Executive Summary
At companies where the citizenship function is not only strategically aligned with wider business goals, but also focused on making measurable progress in tackling endemic social and environmental challenges, firms are advancing innovation on multiple fronts. By drawing on the broader capabilities of the company, citizenship teams are pursuing new modes of investment, new approaches to procurement, and new vehicles for leveraging a company’s talent pool and business units. This represents an approach to societal impact that goes well beyond traditional forms of philanthropy.
Societal impact investments: Impact-focused investing, or simply impact investing, is an investment strategy that seeks to achieve social and/or environmental goals with the explicit expectation of a financial return. This report uses the term “societal impact investments” to refer to corporate financial investments that seek to have a positive and measurable impact on society alongside a financial return.
Insights for What’s Ahead
- Corporate citizenship teams are deploying a wide array of nontraditional programs to address societal needs. These include helping to establish and strengthen local, minority- and women-owned suppliers; investing in social enterprises; and providing no-interest loans to, and equity investments in, appropriate partners. In many cases, corporate citizenship departments take the lead; in others they are the catalyst, convener, consultant, or supporter. However governed and structured, it is imperative for the company to have clear criteria for deciding which areas to focus on and the objectives of such investments—including the balance between financial and social returns.
- Societal impact investing in various entities and vehicles (for-profit entities, joint ventures, business incubation programs, nonprofits) is a major area of activity. All such investments seek measurable financial return alongside tangible societal impact. While some companies have a long track record in societal impact investments, it is still an emerging frontier for others. A preliminary survey by The Conference Board of citizenship executives from large companies indicates many firms are already making such investments, or are considering doing so in the future.
- Companies are primarily making societal impact investments to promote economic opportunity and equality, improve educational outcomes, and advance racial equality. A focus on economic opportunity and equality reflects companies’ roles as economic engines and societal stewards. Education and training programs are essential to prepare skilled workforce entrants who ensure employers remain globally competitive. Racial equality has been a priority for many corporations since the murder of George Floyd and societal upheaval of 2020.
- By providing a financial return to the company, societal impact investments can be inherently more sustainable than those that simply involve writing checks. Crucially, the returns on societal impact investments can be recycled into new opportunities as funds are redeployed into new programs, funds, and partners. The market discipline of seeking a financial return also ensures funds are invested efficiently. The Conference Board preliminary survey results show that a significant proportion of firms are seeking a market- or above-market financial return.
- When deploying societal impact investments, companies may consider establishing a cross-functional investment committee to govern and oversee strategy. Investment committees typically draw on relevant corporate and business functions to assess pitches, undertake due diligence, and review and approve new investments in line with strategy. These committees mitigate risk, maximize effectiveness, and embed impact criteria. They also often develop and use scorecards when evaluating potential investment opportunities, to scrutinize and weigh various financial and social elements—a sample scorecard is provided in this report.
- As companies strive to align their business activities with social and environmental impact goals, they can diversify their existing supply chains by procuring from women- and minority-owned businesses. Focusing on who owns the business is not enough, however. Procurement programs that also assess whether the firm operates and employs people in underserved communities can create a virtuous cycle of economic opportunity.
- Leveraging a company’s people, as well as its financial resources, is another important pathway for social impact that goes beyond traditional philanthropy. Business-wide social impact initiatives that position employees for volunteering exchanges can create long-term, business skill–intensive partnerships between firms and social sector organizations. Such initiatives, often focused on globally emerging markets, are made possible by close collaboration between corporate citizenship, human resources, and talent development. Leveraging employees in this way requires buy-in from senior leadership and a business case that links social impact work with growing the core business. In one case, US company Corning is embedding its own employees in its local school district to build capacity for diversity, equity & inclusion initiatives.
- Some firms have shifted their focus from specific forms of societal impact investing to an even broader approach in which their entire business strategy is aimed at profitably increasing social and economic welfare in society. A current example is AT&T focusing the entire company on a $2 billion commitment to bridge the digital divide in underserved communities. This represents a full mainstreaming of the “creating shared value” approach across entire corporations. This degree of integration of citizenship with business strategy also poses new considerations for governance, management, and risk mitigation.
- As corporate citizenship becomes a more important element in corporate business and ESG strategies, CEOs often become more involved in the function’s oversight and decision-making. The CEO is therefore critical in determining whether to engage in societal impact investing, where it is managed in the organization, and the balance of objectives (such as between impact and financial return, and the degree of financial return). The process leading to the CEO’s decision should include input across functions (legal, finance, communications, strategy, human resources, business units), as multiple departments will be involved in the execution and communication of the program.
- Nontraditional philanthropy and innovative corporate citizenship should be underpinned by robust capacity for impact measurement and reporting. Companies have a wide range of useful frameworks, tools, and approaches to draw from when measuring and disclosing the impact of projects and investments. While there is no one approach, companies should look beyond measuring simplistic inputs (financial resources and volunteer hours) and outputs (people reached) and toward capturing positive long-term change.
