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.
What does impact integrity mean for corporate social investors?
The impact integrity risk for corporate social investors (CSIs) derives from their relationship with a company. As companies have the primary intention of creating profit, one could argue that the most effective way to safeguard impact integrity would be for the CSI to stay at arm’s length. But that would be too easy. The relationship with a company offers significant opportunities, including access to corporate resources such as network, expertise and financial resources.
How do you find the right balance between mitigating impact integrity risk and making the most of the opportunities the company has to offer? Luckily, there are several steps that CSIs can take.
STEP 1
Understand the nuances of impact integrity
For CSIs, this has two implications:
1. They need to manage the influence of the related company to safeguard their social mission.
2. They need to signal legitimacy towards the key stakeholder environment (e.g., social sector, regulators, media, etc.) with regards to delivering the intended impact.
STEP 2
Assess your risk
It is possible for CSIs to assess their impact integrity by taking two major factors into account:
> the level of dependence on the related company and
> the type of strategic alignment pursued by the CSI.
CSIs can measure the level of dependence through aspects such as operations (communication), governance (staff, board composition, investment decision) and funding. For strategic alignment, we can use EVPA’s typology.
The positioning on the matrix is only an indication of the potential risk a CSI might experience, not an exact mirror of the actual situation. It may seem counterintuitive, but being in the “high-risk” corner is not necessarily a bad thing. CSIs in the high-risk corner can very successfully safeguard impact integrity by identifying the challenges faced and applying the appropriate mitigation actions that allow them to be successful.
For a practical next step, check out our easy-to-use online quiz to position yourself on the matrix. The results will indicate where the risk comes from and which of the two main relationships with the company and/or key stakeholder environment need to be managed accordingly.
STEP 3
Manage the relationship with your company
If the risk comes from the related company, the main challenge might be mitigating corporate influence to ensure that the business interests do not generate mission drift.
> A simple mitigation action will be sufficient if the risk is minor; this might include introducing safeguards through external organisations, such as regulatory authorities and external audits, as protection to shield yourself from interference.
> If there is a high risk, the CSI could separate itself from the related company in terms of strategy and operations, while still maintaining the name (a company name can remain a powerful tool for CSIs to signal legitimacy, gain visibility and attract partners). Strategies for separation include operating in different buildings, diversifying funding sources and setting up their own communications channels (e.g., branding, marketing and social media).
However, tread carefully: drastic mitigation actions could lead to losing certain benefits of being related to the company.
STEP 4
Manage the relationship with your key stakeholder environment
If the risk comes from the key stakeholder environment (e.g., social sector, regulators and other actors), the main challenge might be signalling legitimacy and demonstrating progress on the stated social mission. This involves managing the perception of the CSI and its impact integrity.
Low risk might just require the CSI to go beyond minimum (legal) requirements (i.e., compliance) and adhere to the highest voluntary standards with regards to impact management. A more effective approach would be measuring and communicating the created impact, as well as disclosing procedures and processes with the intent of building trust and consolidating legitimacy of the CSI in the perception of key stakeholders.
