Measuring corporate social impact - art or science?
An Article from Business Respect, Issue Number 92, dated 7 Apr 2006
By Mallen Baker
For years, people wanting to measure and report real
performance in corporate social responsibility have been
frustrated over one area in particular - the apparent impossibility in
making any kind of real objective measurement of the company's social
impact. Now, a new tool claims to solve this problem - the Social
The Social Footprint, produced by the Centre for Sustainable Innovation, promises great things. It is, according to the Centre, "a corporate sustainability measurement and reporting method that quantifies the social impact of organizations on people". Further, it "produces the true bottom-line oriented measures of impact" and says that this means that 'true Triple Bottom Line measures can now be taken and reported for the very first time'. This is heady stuff indeed.
How does it do this? In some ways, it takes an approach that will be familiar to some as the 'ecological footprint' where impact on the environment is assessed. The Social Footprint focuses on the concept of 'social capital'. Unlike environmental or natural capital which is limited and which can not easily be created by humans, social capital is produced by people and can be grown virtually at will.
The tool is based on what is described as the 'quotients approach'. Simply it goes like this. You take any aspect of behaviour and check whether it is sustainable relative to the impact it is having. For instance, an environmental example would be if a certain geographical region produces 10m gallons of freshwater per year, and a company or community in the region uses 15m gallons per year, then you do the simply calculation of 15/10 = 1.5. Any figure greater than 1, in this example, is unsustainable.
That example, of course, relates to an ecological footprint. Environmental impact is very much about science, so this method is generally a straightforward one. It is a much more controversial proposition to apply the same logic to an area as difficult to define as social capital.
They do, however, give some examples of how this would work. If a certain community has a need for $10m a year in order to provide a primary education for all of its children, but residents are only spending $2m a year, then the calculation 2m/10m = 0.2. In the social cases, anything less than 1 is unsustainable.
The concept, therefore, hinges on defining 'a minimum level of sufficiency for the social capital of interest to us - values that fall below that level can lead to undesirable, if not dangerous, social outcomes.'
This is one of those arguments that sounds great in theory, but becomes impossible in practice. Even the Centre's own simple example does not stand up to any kind of scientific approach. Who says that it will cost $10m to provide primary education for children in that area? That figure can only be taken as a given if (a) education services are being provided as economically efficiently as possible, with no wasted spending (b) the quality and the focus of education is as good as it can possibly be, and consistently so wherever it is delivered and (c) there is some meaningful threshold that shows that the $10m version of education provides a consensually agreed level of attainment that $9m cannot. This is not going to happen.
In most educational situations that one can observe around the world, the issue is not simply one of resources, it is also one of leadership within schools, of good quality management of processes, and a culture of support for the learning process by parents. To turn the issue of educational provision into a mathematical equation that ignores qualitative facts will surely produce the wrong answer every time.
When the Centre tries to apply its methodology to a more complex real-life example, the problem becomes even more obvious. What they have done is to look at Wal-Mart and its contribution, or lack of it, to the achievement of the Millennium Development Goals (MDG).
The argument goes like this. The MDG have been agreed by the UN and most nations as the top development targets, covering areas such as eradicating extreme poverty. In addition, the UN has identified a threshold of 0.7 percent of GDP from developed nations in order to achieve these. Every citizen has a per capita share of the responsibility to meet these goals. Wal-Mart employs over a million US citizens, and therefore we can ask whether or not Wal-Mart is contributing its pro rata share of the US contribution to fully fund the MDGs.
Needless to say, if you do the sums against Wal-Mart, it is woefully failing the task. In fact Wal-Mart apparently contributed to the MDGs only through their payment of federal taxes.
But the apparent logic of the exercise is pretty spurious, unfortunately. The idea that any organisation is responsible on a per capita basis relating to its workforce is simply nonsensical. Governments take responsibility for national goals, and may find resources for these from the places where those resources are best found - they are not obligations spread across the population.
Nothing in this approach factors in whatever impact, positive or negative, Wal-Mart has through the basics of its trade. The fact that it sources goods from many developing countries may be a factor that creates jobs and wealth in those countries. There may be other aspects of how it operates that would create further problems in those countries, particularly where genuine sweatshops operate. In any case, quantifying such impacts to feed into the equation is impossible.
Likewise, the simple assumption that everyone bears equal responsibility for everything is too simplistic. Governments understand, for instance, that wealthy people should contribute more to meeting such goals than people on a minimum wage. If you took any measure - even one fully funded by government, and measured it against a workforce like Wal-Mart's where people are predominantly at the lowest end of the payscale - you would come up with a deficit on this system for this reason.
And then, of course, there are still some other equally challenging assumptions made. The figure of 0.7 percent of GDP has been a figure promoted as a good level of national investment in world development for many years. There is certainly no equation proving that this figure is actually the real cost of meeting the millennium goals - a cost that we simply don't know. Their achievement will probably come much more as a result of promoting the development of sustainable trade in developing countries, tackling cultures of corruption as well as providing some of the basic infrastructure than it will by the transfer of aid funds. In any case, it is certainly a harder figure to quantify than that $10m for the theoretical education bill.
In short, the Social Footprint comes up with a simplistic equation that is bound to mark companies down for behaving unsustainably without providing a real metric that measures what's going on. It is a brave attempt, but really simply underlines why everyone has been finding this whole field so difficult for so long.