MEASURING SOCIAL VALUE

  • by Doug Johnston, Partner, Sustainability and Cleantech services, at Ernst & Young
  • Jun 01, 2013
  • 0 comments

Post-crisis we see the public questioning the role of corporations in society, in particular for emphasising short term results over the wider good. Companies are increasingly under pressure to prove their social value not just by their shareholders, who themselves are called to look beyond their investments’ short term results, but also by other relevant stakeholders.

 

At the same time, according to our latest report based on a survey of senior executives from 641 companies in 21 countries (Business Pulse: Exploring the dual perspectives of the top 10 risks and opportunities in 2013 and beyond ), leveraging CSR and public confidence can inject growth to a corporation. And according to the same report, institutional investors now demand greater transparency in areas such as environmental and social issues, which can impact a long-term investment’s viability.

 

No doubt, organisations generate value for society in a whole range of ways: by creating employment and skills; providing products and services that are useful; bringing economic growth through procurement; contributing to social development causes.

 

But, if there is growing recognition of the importance of social value to the long term success of an organisation, why are there very few of them that have started to scratch the surface of measuring it?

 

Firstly, it’s not that easy. Whilst some aspects of social value, such as employment, can be measured in monetary terms, many other aspects of it do not lend themselves as well to monetary valuation. Think of improved health; improved human rights; environmental protection and social justice for example. New ways of measurement are needed that measure ‘good’ in terms of progress towards social outcomes.

Organisations need to get better at understanding the social outcomes that they can influence, the value to them by influencing those social outcomes, and start to measure the levers within their business which deliver different outcomes.

 

Secondly, many organisations focus on short term benefit, whereas the business benefits of creating social value will often be evident in the long term. The business benefit typically comes from improved stakeholder relationships which leads to real business benefits whether that is enhanced employee engagement and pride leading to increased productivity, government support as they increasingly seek support from business on the social agenda or social license to continue operating in a community.

 

There is an evident shift in thinking as businesses are increasingly concerned about answering to a wider audience and demonstrating that they are part of society. At a very tangible level, the whole tax transparency debate is driving very real conversations about the value that organisations bring to society, which has led to demands for enhanced tax disclosures as well as discussions about Gross Value added by an organisation. At an operational level, organisations are starting to build a better understanding of social value as an input to engagement with host governments, lending agencies and communities to support discussions of long term growth and expansion. The integrated reporting agenda, which requires consideration of how an organisation uses capitals (including social capitals) to create value is also climbing up the agenda.

 

A lack of attention to measuring and reporting social value is like planning future growth with a blindfold on. The value that an organisation brings to society through both its core activities and the ways it invests in important social issues is critical to how an organisation can thrive in the future. Companies are now coming to terms with a new status quo where measuring their performance by financial return alone is not going to be enough. Alongside their focus on growing economies, businesses now need to prove their determination to make a greater contribution to society alongside their commercial goals. Without the right measurements, how can any organisation take these crucial steps for its future or build the necessary support from the wider stakeholder community to support them?
 

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