How do companies create social value?

Many businesses try very consciously to do social ‘good’—giving money to charity, organising a charity of the year, match funding donations made by staff and arranging for their employees to volunteer with non-profits.

Some do it well; a lot more do it badly. We earn some of our crust at NPC by helping those who want to do it better to understand what social value they are actually creating.

But in truth businesses add—and destroy—social value every single day. The way they operate, their employment practices, environmental footprints and commercial decisions to charge or not charge for ATMs all have enormous social impacts that greatly outweigh what they do ‘deliberately’.

Firms are increasingly thinking about this. Our work with many corporates has slowly evolved into worrying about this wider social impact and beyond narrow CSR or philanthropic areas.

Why? Well, cynically, because businesses still need to repair reputations damaged as a result of the Great Crash and Recession. And out of fear that the—rather toothless—Social Value Act will require them to get into this (although this is far from clear).

More positively, they want to distinguish themselves from the competition by showing they are good social citizens. Even more importantly, there are new generations coming through who really do care about this stuff, be they graduate recruits or new CEOs. They want to feel proud of the way they behave and to be able to talk about it, show off to and impress—for good reasons—both their customers and their investors.

Of course, none of this is easy. It may be hard to measure the impact of funding given to a charity to help kids with mental health problems—but how on earth do you manage it for a decision to change your supply chain to one more dominated by social enterprise, or to not set up a factory using dodgy technology, or to spend more on making sure your factory overseas doesn’t burn down? Beyond this, how do you produce metrics that are useable, in the sense that you can compare yourself to others?

That something is hard is never an excuse for not trying, and we are all at the early stages of trying to work all of this out. People have already started making progress in some areas, especially where there are common metrics, like the amount of carbon produced. In others it is, and will remain, difficult.

This nascent agenda is one that Business in the Community (BITC) are well placed to be leading lights in and we at NPC want to bring our thinking and expertise to bear too. We co-chair the measurement sub group of the G8 Impact Investment Taskforce on Impact Investing with the Global Impact Investing Network (GIIN).

The main task here is to develop sensible approaches to measurement of social impact for impact investing. But to design guidelines that make sense for impact investors, but do not align with approaches corporates are starting to use to measure their more general social impact, would be to miss off an enormous part of the economy. We will try to avoid that.

We look forward to working with you all as we go forward.

As part of BITC’s Responsible Business Week 2014 we have set up an online debate: How do companies create social value?  Dan is on the panel and you can join in at 12.30pm today Thursday 3 April here or on Twitter using the hashtag #RBWSocialValue.