What’s the ROI of CSR? In the corporate world of hard (monetary) facts and figures this question is raised quite a lot – especially from high level executives. It might be argued that “doing good things” always makes sense. But in the end many activities and decisions are also investment decisions. Corporate Social Responsibility in the shape of ESG (Environmental, Social, Governance) specifically tries to measure the impact of “doing good things”. Corporate management models need KPIs to effectively work. A KPI is per definition a performance indicator, which means you measure against a target. And to have a target obviously requires a good strategy and management process.
Recently the non-financial reporting directive of the European Union catapulted many CFOs in the role of the ESG officer, as someone now has to assume the duty of control and also the risk of liabilities. Suddenly the responsibility for CSR grew from the corner office to the board members. In the last 20 years of working in this field only a few other changes had an equal disruptive impact on how corporations (have to) manage this topic.
The link between CSR and Finance comes in different shapes and forms and impacts among other topics for example:
- non financial reporting
- financing & investing
- disclosure & rating
- impact measurement
- remuneration & targets
- performance & profitability
- risk & reputation
- procurement & purchase decision
- carbon & enviromental tax
It is not so much a question if CSR and Finance are linked, but only how in a specific case. We typically see in projects that there are still many missconceptions about CSR & ESG topics, especially on the board level. The simplification and concentration on certain aspects to manage those topics within the overall corporate structure often leads to a very narrow and simplified view. Internal knowledge and educated execution should be built up fast.
What is the best practice on embedding ESG and enable real execution:
- define a responsible top executive
- communicate the strategy
- establish a CSR & ESG core team to focus on execution and management
- initiate a “green council” to include internal stakeholders and champions
- leverage the momentum of activity within the different divisions
- increase the subject matter know-how
- enable and train experts internally
- listen to external triggers
- seek for advice from experts
ESG topics already heavily affect investment or purchase decisions on many levels and for most of the industries. This fact will only manifest even more with growing legal requirements in the near future.
If CSR and ESG are not integrated in the core corporate management and controlling function, qualified strategic decisions will not be possible. As Peter Drucker said “… what gets measured, gets managed.”