Corporate Social Responsibility: what’s it worth? Many companies struggle to define the financial value of CSR initiatives – what’s the right ‘mix’ of initiatives? What would the financial return be? How do you prioritize what you do? Should one major community investment project trump the training of 10 local community members to enable them to provide skilled labour?
A relatively new, freely available tool can help managers answer these kinds of questions. The Financial Valuation tool – ‘FV tool’ – is the product of a multi-year collaborative effort between Deloitte, the International Finance Corporation, Rio Tinto, MIGA and the Norwegian Ministry of Foreign Affairs. We heard about it recently at one of the regularly scheduled Learning Partnership events the Office organizes with the Ryerson Institute for Corporate Social Responsibility. According to the presentation I attended, the tool ‘allows managers to value [sustainability] investments both from a direct cash flow and indirect risk mitigation perceptive.’
So what’s the background? The FV tool was specifically designed for extractive industries, which were among the first to recognize that sustainability investments bring significant value. During its pilot years, the tool was field tested by four different companies, in very different geographic locations.
The FV tool can help companies quantify the financial benefits of different forms and approaches to community investment projects. The tool is designed to help managers address two critical questions:
- ‘what is the right portfolio of community investments?’
- ‘what is the financial return they will likely bring?’
In 2008, construction of the tool got underway, and while it is still a living process and is subject to changes, those 3 years of field testing yielded further insights both into how the tool could be improved and also into some surprising benefits. The field testing seems to indicate that the tool’s methodology can be useful for managers to better understand, quantify and maximize the value of their sustainability efforts.
In essence the FV tool generates a net present value of a sustainability initiative and allows companies to model different alternative scenarios for investments that either reduce risks or enhance value directly. Value protection is indirect, and typically tied to risk mitigation – the value, in other words, of avoiding delays, disruptions and lawsuits. Value creation, more direct, results from input savings, productivity increases and so on. The FV tool measures both.
The tool identifies six common project level risks
that can impact value:
- Added costs
- Production disruption
- Planning/permitting delays
- Construction delays
- Lawsuits/regulatory fines
- Project cancellation
It allows companies to generate scenarios, and quantify financial impacts, of both indirect value – ‘value protection’- afforded by proactive community investments as well as direct value creation. But according to those companies who have tried it, the process of cross-corporate engagement that the FV tool generates is as valuable as the outputs it creates. The process brings together traditionally silo-ed corporate activities of stakeholder engagement, qualitative risk assessment, strategic planning and budgeting. This was found to drive company benefits as well. According to one of the pilots from the mining sector, the FV tool ‘can be used to assist non-finance functions to improve understanding of a community investment connection to financial drivers.’ It may also help, according to this individual, with a more concrete ‘business case for community investment.’
The tool is a public good, downloadable for all, and comes with a series of support manuals and an on-line tutorial – www.fvtool.com
As always, we invite you to contact us and learn more. Or, if you have CSR related questions, feel free to drop us a line: email: email@example.com