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How to Evaluate CSR Initiatives – September 2014

Corporate Social Responsibility (CSR) has evolved a lot in the last 10 years; it has gone from being a peripheral function to becoming an important pillar in a company’s strategy.  Although this is very good news for CSR managers, it also brings new responsibilities and challenges. Senior leaders now expect CSR initiatives to add value to the business and any CSR achievement has to be measured according to a set of agreed upon indicators. It is critically important to begin to measure CSR results because it is a way to gain understanding and acceptance from other proponents within the company.

Effective measurement systems for CSR initiatives follow specific methodologies. To start, we will review some lessons from a couple of past measurement studies that are worthwhile mentioning.  

Lesson 1. In 2001, the Boston College Center for Corporate Citizenship published a pioneer study on measurement entitled “Demystifying Measurements”.  The study emphasized three key concepts that are still important today:

a)To create business value, think about the measurement process before you start. Prior to launching a new CSR initiative or implementing a program or strategy, it is important to identify the results you want to achieve. Relying on luck or “happy accidents” is not the way to create business value.  

b)To be credible, do not try to measure everything that can be measured from the start. Try to identify one or two key outcome and impact indicators that are relevant to what you want to achieve. Outcome indicators are the direct results of the program and they are usually measured in numbers. For example, the outcome indicators for a volunteer program might be the number of employees who participated in volunteer activities, the volunteer hours logged, the number of beneficiaries, etc. Impact indicators define the difference the program made to the company or the beneficiaries, and respond to the question, “So what?” If 50 volunteers helped 100 senior high school students in math and science and logged in 2500 hours, what difference did they make to the company and the beneficiaries? In regards to the impact to the company, maybe morale among employees was low and the program helped improve morale, or the company had trouble retaining employees, and the program helped with retention.  In regards to the impact on the beneficiaries, maybe the students got better grades and were able to enroll in honor math and science classes. Later on, a percentage of these the students applied to college and not only all of them got accepted, but they also won scholarships.   

c)When measuring CSR’s return on investment, it is important not to get stuck trying to prove cause and effect, that the CSR program was the only cause that made the change.  It would take years to isolate the causes of the change and the studies would be very expensive. The key is to show that the CSR program made a substantial contribution to the end result.

Lesson 2. Another study that was published in 2009 by the Boston College Center for Corporate Citizenship and McKinsey, stressed the importance of learning the business language and being able to speak with senior leaders and finance managers at their level. The study mentioned that CSR managers know how to create value with their programs but they don’t know how to measure and/or communicate such value to these key staff. Usually business leaders and finance managers are concerned about increasing market share, reducing costs and managing risks. Can CSR programs have a positive impact on these financial indicators? The answer is yes. CSR managers need to ask a different set of questions, including: Did the CSR program help the company enter a new market? What was the increase in market share? How much money does it represent? How many new clients did we obtain as a result of the program? What is the projected income these new clients will bring in the next 6 months or year?  CSR managers who have answers to these questions when meeting with senior leaders will obtain their immediate respect.

Although the lessons learned from these two studies are very relevant today, some people still wonder if we will ever find the exact return on investment (ROI) for CSR. For years we tried to measure the ROI traditional ways and came out short, because there is no exact science when it comes to measuring the return on important CSR strategies like ethics in decision making. For example, a couple of years ago, a bad decision made by a British Petroleum (BP) executive caused a huge oil spill in the Gulf of Mexico. BP will have to pay $20 billion dollars in damages. In addition, its stock took a plunge and so did the company’s reputation. What is the value of ethics?

What can we do? We can take a non-traditional approach to the ROI.

The first step is to identify impact indicators that the company cares about, so when we measure progress on the CSR programs, we will add value to the bottom line.

The second step is to identify tangible and intangible impact indicators. A tangible indicator can be measured and transformed into dollars. An example of a tangible indicator is absenteeism. The number of hours a person is absent can be measured and then transformed into dollars lost using the salary paid to the person. Every company has a formula for absenteeism. An intangible indicator can be measured but it cannot be transformed in dollars. An example of an intangible indicator is employee morale; it can be measured using a survey, but it cannot be transformed into dollars. The tangible indicators will be used in the ROI formula. Although the intangible indicators are not used in the ROI formula, they may be indicators the company cares about, so it is important to measure them.

The third step is to show the positive correlation between the CSR activities and business success. Causality is nearly impossible to prove for CSR initiatives and also for many other things companies do, like advertising, publicity, and branding. How can we prove that a publicity campaign brought new clients? There could have been other factors that attracted the new clients.

For some CSR programs it will be easier to show cause and effect. For example, a recycling program will generate less trash. Consequently a smaller bin will be needed to collect the trash. The monthly payment to the garbage collector will decrease. In this case, it is safe to say that the recycling program helped reduce the garbage collecting fees.  For other CSR programs causality is not easy to prove. For example, a volunteer program can help retain employees and save money on turnover. But how can we prove that the reason employees are not leaving the company is only because of the volunteer program? In this case, the best we can do is to show that there is a positive correlation between our program and employee retention. Even if half of the employees stay because of the volunteer program, there is still a positive benefit for the company.

It is important to identify the tangible impact indicators that are important for the company and then see how they relate with the CSR programs. This process requires time and thoughtfulness, and if we measure what we do and communicate the results using the language of the business, our programs will gain credibility and we will be able to obtain the budget needed to finance our CSR activities. More importantly, we will also be able to impact society and the future generations in a more profound way.