Business of Impact in Venice was a smash but the feast is not over! We continue to serve you small portions of great wisdom on the topic of corporate social investing.
ESG - What does it mean?
The ESG concept has been around for a while now, and has gone through peaks and valleys of public perception; for examples of this controversy, look no further than today’s headlines. The broad, catch-all use of the term has led to a lot of confusion and different interpretations of its meaning. Therefore, it’s worth clarifying what it really stands for.
ESG is the abbreviation of environmental, social and governance.
It is a framework designed to measure business risks and opportunities in those areas. Often, the framework is used to facilitate better financial decisions or to make and monitor compliance, policies and laws.
In the context of CSIs, we consider ESG a framework to make progress on the SDGs – notably different than what’s most covered in mainstream media (see here).
A solid ESG strategy not only focuses on risk, but also articulates objectives to generate value for certain stakeholder groups. CSIs are in a unique position to contribute to reaching these objectives.
Positionings to choose
Passive Contribution
Some CSIs do not want to contribute to their related company’s ESG strategy, and for good reasons. One reason is to keep full control over the challenges the CSI is addressing. While this does not exclude the possibility of alignment, being connected to the company’s ESG strategy might reduce the necessary flexibility. Another reason is that the company first needs to bring its own house in order. Communicating improperly about the foundation’s impact could harm the company’s credibility and lead to allegations of impact washing.
Nonetheless, the mere existence of a CSI is, to a certain extent, a contribution to a company’s ESG strategy, as CSIs’ assets come from the corporate entity. CSIs are a sign of commitment, often referenced in a company’s non-financial reporting.
Active Contribution
A CSI can also choose to actively contribute by connecting its activities with strategic pillars of the ESG strategy. In some cases, the CSI is even involved in shaping the strategy and its key performance indicators, to which the CSI contributes.
Unique and impactful contributions
A CSI’s decision to position itself with regards to the ESG strategy also depends on its ability to deliver certain contributions. Some key benefits CSIs have to offer:
> Instead of operating in a silo, CSIs can contribute to reporting on strategic pillars by connecting the dots between its activities and related objectives of the ESG strategy.
> As experts on social impact, CSIs can create the company’s narrative for the S, especially when it comes to the impact on communities.
> Often, CSIs involve employees in volunteering opportunities, which can support retention rates, be considered an additional training opportunity for these employees and be a catalyst for a prosocial mindset within the company.
> As social impact pioneers, CSIs can share expertise to inform the business and promote more inclusive practices from within.
> CSIs have a portfolio of impactful organisations, and can thus provide access to social innovations, including green and socially inclusive enterprises to be considered as partners. Both the ideas and the organisations themselves have the potential to scale through the company and contribute to a more inclusive value chain.
> Ambitious ESG strategies articulate KPIs and quantifiable commitments, which different company initiatives, including CSIs, can contribute e.g., access to electricity provided.
How to make it work?
A CSI’s intention to contribute is not enough to make this approach successful. Contributions have a much better chance of succeeding if certain enablers are put in place first:
1. Corporate readiness and senior management buy-in are key to empower the CSI within the company’s ecosystem, and position them among other initiatives.
2. Coherence with company purpose will significantly facilitate the connection with objectives of the ESG strategy.
3. Having a favourable governance structure (i.e., board members from the company) will formalise the CSI’s contribution to the ESG strategy and enable structural coherence.
4. Being part of the ESG strategy development process will allow the CSI to shape the overall direction, especially of the S, and to ensure alignment with the CSI’s social mission.
5. Having common IMM frameworks and KPIs will ensure that the CSI’s contribution is meaningful and not just anecdotal.
