Five Insights into the New Age of Corporate Societal Investments

Income statements, balance sheets, cash flow statements – these are the three forms that rule Wall Street day-to-day, month-to-month, quarter-to-quarter. Most business leaders focused on what the numbers in these statements said about the strength of their business on a quarterly basis accompanied by a look back at successes and failures once a year. For the longest time, this was “business as usual.”

More and more things have changed. There’s a growing consensus among leading CEOs that companies are not solely short-term, quarterly profit centers. Rather, they are also forward-looking enterprises that look beyond quarterly and annual results and organize to create value over the long-term. These strategic companies make societal investments that safeguard and build the loyalty of their customer base, reliability of their suppliers, stability of the returns to shareholders, engagement of their employees and verdancy of natural resources.

With this shift, we’ve also seen an evolution in how companies engage societal stakeholders. This is a move away from the philanthropic programs from decades ago toward a more fully-integrated, systems-approach to corporate societal investments. As the “CEO Force for Good,” CECP’s coalition of leaders in business is at the center of both of these shifts. Through CECP’s research and engagements with such leaders, here are five latest insights:

Advocating as Purpose Strategy Has Staying-Power

First, the view from the top. Of the CEOs polled at the CECP 2017 Board of Boards, 66% say that it will be companies who will lead progress toward long-term societal improvement. In fact, 60% also state they are either equipped or well-equipped to meet expectations in the current business and sociopolitical environment. This boils down to CEOs saying they have the responsibility and capability to lead social change.

But are policy shifts – such as NAFTA, the Paris Accord, Brexit – changing how companies view their role? The answer is no. Leading companies are not only maintaining but are increasing their level of activism. In March 2017, half of companies we surveyed indicated that they will not waiver in their societal investments, regardless of changing federal regulations and policy. A month later, 61% of companies said that they plan to maintain their level of speaking out on social issues and an additional 21% said they intend to advance efforts to speak out on social issues.

Getting Results Through Purpose

Here’s a second insight: Leading companies see a larger corporate purpose beyond profit as central to energizing, reaching vital stakeholders and creating more resilient markets.

When asked if their company operates with a larger purpose, 64% of CEOs told us that they do and that purpose is a very powerful motivator for their company.

In addition, the companies that give more, grow more. From 2014-2016 companies that contributed most to their community stakeholders saw a pre-tax profit growth rate of 7.6% and an overall revenue growth rate of 4.1%. This stands in contrast to all other companies who saw an inflation-adjusted decline of 6.4% and 6.1% of those same measures.

This is backed up by additional studies, including the 2016 Workforce Purpose Index conducted by the consultancy Imperative and LinkedIn. From 2013-2016, of the companies that had a clearly articulated and understood purpose, 85% experienced growth in revenue. For those companies not considered purpose-led, 42% of them saw a drop in revenue.

Shifting to “Long-Termism”

The pressures of Wall Street on CEOs of public companies to deliver increasingly profitable quarterly financial results are immense. But are we starting to see a shift to longer-term thinking? CECP thinks so. At the 2017 CECP Board of Boards meeting, a majority of CEOs – 67% – say they focus too much on short-term thinking.

Indeed, in February CECP held the inaugural CEO Investor Forum where CEOs engaged with over 200 institutional investors that represent more than $27 trillion in assets under management. Never before have CEOs and long-term-oriented investors been brought together to address strategic planning. Qualitatively speaking, from these discussions we know that several things are clear. Both investors and CEOs say that while environmental and social factors vary from industry to industry, these factors are issues that are indisputably financially material. In addition, there’s hunger for more and better-quality data. Investors asked for more transparency and want quarterly calls to become building blocks of longer-term plans rather than the sole focus on quarterly financial results.

Tailoring Volunteering and Focusing Giving

Corporate volunteerism is hardly new and in the past three years we’ve seen an increase in the participation rate of employees volunteering – from 31% to 34%. We also see corporate trailblazers refining and focusing their volunteer initiatives to create unique value for employees based on the distinct skills, needs and values of each employee. This translates into volunteer programs that are increasingly flexible.

For example, CECP companies have seen a 5% increase in flexible scheduling volunteer programs. Additionally, the most frequently offered types of corporate volunteering programs are flexible volunteer time and paid-release time – with 60% and 61% of companies offering each type of program, respectively. Both of these programs emphasize the ability for individualized volunteer experiences. Employees want to bring their values to work and companies are responding.

We also see greater focus coming to societal engagement strategies. Of the all the ways to make greater bold moves through their signature programs, 36% aim to drive impact by making larger grants to fewer charitable partners. On the other hand, only 7% of companies expect to expand corporate giving budgets. Each year more companies seek to drive change on social issues through greater focus.

Embedding Societal Investments Further in the Company

Along the same lines, nearly a quarter of companies are looking to integrate social strategies into other departments and leverage other assets. This points to the larger trend we see of a deeper embedding of corporate societal investments into companies.

For example, 33% of companies say their company is either somewhat or highly involved in impact investing. As a relatively new approach in corporate societal investments, impact investing is when a company invests assets to achieve financial returns as well as a positive economic, social, or environmental impact. In our report Investing with Purpose, we group current corporate impact investments into six different categories. These categories include making direct investments, such as an acquisition, or creating self-managed investment funds, such as a corporate venture capital unit. For the first time, we’ve estimated the total corporate impact investing market to equal $2.4 billion each year.

Overall, these five insights tell us that business-as-usual – emphasizing quarterly results at the expense of long-term value creation – is becoming business-as-unusual. Companies that make strategic societal investments will be able to drive sustainable value now and for the future. In turn, this contributes to a companies’ competitive advantage and drives how businesses are a force for good in society.

Leave a Reply

Your email address will not be published. Required fields are marked *


5 × four =