By Julia Lieser, Responsible Business – Berlin
There are no strict rules about setting CSR Budgets, however there is a general consensus that says investing 2-3% minimum of an organizations profits makes good business sense. A good example of country legislation supporting this is India, which has recently introduced a company law into the private sector that makes CSR policy, and recommends companies to spend 2% of the profits on social and environmental activities. However most countries in the world do not yet have a mandatory cap on CSR and therefore CSR budgeting is often left to CSR practitioners to design and convince management of why a budget is needed.
To generalize a CSR Budget that works for everyone, would be like generalizing a business budget that works for everyone, it doesn’t but indicators do exist that can ensure being on the right path to a great CSR budget plan and a 2% aim is a good start. It really all depends on company type and size, profit margins, long-term vs. short-term goals, budgeting resources, ownership, bottom-line benefits and mostly trial and error. Some companies invest a good amount of money into CSR activities, of them some have large profit margins, others have small profit margins – so how do they determine their budgets?
What kind of a company you are designing the budget for will greatly affect your budgeting guidelines. CSR practitioners should take into account what industry they work in. For example a manufacturing company may invest more in its CSR budget to include sustainability efforts throughout the entire supply chain, while a services company like a consulting firm may only see the need to invest in employee engagement, volunteering and environmental footprint reduction at the office. A bank continues these efforts onto responsible business investment and loan-giving.
Every company type will also have different vested interests in the amount they support their CSR program with. In 2004 for example when Starbucks’ profit margins were at its lowest, they strategically invested in and expanded their CSR activities. Today it is one of the most profitable coffee companies in the world. For others it may be a way to reduce costs all together, especially when profit margins are low.
The budget for your CSR strategy will depend largely on your company’s existing financial structure and what department CSR belongs too. If you are lucky CSR is its own department, however often it is part of the communications, marketing, human resources teams and therefore the budget will be carved from there. Therefore before even determining your company’s CSR budget, it is more important that everyone in your department is convinced that CSR should be budgeted for, from the CEO and decision-makers of the company to your colleagues. This involves making the business case clear, and communicating aggressively on the moral and business imperative in taking responsibility and committing to CSR objectives. Finally, it is essential to ensure that CSR programs and initiatives are integrated into regular planning and budgeting cycles, rather than considered as side projects. When sustainability aspects of the business are managed in this way they become a priority to report on, plan and resource for.
Missing A CSR Strategy
Further to looking at what a CSR strategy for your company will cost, you should also look at what it will earn you on the one hand and what it will cost you not to have a CSR strategy on the other hand, which is what some companies do in order to validate the business case even more and design a more detailed financial plan. For example, installing energy saving systems into the office may save the company thousands of dollars in the next 5 years, so by not partaking in this the company is spending money it could be investing elsewhere, like a CSR initiative.
There are also potential liabilities for companies that don’t address CSR issues which can have grave effects on business operations which are not always tangible but should not be side-lined. For example its soft powers such as loss of consumer confidence and damage to corporate reputation which are sometimes intangible but can severely affect the triple-bottom-line and its hard powers like diminished financial investment, boycotts, legal fees and penalties.
Earnings & Resources
A long-term vision should always be kept in mind when calculating the costs into the annual budgeting process, especially since some initiatives require an initial capital investment like retrofitting for energy efficiency whose costs will only be realized/returned in the long-run. In the same way social initiatives, such as benefits for your employees need a long-term vision but must be accounted for early on in the budgeting process. Often the benefits are realized through employee retention, morale and growth market which are often intangible but can account for a lot.
Your CSR programs resources will not only come out of the profit pool. It is important that after pinpointing the environmental and social initiatives you see fit your companies core business, you identify the resources you will require in time and money to carry them out. These resources can include volunteering hours by employees, in-kind donations or the benefits of environmental measures such as reductions in paper consumption, energy savings from energy efficiency measures. These can be used to fund other environmental initiatives for example.
Majid Al Futtaim Properties is a good example of a company in the UAE who has taken on the challenge of developing a state-of-the-art sustainability program. Its corporate social responsibility report details the environmental footprint of its activities as well as its targets to reduce energy consumption by 15% in 2013. Most notably if MAF Properties achieves its 15% reduction target in 2013, energy consumption equivalent to 2,315 people living in Dubai for a year and 122 olympic size swimming pools a year will be saved annually. Considering the organization invested AED 25 million ($6.8 million) on improving resource efficiency in 2012, the costs saved by the resource efficiency will certainly pay off in the long run. Long term target performance and an increase in audits from 30 to 37 in the labour camps for example, is one way in which MAF Properties measures its improvements.
Reporting for Impact
A number of studies have shown that community involvement – grants, in-kind donations and employee volunteerism – helps companies achieve business objectives and may contribute to the bottom line. However it may take a while of trial and error to see what fits for your company and what it takes to influence the bottom line while positively making a difference.
Sometimes it takes years of trial and error to come up with a sound CSR plan and budget. For example, a company might allocate a specific amount of money for the first two years and then review it to see what worked and what didn’t and tweak the plan accordingly. They may initially start with 2% of the profits and move on to 3% or more after the trial period.
Finally reporting on your CSR activities with clearly set indicators is the most essential part for any CSR professional, to ensure that when next year comes around you have the facts to prove that your CSR activities were successful and in some cases may have even generated a profit for the company. They can help you establish how much CSR actually contributes to your company and more importantly, can help how to estimate in quantitative terms on leveraging CSR brand value even more in the future.
Source: Responsible Business Magazine