As the world turned its sights on Social Impact, demonstrated by businesses and companies in the last year or two, and the term ESG (Environmental Social Governance) became commonplace, businesses have started to build this into their new plans.
Why?
Because Investors and lenders were demanding evidence of activity
Customers and consumers insisted on good credentials
Employees were making this a pre-requisite of their employment contracts
Government contracts insisted on strong evidence to award a reserved average of 30% of the awarding tender marks
In short, it was realised that those businesses who could evidence social value delivery as part of its strategy, and not just as an afterthought, were more likely to BE in business in five years. With sustainability improved, risks reduced, and the collective businesses contributing to both the planet and to local communities
SO, the scene is now well established.
Sales, investment and loans, employee retention, and lower costs, can all be accessed by demonstrating Social Value
Social Impact is now worth real MONEY and real PROFIT
Here is the problem
The way in which the social impact is measured is still based ostensibly on either a corroboration of various systems (Finance, HR, training), or is somehow consolidated into a master spreadsheet, often as a summary of lots of other spreadsheets dotted around the business, each with a different owner, with varying priorities and targets.
The challenge with the above is that there is often no verification, no confirmation by a third party, that the activity and the effort, matches with the declared outcome
In other words, it is open to being fabricated, extrapolated, or wrongly interpreted.
But this cannot be so, if institutional funds, structured competitive tenders, or legal contracts are reliant upon this data being correct and truthful.
You cannot simply present your finance position on a spreadsheet each period and instruct your accountant to file them at companies house, and for HMRC to simply trust you that they are correct.
No, they are audited against data ledgers and nominals in the accounts package, which in turn are reconciled against the bank account statements. This is done to offer proof of position and is a legal requirement of each serving director to undertake.
In August 2022, you may have seen several large blue chip UK companies, becoming investigated by the Competition and Markets Authority (CMA) for making statements about their social impact, that could not be substantiated and could be not true.
It doesn’t matter if they were true or not at that point in time, as the damage was already done by an unforgiving social media news feed.
The awful thing, is that their data, the marketing statements, and the qualitative statements were all generated by many team members, and the directors had no way of knowing or checking their accuracy, yet it is they who are legally responsible.
So, my good readers, who are people with high integrity, and would not seek to make misleading comments, gain pecuniary advantage by extrapolating numbers, or create impact statements out of a story book, to gain access to contracts or funding, this is the problem.
It is now not enough to say, “trust me”, nor enough to be diligent in the preparation of your Social Value data sets. It is time to adopt a system, much the same as a financial accounts system, to protect your company, your brand, your own reputations, and your staff.
In short you need an accounting system for Social Impact.
1. It must be able to record each action taken, in a way that is not changeable- therefore fully auditable
2. Where possible, it should provide an audit trail back to the individual person/ employee, who offered that help
3. It must be verified independently, by the community groups/ charities, or causes that you are helping
4. It should provide transparency, and reporting to confirm the numbers and qualitative statements
5. It should have sufficient flexibility to be able to record any aspect of Social Value that you externally offer, be that Environmental or Social
This is the often overlooked “G” in the ESG map. The G stands for governance, which is designed to protect individual directors against unprovable claims, of actions or outcomes, sometimes called fraud. It also protects the company, and its brand and reputation
In summary, the G is the insurance policy, in a world of rapidly increasing scrutiny.
If you are a senior leader in your business, a director or non-executive director, and you would like to know more, or discuss the challenge of “Accounting for Social Value”, contact me at philip.webb@investorsincommunity.org
