Partner and Director, Total Societal Impact & Sustainability
This is an excerpt from Total Societal Impact: A New Lens for Strategy.
Companies have long designed their strategies and business models to maximize total shareholder returns (TSR). Today, under increasing scrutiny from all stakeholders, companies must also consider their total societal impact: the full economic, social, and environmental impact (both positive and negative) of a company’s products, services, operations, core capabilities, and activities. But while many companies now have clear objectives related to increasing their contribution to TSI, most have not revamped their strategies and tuned their business models to include TSI objectives.
Drawing on client work and our research, we have identified eight success factors for making this shift. Few, if any, companies—even extremely well-run companies—are best in class in all of these factors.
1. Understanding Where You Are Today—and Where You Need to Go. Companies must fully understand the total societal impact of their products and services, and they must determine where they can make additional positive contributions. All too often, companies focus on areas that are not clearly connected to their business—consider a bank that supports efforts to rid oceans of plastic waste. As a result, they have less impact and less credibility than if they target areas where they have expertise and unique resources. Companies need to choose a small and distinctive set of TSI themes, areas that are relevant to their industry and where they can make meaningful contributions.
When Visa announced the launch of its foundation, in 2017, the company decided to review its overall societal impact agenda. As a result, Visa is moving away from a large number of fragmented activities and a wide range of small-scale partnerships to a focus on an anchor pillar that aligns closely with the company’s mission and philosophy of societal change. This pillar, focused on the financial empowerment of microenterprise owners, will not only become the core platform for the foundation and much of Visa’s other corporate philanthropy efforts, but will also include business initiatives aimed at creating societal and business value. Visa and Visa Foundation will now pursue only a few activities, but at global scale and with a few highly credible partners.
2. Creating a Cohesive Narrative. After identifying the right themes, companies must tell a clear, cohesive story of how TSI is integrated into their corporate and business strategies. It is hard for stakeholders, whether employees, customers, investors, or governments, to understand what the company is doing without such a narrative. When companies are able to tell a consistent and credible story about their societal impact efforts, they are more likely to get credit for them from those stakeholders.
3. Building a Portfolio of Scalable Initiatives Leveraging the Core Business. For each area on which a company focuses, it needs to select a limited number of high-priority initiatives that are integrated with and driven by the company’s business units. Each should be based on a solid, detailed business and social impact case and designed ultimately to reach scale.
This last point is critical. A company’s TSI efforts and aspirations should be commensurate with its scale and reach. If these efforts center on a large number of disparate projects, they may not reach scale—and therefore won’t move the needle much on societal issues or the bottom line.
Facebook has effectively built a portfolio of initiatives around a clear narrative. Mark Zuckerberg’s 2017 letter, “Building Global Community,” laid out a clear vision of how Facebook should drive societal impact. The company’s goal, Zuckerberg wrote, should be to “develop the social infrastructure to give people the power to build a global community that works for all of us.” He also spelled out how Facebook should go after that goal by focusing on five pillars, including safe communities, civically engaged communities, and supportive communities. These pillars directly shape how business unit leaders develop new products and services. Facebook’s voting reminder features and voter knowledge platforms (which, among other things allow local politicians to share their positions and hold virtual town halls), for example, support the pillar of building civically engaged communities. The safe community pillar is supported by products such as Safety Check, which allows people to let friends and loved ones know they are safe in times of disaster or crisis, and by the company’s charitable giving tools, including fundraisers and donations, which help people come together to support one another after a crisis.
4. Forging Partnerships to Amplify the Impact. Nearly all companies have partnerships with organizations such as NGOs, development organizations, other companies, and governments. But often there are too many partnerships, and they don’t focus on large-scale initiatives.
Successful companies build deep relationships with a few “anchor” partners in order to create large-scale, high-impact initiatives. The NGOs we spoke with noted a similar desire for fewer but deeper partnerships.
Partners often offer complementary capabilities, such as deep societal impact knowledge, distribution channels in new markets, and strong relationships with local governments. Partners such as development organizations and governments can also be a source of direct funding. As a result, strong partnerships can mean the difference between the success and failure of an initiative. Finally, partners that engage with the company in large-scale initiatives can be a credible voice when it comes to communicating the company’s impact.
Merck’s flagship Merck for Mothers program, focused on ending preventable maternal mortality, involves a number of partnerships. One, with Ferring Pharmaceuticals and the World Health Organization (WHO), focuses on postpartum hemorrhage (PPH), the number one cause of maternal mortality worldwide. A study called Champion—conducted by the WHO and supported by Merck and Ferring—is comparing the proprietary, room-temperature-stable formulation of Ferring’s medicine carbetocin with oxytocin for the prevention of PPH following vaginal birth. While oxytocin is listed as a WHO Essential Medicine for the prevention of PPH, it requires refrigeration during shipping and storage, and often suffers from inconsistent quality of manufacture. If the study, an international, multicenter trial involving as many as 30,000 women, demonstrates the effectiveness of Ferring’s drug, Ferring will seek registration approval to market the product in approximately 90 low- and middle-income countries. The WHO, Ferring, and Merck will then work in partnership to make Ferring’s product accessible and affordable in those countries. Such an effort could reduce PPH, particularly in the many areas of the world where cold storage is difficult to achieve and maintain.
Partnerships can also be used to leverage the collective buying power of an entire industry. In 2011, global chemical player Solvay, along with five other industrial companies, founded Together for Sustainability (TfS) to standardize sustainability assessment criteria for suppliers. TfS’s member base has been steadily growing. Today, the initiative has 19 full members in Europe and North America with a combined $333 billion in revenues. TfS rates the sustainability of suppliers by tracking metrics in a number of areas, including the environment and labor practices. Currently, over 7,600 suppliers are on the TfS platform. Through the coalition’s leverage, Solvay is able to influence its suppliers—particularly its 1,100 core suppliers—to adopt more sustainable practices. The impact has been impressive: latest measurements reveal that 67% of Solvay suppliers that have been assessed a second time have improved their sustainability score. For suppliers that do not score well under TfS, Solvay works with them to come up with a corrective action plan.
5. Defining Goals and Measuring Results. Few companies set clear metrics and goals for the societal benefits they plan to create. Even fewer effectively measure their performance against those goals and the impact of their TSI-related activities on financial performance. Our interviews and work with clients show that setting goals and measuring progress remain the biggest gaps for most companies.
Successful companies are defining the right metrics, often aligning them with the goals of external stakeholders. If a government, for example, sets goals for reducing infant mortality or bringing women into the financial system, companies with initiatives in those areas should measure their progress using the same metrics the government does. Partners such as NGOs may have the insight and expertise to assess the real-world impact of specific company activities. Companies also need to design internal cause-and-effect models to tie societal impact activities to business performance.
Some companies are beginning to solve the measurement problem. Standard Bank has developed what it calls the SEE framework, which helps each business line take account of its social, economic, and environmental (SEE) impacts. In one case, the agribusiness unit found that by restructuring debt for 38 of Standard Bank’s South African agribusiness clients’ loans during a drought, the bank indirectly saved over 700 jobs, kept 120,000 acres of land agriculturally productive, and maintained more than $14 million in economic activity within the local economy from those clients. The bank has adopted the SEE framework as one of five value drivers (others include employee engagement and client focus), which guide decision making and reporting. The goal of this initiative is to make the bank’s purpose—supporting Africa’s growth—tangible to its employees, clients, and stakeholders.
6. Engaging with Key Stakeholders on the Issues That Matter to Them. The company should also engage directly with key stakeholders—including employees, customers, and governments—in order to understand and work with them on the societal issues that matter to them. If companies focus on issues that are not relevant to these stakeholders, their efforts are likely to yield little benefit to the company.
As part of its exploration and production activities, BP not only engages with communities but also works with national governments to agree on local content requirements for materials and services, align on local workforce targets, and collaborate on economic development. In the Bintuni Bay area of Indonesia’s Papua Barat province, where the company operates its Tangguh liquefied natural gas (LNG) project, BP has various initiatives, including efforts aimed at reducing malaria and increasing local villages’ access to energy. The company also hosts and participates in the TIAP (Tangguh International Advisory Panel), a large group that engages with national and local government agencies, international NGOs, and community leaders to review important social and environmental issues related to the Tangguh project. In addition, every six months BP provides reports on those issues to the Indonesian government.
BP’s collaborative approach to government partnership helps earn the company a seat at the table with government leaders around the world. When the government of Azerbaijan created a strategic roadmap for economic reform in 2016, for example, it asked BP for input on the energy sector component of the plan.
PNC, for its part, engages with both employees and customers through the creation of Regional Diversity and Inclusion Councils in each market, which are led by the regional president and retail market manager. The councils are made up of representatives from all lines of business, from retail banking to wealth management. Their objective is to generate revenue by attracting new customers, partnering with diverse suppliers, hiring diverse employees who reflect their respective markets, and strengthening the bank’s relationships with communities.
7. Making TSI Integral to Investor Engagement. Information on the effect of TSI activities externally as well as on financial performance needs to be integrated into all communications with investors. Companies should include this information in both their annual reports and all regular communications and events with investors throughout the year. Forward-looking CEOs believe that such integrated communications may increase the proportion of long-term investors.
Some companies are taking creative approaches to investor communications. BP, for example, splits its investor relations function in two. While the bulk of IR reports to the CFO and engages with investors on financial and strategic issues, a smaller IR team that is part of the strategy group engages with socially responsible investors and with mainline investors on societal impact topics. This structure reflects the company’s view that key societal impact topics are directly tied to BP’s strategy.
8. Establishing the Right Governance and Incentives. The involvement of the board of directors is critical to integrating societal impact activities into the business. Unfortunately, evidence indicates that directors are not taking the lead in this regard. According to the 2017 MIT/BCG study Corporate Sustainability at a Crossroads, 86% of company respondents said that boards should play a strong role in a company’s sustainability efforts, but only 30% believed that their company had strong board-level oversight in this area.
A major reason for this is that most directors believe their fiduciary duty is to shareholders. In fact, the duty of the board is to the corporation itself. The board can and should decide on the time frames for creating shareholder value and support a strong TSI focus in the company’s strategy. The board and long-term shareholders can provide a strong line of defense to the CEO when activist investors come along who are only looking for short-term gains and may care less about the long-term viability of the company.
In addition to a supportive and engaged board, companies need an appropriate structure for managing TSI activities. Typically, this has been the responsibility of a dedicated team, often called Corporate Social Responsibility or Corporate Sustainability. The activities of such teams, however, have not necessarily been integrated into the business. A better approach is for business units to take responsibility for their own TSI-related activities. The CSR function can be reinvented as a center of excellence focused on delivering TSI and TSR in tandem. This newly empowered function can provide support and input to the business units and other teams, including investor relations. It should also be directly connected to the corporate strategy-setting process.
Finally, companies should create incentives for pursuing TSI efforts. For instance, a portion of senior managers’ compensation should be tied to relevant social and environmental metrics. If those leaders are held to account for meeting TSI objectives, that focus will permeate the organization. In addition, formal programs should be established to recognize individuals who make major contributions to TSI.
Solvay has made a concerted effort to ensure that its organization and governance support its social and environmental efforts. The company’s CEO tapped the head of energy services to serve as chief sustainability officer in order to ensure that the person in that role would understand the perspectives of business leaders. The deep connection to the business helps the CSO challenge executives to integrate social and environmental issues into day-to-day operations. Notably, he helped embed 40 sustainability champions in the global business units and functions.
Solvay is also holding senior management accountable for progress. The company tracks a series of metrics in five areas—safety, business solutions, carbon intensity, employee engagement, and societal actions—and links senior management compensation to the company’s performance in those areas. In 2017, for example, adjustments were made so that 20% of the long-term compensation of Solvay’s CEO will be tied to a metric on greenhouse gas emissions.
The effort to make meaningful contributions to society must start at the top. All CEOs should ask themselves the following questions: Do I believe we are telling our stakeholders the full story about the societal value we are adding? Is the company fully integrating a TSI perspective into strategy setting and the tuning of the business model? Do we make TSI explicit in strategy goals, operating plans, and targets?
If the answer to those questions is no, the company is likely not realizing its full potential in TSI and is missing out on significant opportunities.
There are four things the CEO can do to help the company improve its TSI and TSR. First, the CEO should envision what the company’s societal impact should be. In particular, CEOs need to look into the future to gain insight on how their core product or service should evolve to be in step with changing societal expectations and demands and evolving regulations. Even if shifts to the product or service portfolio may not offer near-term profits, thoughtful adjustments that factor in societal impact will likely pay off over the long term.
Second, CEOs should communicate that aspiration and concrete goals to shareholders and other stakeholders. Done well, this can renew and strengthen the sense of purpose in the organization, the meaning of the brand, and the legacy of the CEO.
Third, the CEO needs to assess the company’s current TSI. This requires a comprehensive review of the economic and societal benefits of everything the company does, from the full value of its products and services to the way it sources raw materials to the way it sells and distributes to the role it plays in its industry.
Fourth, the CEO must turn vision into action by integrating TSI concepts into strategy setting and the business model. Our research shows that absent demonstrated commitment from the top, it is difficult for the TSI mindset to become embedded in corporate thinking and operations.
TSI cannot be the sole responsibility of one team in the organization. Rather, it must be elevated alongside the goal of creating value for shareholders and become an essential part of the senior team’s agenda.