1. Why the recession is good for CSR
By Justin Sacks (justin.sacks@k2a.cc)
The renewed emphasis on commercial viability or the financial bottom line during the
current financial crisis may be just what is needed to reaffirm the intrinsic
profitability of doing responsible business.
The reason is that buyers, namely the public sector, are asking for greater
accountability from their suppliers, particularly regarding local economic benefits,
and this means that being socially and economically responsible will now win work.
The man made economic catastrophe has made this point: we need to be savvier
about where and how we invest our money.
Consequently, governments are becoming more sophisticated about not only
measuring their direct local economic impact but also demanding it of their suppliers.
The national policies supporting such an approach, such as the US emphasis on
transparency and accountability and the UK Sustainable Communities Act, have
spelled out the future for the private sector: show us where the money goes in our
local area if you want to win work in the future.
For any large business that relies on public sector contracts for any part of its
revenue, the business case for demonstrating local economic impact is
straightforward.
This message happens to dovetail fortuitously with the trajectory of corporate
responsibility.
The emphasis of the leading multinational corporations is now on 'operationalising'
corporate responsibility in the whole business and in the supply chain.
There is one challenge, though, and that is being able to effectively demonstrate
microeconomic impact, or, a company's impact on a specific local economy.
Most publicly available company reportage focuses on the macroeconomic impact, or
the impact on a country, because this data is easier to collect.
Some recent examples of well-regarded macroeconomic impact analysis come from
Unilever reporting on their impact on Indonesia and a number of automobile
manufacturers (such as Honda, Toyota and BMW) reporting on their impact on the
USA.

2. Macroeconomic impact analysis remains important, but governments and companies
alike are acknowledging that investment needs to be targeted towards the poorer
sections of the nation (geographically or demographically) to reduce poverty.
Microeconomic data is difficult to come by, and economists generally depend on
state-collected national statistics, which they attempt to adjust for a regional picture.
Developing nations, where there is a heavy demand for companies to measure their
local economic impact, offer no credible statistics whatsoever.
The most sophisticated models exist in North America, where more advanced data
collection has provided fertile ground for several companies providing regional
analysis based on 'input-output' models.
Input-output models have proven problematic though because the data is
cumbersome to collect, generally outdated, and difficult for the average CSR
manager (or any non-economist) to act upon.
The more feasible and affordable alternative has proven to be 'business-level
multipliers', or models of a company's specific microeconomic impact.
The idea of business-level multipliers comes from the academic sector, where Natalie
Stoeckl attempted to develop a viable shortcut for the Australian tourist sector to
measure its economic impact.
The extractives sector has produced several of the more mature models, such as
ICMM's Resource Endowment project and Anglo American's Social Economic
Assessment Tool Box (SEAT).
The model that has been used across the most sectors in the UK is LM3 (Local
Multiplier 3), a business-level multiplier developed by the New Economics
Foundation, a British thank tank, in 2002. Today 10% of local governments in the UK
use this model.
Private companies that have used the model in the UK include Rio Tinto Alcan
(mining), Egger (wood panels), and Sheffield Forgemasters International (steel and
engineering).
As the public sector increasingly watches where it spends its money, and all Western
governments slash their budgets in the coming year, companies can expect an
increasing focus on the microeconomic impact of their operations.
If the public sector is asking for transparency and accountability about a company's
local impacts, the private sector will need to give it to them, and those companies
who excel at measuring, communicating, and improving their microeconomic impact
will, quite simply, make more money.