Company culture

Measure to assess, assess to improve: Measuring social impact as a tool for improving corporate social responsibility

10 of December of 2015

Why is it important for companies to measure their social impact?

Thanks to the development of Corporate Social Responsibility over recent years, companies are not just increasingly involved in social matters, they are also more aware of the way they are interlinked with society and the impact that they have on it. It is as such that they realise that the value they generate is not just economic or financial, but also social and environmental. And that “total” impact has become an essential element for the comprehensive integration of companies into the surroundings in which they operate.

Through the creation of jobs, the training of workers, the construction of infrastructures, the acquisition of raw materials, the transferral of technology, the payment of taxes and the broadening of access to products and services ranging from food and medical care to energy and IT technology, companies impact on the lives of people, on their capabilities, their future prospects and their lifestyles. Through the assessment of their socio-economic impact, companies can adopt “ecosystems”, creating new ways of operating that minimise the negative impacts of their business activity while maximising the positive ones.

In what ways does this assessment benefit companies?

The benefits may be framed within a wide panoply of advantages that range from the reduction in costs and risks, to obtaining new business opportunities.

Risk reduction is the result of a process of joint assessment with the local community and its authorities, which allows us to obtain or maintain a “Social Licence to Operate”. The resultant knowledge of the expectations of our stakeholders generated through the process of assessing our social impact would improve the business environment by tightening up “value chains” with suppliers, clients, partners and so on, through having to establish a process of dialogue in order to adapt business activities to their expectations, and subsequently incorporating their partial impacts into our overall impact. Finally, this process of measuring and assessing, along with our interest groups, facilitates an environment of “co-creation”, which is a source of new business opportunities.

As a result, measuring the “total” value of a company in its environment is essential. To measure a wider value perimeter than simply that of economics, including social and environmental aspects, is key to demonstrating the authentic value that a company generates, helping it to illustrate the benefits of its activity in the societies in which it operates and, at the same time, making them aware of the needs, aspirations, capabilities and expectations of their interest groups.

How should assessments be carried out?

Economic and financial value is reflected in the balance sheet and the P&L account, but social value is not reflected at any corporate level. If we want to illustrate all the “capital” that a company creates, we need to have at our disposal a method that enables us to measure and reflect its social impact, too, taking into account all the interest groups with which the company interacts.

Companies face two major problems when it comes to evaluating their total value: the existence of an extremely wide range of measuring tools; and their complexity, as each one is based on different suppositions and functionalities, focussing on different types of impact and adapted to varying purposes.

It is important to choose the measuring and assessment tool that is best suited to the business sector of activity, to geographic location, social context and the company’s purpose.

Main methodologies for Measuring Social Impact

Below we have set out a selection of the 10 main existing methodologies for measuring social impact:

1. Base of the Pyramid Impact Assessment Framework: Helps to understand and measure how business activities affect the different dimensions of poverty in clients, distributors and local communities.

2. GEMI Metrics Navigator Identifies indicators of environmental and social performance in order to measure and give priority to the demands of the public administration.

3. Impact Measurement Framework Identifies relevant socio-economic indicators for measuring impact in four specific sectors.

4. Impact Reporting and Investment Standards Selects standard indicators to be used within the global impact measurement framework.

5. MDG Scan Estimates the number of people that the company is affecting with regard to the Millennium Development Goals.

6. Measuring Impact Framework Defines the scope of assessment, identifies socio-economic impact indicators for measurement, assesses results and gives priority to the administration’s response problems.

7. Poverty Footprint Helps to understand the impact of the company on poverty, working in collaboration with a development NGO.

8. Progress out of Poverty Index Calculates the percentage of clients, suppliers and other interest groups living below the poverty threshold.

9. Socio-Economic Assessment Measures and manages local impacts of business operations.

10. Input-Output Modeling Calculates the total number of jobs generated and the economic value added by the company and its supply chain in a particular national economy.

Source: “Measuring socio-economic impact: A guide for business”. 2013. The World Business Council for Sustainable Development (WBCSD)

The tools available nowadays vary widely, and as such it is necessary to identify the most suitable tools within the complex landscape of socio-economic impact measurement.

To be continued…

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