Finance: Cup runneth over

How do you measure return on investment into corporate social responsibility activities?

Stakeholders are increasingly demanding a new level of accountability and innovation, and the measurement of social, as well as economic value related to corporate social responsibility (CSR) investments.

This requires viewing value through a different lens; demonstrating innovative social value creation as well as cost benefits, and managing the conflict: that often a legitimate dollar value simply cannot be given for philanthropic investments.

Demonstrating social as well as economic value is measuring and reporting a shared value. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success, defined as social return on investment (SROI).

SROI is a globally accepted framework for measuring and accounting for shared value; a much broader concept of value. It incorporates four wellbeings - social, environmental, cultural and economic costs and benefits - and places stakeholders at the heart of the measurement process.

The approach to SROI depends on the stakeholders to whom a company has an obligation to be accountable, so the first step to measuring CSR value is identifying them. Stakeholders include investors, customers, vendors, suppliers, employees, communities and governments; however in reality, the customer is the key stakeholder.

CSR activities must bring the customer and the company together and the cause chosen must resonate with them. It is their loyalty and their willingness to pay a premium price for a product or service that is better for the environment, or a company that supports a cause local to them, which directly affects profitability.

This must not guide decisions related to CSR activities, but human impact is critical in measuring CSR's interaction with financial performance; considering the importance of cognitive and affective responses in consumer choices.

Traditional metrics of ROI detach us from the human impact. SROI, on the other hand measures efforts to create economic value and increase human wellbeing and requires these considerations, as well as sound environmental management, to be integrated into the core of a company's culture. CSR activities are thus cohesive with this culture and the company operation, and a CSR brand is developed, which acknowledges, understands, measures and fosters awareness of all impacts.

SROI also tracks the positive impacts and the long-term cumulative effects of responsible partnerships - shared responsibility, such as public private partnerships (PPPs), those with stakeholders or those with non-profit organisations working in the area of company activities.

Measuring these positive impacts requires agreeing appropriate metrics and reporting requirements at the outset of partnership and continuous engagement with partners, as well as other stakeholders, to identify the key issues and demonstrate the relationship between the inputs, outputs and outcomes of CSR.

Measuring total ROI into CSR is done by adding up all the benefits, subtracting any negatives and comparing the result to the initial investment. Using an external partner to support this is an important enabling factor. Initially they can offer insight into where investments will create optimum long-term shared value.

They can ensure accountability and evaluate, once outcomes have happened, whether they were intended, whether aspects of change would have happened anyway, or whether they are the result of other factors, thereby reducing risk.

Finally they can collate the data needed to calculate SROI and value outcomes for detailed financial statements.

By Clare Emily Raybould

Clare Emily Raybould runs Accountability Now, a social enterprise that supports business leaders to find the best area of focus for their CSR activities and create shared value through effective partnerships with the non-profit organisations

The numbers:

38%: The amount by which CSR and sustainability practices within large companies have been shown to contribute a profit.

3.3%-7.7%: The amount by which companies consistently participating in the UK Business In The Community CSR Index outperform the FTSE 350 on total shareholder return.

85%: Percentage of executives and investors surveyed by the Economist Intelligence Unit who said CSR was now a "central" or "important" consideration in investment decisions. This figure is almost double the 44% who said CSR was "central" or "important" five years ago.

84%: Percentage of executives and investors surveyed who felt CSR practices could help a company's bottom line.