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Social Impact Business is Smart Business

Penned by David Rai - Sparta Global CEO, this blog sheds light on why social impact is increasingly becoming a key indicator of business success and how businesses can incorporate the impact they have on society into their core business function.

Companies driven by the pursuit of financial gains have neglected the creation of significant social value alongside their economic profit. Yet, in the face of climate change and social justice movements, social impact is increasingly becoming a key indicator of business success. Businesses must incorporate the impact they have on society into their core business function. This fosters positive relationships with stakeholders, enhances reputation and contributes to long-term success.

While return on investment (ROI) defines the projects that prove profitable, social return on investment (SROI) has been introduced as a more holistic interpretation of the social impact a company generates for its stakeholders. Social impact and socially responsible business are about tangible, positive changes made by organizations in response to societal issues. It is where corporate strategy meets purposeful contributions to society through prioritizing ethical practices, transparent governance and community engagement. This is particularly important now as companies face pressures from a multitude of stakeholders demanding change. 

Morally, businesses should want to do best by their people—employees, the immediate community and wider society. But what is the real draw for leaders to invest in environmental, social and governance (ESG), corporate social responsibility and beyond?

Stakeholder Engagement

Socially transformative businesses create intrinsic value for stakeholders by igniting a sense of purpose, pride and belonging for their employees. It breeds advocacy and bolsters reputation while also allowing for higher price premiums. It shifts the focus from short-term profit to long-term sustainability, helping to maximize shareholder value, drive innovation and promote good governance.

Reputation And Brand Image

Consumers are not just purchasers: they are active advocates, with a majority willing to switch to purpose-driven brands. A company’s social purpose and reputation play an important role in influencing consumer decisions and can encourage customers to pay a price premium for products and services from purpose-driven brands.

The social purpose of a business must be embedded within its core business function to be perceived as authentic. Creating a purpose-driven brand involves a synthesis of social responsibility and core business operations. To succeed, businesses should engage in social impact initiatives that demand self-sacrifice, are proactive in addressing societal needs, are sustained over time, and avoid self-promotion. Genuine commitment to social welfare, coupled with these principles, enables businesses to build purpose-driven brands that enhance their reputation, strengthen stakeholder relationships, and contribute to a better world.

Risk Mitigation

Socially transformative businesses are shown to be more effective at mitigating a wide range of risks and anticipating challenges rather than reacting to them. This is largely down to building a data and reporting infrastructure that is critical to monitor financial, ethical, and environmental metrics.

Holistically, social impact companies also have a better understanding of the communities they operate within and the customers they serve, which helps them navigate social and behavioural changes that may otherwise have repercussions on their products and services. They also have a better understanding of environmental risks; keeping them accountable for environmental problems, reducing the chances of running out of important resources, and positioning them for success in a future where elements such as carbon emissions may be subject to stricter regulations and carbon pricing.

Talent Attraction And Retention

Attracting and retaining top talent extends beyond traditional incentives. There is a growing emphasis on aligning professional goals with personal and societal values. Purpose-driven companies committed to making a positive impact create a work environment that resonates with the modern workforce.

Innovation And Adaptation

Socially responsible companies are often at the forefront of developing ground-breaking solutions to address pressing global challenges. Businesses that prioritize social impact can better demonstrate a heightened ability to adjust their strategies, structures and operations to align with changing expectations from diverse stakeholders. This flexibility involves a proactive approach to understanding and integrating ethical, environmental, and social considerations into the core of business activities.

Access To Markets

Socially transformative businesses can leverage their reputation to expand their market reach. Additionally, these organizations can curate the products and services they offer to target different market segments effectively. The most difficult element is synthesizing sales and marketing with the social impact of the organization.

In addition to standard practices such as impact marketing campaigns and increased social initiative transparency, pursuing externally recognised ESG accreditations can help businesses build a credible brand. Certifications like B-Corp go a long way in legitimising a company’s commitment to social impact and facilitating the creation of an ethical brand image. It is very easy for a business to self-embellish and This makes it essential for organisations to focus on their tone while integrating social impact into their sales strategy. The emphasis should be on the impact and not the intention of the business. Equally important is being transparent and backing up claims with metrics.

Investor Confidence

The market for socially responsible investments has been growing rapidly. Investors face increasing social and ethical pressures to make their investments match their core values. According to the EqualTech report 2024 from Sparta Global, by 2025 Socially Responsible Investments are predicted to account for 35% of all investment products.

Regulatory And Policy Support

Policymakers are increasing regulatory requirements for businesses. This is particularly pronounced with ESG metrics, with companies facing pressure to report on ESG and meet regulatory benchmarks. The businesses that do are more likely to receive support from the government through subsidies and tax breaks. Through incentives such as tax breaks, subsidies, and financial support for research and development, governments are encouraging businesses to prioritise environmental sustainability, social responsibility, and ethical governance.

Going beyond minimum legal requirements, the most forward-thinking companies are investing in addressing environmental and social issues, which has helped minimise the risk of regulatory violations. Actively engaging in dialogue with regulators, these businesses also contribute to policy development, showcasing their commitment to responsible practices. Particularly in the Financial Services industry, we found that regulatory approval is critical and can often be the difference between millions of pounds in fines and a clean bill of health.

Community Resilience

Businesses that invest in their communities likely have better stakeholder engagement, a more committed workforce and a more loyal support base. Businesses need to build a relationship with the communities they impact - boosting community well-being through sustainability, grassroots support, and philanthropy. For example, a technology business I co-founded in 2015 supports its community through local charity partnerships and fundraising, dedicating free introduction to technology workshops for local schools and colleges, and donating tree saplings to the National Trust to represent every new career we start.  

Not only does this enable economic prosperity, but it also creates a symbiotic relationship between a multitude of stakeholders.

Long-Term Viability

Businesses that implement socially responsible practices reprioritize their outcomes to boost their longevity. Sustainability must be priority number one – with internal teams built to be responsible for measuring social impact and setting clear metrics for success. By understanding and tracking their social impact, organisations are better able to adapt themselves to changing market conditions and stakeholder expectations. In addition, businesses must create good stakeholder engagement through their ESG practices – something that is vital for sustained growth and long-term sustainability. Active involvement of stakeholders - spanning customers to employees through feedback loops - lays a solid foundation for enduring growth.

businesses making the biggest social impact will view profits as a destination of their enterprise and not its sole purpose. In doing so, they have a long-term mindset retaining a greater proportion of their profits and investing in projects that yield long-term returns.

Final Thoughts

It’s great to see conversations around social value happening across every industry sector, and being met with a strong consensus that increased corporate social responsibility is commercial best practice. But still, social impact is still not universally recognized as a core component of business strategy. It's often the case that the benefits (beyond moral ones) are largely misunderstood.

By reflecting on this list above, you can better position your organization to lead if the correct commitments are made to implementing a social value strategy that considers ESG and CSR at a strategic level. Importantly, if all businesses commit to pushing forward with purpose and leading with compassion, our wider society will flourish too.

EqualTech Report 2024: Social impact business is smart business

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