high-performance tool to support companies in developing their Social pillar. Its premise is to engage employee leaders at the grassroots level with their counterparts in non-profit organizations in building long-term partnerships designed to solve social problems. Companies integrate additional stakeholders such as customers and investors as a natural evolution of this model.
The Collaboration Vector Inc.
From Transactional to TransformativeTM
Since 2013, we have been successfully implementing our TCI Framework in numerous geographies with multiple teams and partners. A variety of pilot studies, conducted in real-life business and social settings, has shown that our evidence-based TCI approach is replicable and effective in addressing social issues. Since 2017, thirty-six global awards and distinctions have been awarded to our clients in association with our programs that move corporate community involvement “from transactional to transformational”.
The TCI framework proved robust during the pandemic, when the core focus of solving social problems remained more relevant than ever, despite all else changing around us. Our long-term approach meant partnerships were already in place and ready to pivot to solve urgent and pressing social needs. The approach was further consolidated when collaboration between business and non-profit partners reached an all-time high.
For example, in a developing community in the Dominican Republic, quarantine during the pandemic left families with a huge gap in education. They had little internet connectivity, few devices, and many parents’ own level of education was not high enough to enable them to tutor their children in their schoolwork or in using technology.
Employee leaders and their non-profit partner worked to help solve this problem in this community, with whom they had a pre-established relationship, and where they had previously generated measured social impact through educational programs.
The partners decided that with a limited budget, they could generate the most social impact by providing some families with a comprehensive program that included internet connectivity, a tablet, educational materials, and virtual teacher support for each family. Given the circumstances, a second idea of providing print and digital materials to a larger number of families instead, without equipping them to make effective use of the materials, was discarded.
Employees felt proud to work for a company that was part of the solution, while grassroots leaders took ownership in deciding and moving things forward and in rallying the collaboration of colleagues.
The United Nations Sustainable Development Goals, with which the TCI framework aligns on a granular level, remained invaluable as a common language for discussion during the pandemic. For example, we were able to use the UN SDGs to explore with employee leaders and non-profit partners whether program adaptations towards food distribution would be temporary or permanent.
Key Performance Indicator
As the Social part of ESG emerges as a key performance indicator for companies, businesses will continue to grow their commitment to social initiatives, and we will see more collaboration between companies and communities to emphasize the role of S in ESG (4, 5).
One approach to developing the social pillar is to migrate more corporate community programs towards solving social problems, a focus that aligns the interests of all stakeholders.
Special thank you to John McCormick, Margarita Caycedo, Sauraj Gambhir and Nicole Wilson for their article review and comments.
Total Societal Impact: A new lens for strategy, Boston Consulting Group, 2017
Companies with strong ESG scores outperform, study finds, Financial Times, 2018
Five ways that ESG creates value, McKinsey, 2020
Top 10 ESG Trends for the New Decade, FTI Consulting, 2020
7 Ways Companies Can Contribute to the SDGs, Sustainability Advantage, 2019
The “S” in ESG: the ugly duckling of investing, Deutsche Bank Investment Management, 2019
The impact of Covid-19 pandemic on corporate social responsibility and marketing philosophy, Journal of Business Research, 2020
Gartner Survey Reveals 82% of Company Leaders Plan to Allow Employees to Work Remotely Some of the Time, Gartner Report, 2020
Transformative Community Involvement: what it means, what it takes, what it gives, The Collaboration Vector, 2013-2020
Here’s What ESG Investors Want to See From Companies During a Crisis, Barron’s, 2020
ESG Reporting- What Do Your Investors Want? KPMG, 2020