/ 10 April 2014

Shifts in corporate spending

Shifts In Corporate Spending

Handing out branded T-shirts or a free meal might have been a visible indicator of corporate social responsibility during the early years of South Africa’s democracy, but sustainability is now the expected norm.

Twenty years into democracy, the corporate citizen and its social investment arm face a different demand, according to experts working in the sector. This demand comes not only from policy-makers, but also from a savvier society able to sniff out the difference between initiatives that intend to make a sustainable difference in communities and those that serve merely as window-dressing for big business.

Mike Herrington, a lecturer at the University of Cape Town’s Graduate School of Business, has worked with companies such as Pick n Pay and says their corporate social investment (CSI) focus has shifted to long-term, sustainable investments.

“There has been a positive shift in CSI spend. There are a lot of organisations trying to help small businesses and put something back into society. Without them we would be in big trouble,” he said. “They want to source supplies from smaller companies rather than large corporations, for example. They do it to make sure that these businesses are sustainable, it’s not just about giving them money.”

Herrington said businesses shifting their CSI spend over time has meant they are now becoming more selective. “When CSI started, businesses just handed money over. But more recently they have been saying, ‘We are going to spend this money and for that we want to see results’.

“It’s a good thing,” he said. “Why just throw money at something and not care what happens? That’s ridiculous.”

Measuring CSI results has tightened and as a result companies have needed guidance on how and where to spend, added Herrington. “They are not just passing money over to NGOs ad hoc. When large corporations do something, they have to be able to monitor the results.”

Measuring CSI success Desiree Storey, manager of the FirstRand Group’s staff volunteer programme since 2003, agreed that CSI has shifted from handouts to measurable results-based projects. “When I started our programme 10 years ago, it was all about handouts, second-hand clothing and other things. Now we are talking about skills-based volunteering,” she said.

“Business wants to know if they can measure how many children received food, for example, and how that impacts on their learning at school. “If businesses see the impact, then they would give more money. This means we need organisations that are measuring their impact and being accountable.” Lynn Husselmann, spokesperson for Liberty’s corporate affairs unit, said: “CSI is most certainly better today than it was 20 years or even a decade ago. Both global and local economic pressures have required businesses to think beyond profits and market share. To remain relevant to its stakeholders, businesses have had to extend their focus to include issues that are most pertinent to the communities and markets they serve.

“Businesses now have to place increased emphasis on environmental, social and governance issues. Where this has not happened out of a corporate’s free will, government regulation has been put in place to bring this about.”

Independent research group Trialogue has monitored CSI activities for at least 15 years. In its 2013 audit of CSI spend, it said most “corporate respondents (84%) stated that a moral imperative to ‘do the right thing’ was one of the top three considerations, followed by reputational benefits (60%)”.

Legal imperatives were also a driving factor for CSI spend, it said. “More companies cited the department of trade and industry’s broad-based black economic empowerment codes of good practice as a key driver (44%) rather than industry-sector charter obligations (28%).

“However, those who cited licence-to-operate obligations as the most important business rationale for social investment (6% of respondents) gave an average of R105-million in 2013 — at least three times more than those motivated by any other driver.

“Reputation inspired the lowest levels of giving, with an average of R16-million in CSI expenditure among those who rated this as their number one driver (9% of respondents).”

Where CSI is spent

Trialogue’s audit also pinpointed where CSI funds are being invested. It found that companies spent a total value of R7.8-billion on CSI projects in 2013, a 13% increase from the previous year. The mining, financial services and retail sectors together accounted for nearly two-thirds (65%) of total CSI expenditure.

“Mining companies continue to spend substantial sums on infrastructural projects in areas around their operations,” said Trialogue. “In 2013, companies in the mining sector spent an average of R62-million on their CSI initiatives. Both the financial services and the retail and wholesale sectors increased their proportion of total spend from 14% in 2012 to 15% in 2013. The retail sector’s sizeable contribution is largely due to the inclusion of product donations in CSI expenditure figures.”

Businesses are also investing more: “55% of the corporate sample increased their CSI budgets in 2013.” Trialogue found that the total CSI spend does not equate to cash handouts, though, but to other factors too. This included “donations of goods or services” and “donations of employee time during work hours”.

“When applying a narrower definition of CSI, which only includes expenditure made by CSI departments, the estimated CSI expenditure is R6.4-billion … Over the past six years, real growth has averaged 10% per annum, compared to only 3% for the previous period (2001–2007),” said Trialogue.

This perhaps speaks to consumers who want to see businesses actively involved in social development. Liberty’s Husselmann said consumers had become “wary of marketing spin and empty promises”. The insurance company shifted its investments partly in response to consumers being more empowered and demanding than ever before.

“If one is not doing something that resonates with a customer, you become lost in the clutter. CSI provides a touchpoint to our consumers, demonstrating the alignment of values and interests. It has become an expression of an organisation’s brand,” she said. Modern-day CSI requires investment into projects with longer shelf life, such as education initiatives, Husselmann said.

“CSI has shifted from pure philanthropic gestures to the embracing of social issues aligned to a business’s core focuses and is now a key component of an organisation’s reputation. “Doing good has become a strategic part of an entity’s purpose. Employees, customers and shareholders now actively seek evidence of social initiatives and activities that have impact and meaningfully change the lives of communities.”

This matches Trialogue’s research on trends in CSI spend. It found that between 2008 and 2013 there was an increase in the country’s overall CSI spends on education, from 31% to 43%. Social and community development spend remained relatively steady over the same period. During these years, health spend peaked in 2009 at 19%. In 2013, health spend totalled 11% of the overall investment.

Low on CSI priorities are arts and culture, housing and living conditions, as well as safety and security. Storey said a lot of work still needed to be done in the boardroom: “Not every executive sees CSI as making business sense. To them, sending staff out for the day does not impact on the business. They still need to understand that if they do, they will help their business operate in a healthier society.”

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