PART 2: Socio-Economic Development: Governance and Impact
Socio–economic development (SED) is the process of social and economic development in a society dealing with the physiological and structural barriers to economic access and health. Strategic socio-economic development plans are integral to achieving measurable, sustainable economic growth and quality of place. Globally, the terms Corporate Social Investment (CSI) and Corporate Social Responsibility (CSR) are used, while B-BBEE refers to SED. So what’s the difference between CSI and CSR, and SED? The terms CSR and CSI are often bandied around glibly, and interchangeably used as a solution to poverty and changing lives which is not the correct use.
Some Clear Definitions: CSR is believed to reflect a company’s value system and is defined by one of the largest auditing company’s in South Africa as “the manner in which a company manages its business processes to generate stakeholder value while having a positive impact on the community and minimising any adverse impact on the environment”. This definition indicates that CSR is a deeper approach, as it enhances the morale of employees and the immediate situation of surrounding communities of a company. CSI, on the other hand, is defined as “any social development activity that is not undertaken for the purpose of generating business income”. This comprises the cash and non-cash items given to people, organisations and communities that are external to the business. So the nuance is entwined in making a profit whilst doing good. The B-BBEE codes take the objectives of CSR and add a further five qualifying criteria for eligibility under SED:
- Beneficiaries are not your employees
- Who are the beneficiaries – line of sight
- Cost can take the following forms: cost to company or opportunity cost
- promoting sustainable access for the beneficiaries to the economy
- Not formal academic or certified training (as this is now skills)
|Socio-economic development||Weighting Points||Compliance Target|
|Annual value of all Socio-Economic Development Contributions by the Measured Entity as a percentage of the target||5||1% Net profit after Tax|
Note that it is best that informal, community-based training is still captured under SED, and examples quoted in the RCoGP allow for this. Transformation managers should remember that there is a skills development cap of 15% for informal training. By putting a formal SED plan in place,
- companies can take control of economic development with their social partners,
- set clear and attainable economic development objectives, and
- design policies and programs to achieve them.
Without a plan supported by a SED committee, your scorecard might be optimised but the impacts might not. The objectives of the SED committee could be to:
- promote and entrench a structured approach to SED through the compilation and submission to the Executive Committee, a list of major projects/initiatives for the financial year as per agreed performance targets;
- review and conduct investigations into the relevance of projects to the Company’s SED strategic objectives, and to conduct investigations into the viability and sustainability of the proposed projects;
- ensure that the list of projects submitted to the Executive Committee for approval is in line with the SED Policy of the Company and are free from bias and any risk of nepotism.
It is important to note that SED contributions must be made within the financial period on which the BEE rating of the measured entity will be conducted. If an enterprise has a financial period running from say March 2020 – February 2021, then the contributions must have taken place within this period. To claim points under this element the beneficiary must provide the entity with a letter acknowledging receipt of the contribution, declaring that the beneficiaries are at least 75% black as defined by the Codes of Good Practice and that the full contribution was allocated to these black beneficiaries. All contributions need to be proved by providing proof of payment and an Article 18A receipt. Lastly, a competent third party must also provide confirmation of the percentage of black beneficiaries who benefited from the contribution. The third-party confirmation can be provided by, for instance, the auditor of the organisation.
The following points are principles of what represents a successful SED initiative:
1) Set Measurable Goals: Return on investment has always been a difficult thing to measure. In order to accomplish this in your CSR policy, implement small changes close to home,. Simple steps, like minimizing waste and resource-use are changes that can be developed into a memorable story about how sustainability efforts support your company’s overall corporate strategy.
2) Stakeholder Engagement: Leaving their stakeholders out of the loop is one of the top mistakes companies make. In order for your company to articulate its values, missions, strategy, and implementation in the creation of your SED plan, it is important for everyone to be on the same page. Stakeholders can help by partaking in the regulatory approvals process, improving relationships proactively, or solving CSR roadblocks and potential crises. Include your stakeholders from the start of the consultation process and avoid moving forward with developments in which they would otherwise have little influence over or information about.
3) Sustainability Issues Mapping: This approach uses interactive maps to help prioritize and narrow down key issues, saving your company time and money during the initial research stage. It brings together efforts and resources which ought to go together, but too frequently don’t.
4) Sustainability Management Systems (SMS): Develop a framework to ensure that environmental, social, and economic concerns are considered in tandem throughout your organization’s decision-making processes. Start by identifying and prioritizing sustainability aspects and impacts. Take it one step further by looking at legal requirements related to these impacts and evaluate your company’s current compliance. Collaborating with an environmental consultant can help during this process. Next, outline your company’s goals and objectives. Finally, educate and train your employees on using the SMS, including periodic audits to ensure that it is carried out in the most effective manner possible.
5) Sustainability/SED Reporting: Reporting has increased in popularity over the past few years, due to increasing government regulations as well as self-regulation by forward-thinking companies. It’s important that your consumer base has easy access to your latest and greatest efforts, in a way that doesn’t minimize what you’re doing. A simple and environmentally-friendly way to do this is to post your integrated reports on your website, in an easy to download PDF file or another accessible format. This is another area to ask for feedback from your number one fans: your stakeholders.
SED can be a powerful force to get employees working together and giving more of themselves while contributing meaningfully to the community and r and helping the company ‘do business better. Do not neglect the positive impact SED can have on the organisation’s culture, brand and interpersonal relationships.
Looking for transformation advice? Contact us and one of our consultants will get in touch.