COMPANIES may be on the lookout for positive outcomes in their growing lists of corporate social investment projects, but experts caution that a failure to evaluate the business cases of these investments — which now amount to R8bn in South Africa — will continue to leave fields of broken dreams.
Companies are good at measuring their financial performance, but they are falling short when it comes to their corporate social investment (CSI) because they are not treating it like other investments.
“What is shocking is even among companies that provide the data, almost none provides a return on investment,” says Integrated Reporting & Assurance Services (Iras) CEO Michael Rea.
The outcomes of poorly crafted policies are already visible to travellers in Africa or to mining towns in South Africa. There are laptop projects in Kenya where the computers are being used as light sources in communities rather than for the purposes they were intended. The laptops are charged during the day and hung up on high points in shacks as a source of light at night.
There are Fifa-accredited soccer pitches in Rustenburg that were never linked back to other priorities such as education and skills development. Mr Rea says these pitches each cost R5m to build, with Swiss experts even testing how high the balls would bounce, but they have fallen into decay after the lights were stolen and fences trampled.
“You can’t just build something like a clinic because a community says they need one. A company must do it because there is a business case for it. The business case is that there is a crisis in healthcare, like people dying from controllable diseases. So the goal is to set a target so at the end of the day you can calculate the return on that investment,” says Mr Rea.
Charl Koks of ratings agency Ratings Afrika says shareholders must communicate with companies about what they should do, rather than “companies telling them about a new CSI project”.
“If it’s an investment, what we are trying to see is a return. The problem is there are so many good intentions, then they tick it off and say, ‘We’ve done our bit’. But at the end of the day shareholders are not engaging enough.
“It is a damp squib if they just report on things they have done and move on to the next thing. There is a need for more credibility.”
It is dangerous to try score brownie points off how much money you spend, as according to Iras total CSI spending can “be a somewhat misleading indicator” in that the rand value may not be a fair reflection of the company’s commitment to development. For example, while Gold Fields’ R1.1bn reflects 3.85% of total revenue, it is 0.54% at Anglo American, even though Anglo spends R1.3bn.
In its 2013 review of sustainability reporting in South Africa, Iras finds only 51.7% of the 331 company reports it analysed provided data on CSI or social economic development spending in their annual reports.
“The 160 companies that say nothing ought to be a bit more forthcoming with how much money they contribute to development and at least somewhat more transparent with where the money goes,” it says in the report.
“It can only be satisfied by an argument we are making money, saving or creating and protecting wealth in a community.
“And people’s lives are wealth — for example, when they get employment and have an economic return on a community,” says Mr Rea.
“We’re stuck in the realm of poverty pornography, where you take a photo of a CEO giving money to a community and call it CSI. You construct an HIV clinic, for example, at an enormous cost and then local communities tear it apart.”
Tshikululu Social Investments, an adviser on social investing to a number of blue-chip companies, interviewed 41 business leaders at the end of last year on their corporate social investment successes and failures. The research found most respondents did not expect their efforts to pay immediate material dividends. But when asked to take a longer-term view, they saw these investments as becoming increasingly important and strategic. Asked about the perceived financial effect, only 12.2% of businesses saw it as having a very large impact at present, against 30% expecting a very large effect in five to 10 years.
South African corporate social investment is growing at 6% a year already, but is still only 1.4% of total net profit after tax.
Tshikululu Social Investments executive Nikki Griffiths says it is “time to pause” and ask whether social investment money is being used well enough, for instance, in order to drive innovation. “There is a risk of following a corporate and not a social agenda.”
Tshikululu client manager Adam Boros says there are no shortcuts to making social change. “It is not cheap, and you must be practical and realistic about the changes you can make. Give serious thought to evaluation.”
Lauren Gillis, co-founder of social initiative Relate Bracelets, says it is important for companies to ensure the money they invest goes where it is intended. She says skills and enterprise development are the best areas for investment.