Being an impact-driven organisation linked to a company is not easy. How can corporate foundations and impact investors deal with the inherent tensions that this relationship brings, and safeguard their impact integrity?
Imagine for a moment that you were in charge of a corporate social investor (CSI – such as a corporate foundation, corporate impact fund, corporate impact incubator, accelerator, or social business). What would that mean? First, you would be operating in the social sector and lead activities that are designed to bring about positive societal impact. But a corporate social investor is also a unique entity due to its connection with a company that is by definition profit-oriented. As you can imagine, this relationship causes certain tensions that need to be carefully balanced. Even more so as an increasing number of companies are willing to tackle social and environmental challenges. While many corporate foundations have traditionally stayed clearly separate from the company, it is therefore increasingly difficult for them to continue to do so. This closer convergence leads to an increasing blurring of the lines between their respective scopes.
Indeed, when we set out to analyse how these unique features and the resulting social-business challenges influence corporate social investors’ impact integrity, we encountered both scepticism and enthusiasm among practitioners participating in EVPA’s new research.
These mixed reactions arose because, within the social sector, the term impact integrity is not commonly used and oftentimes not even understood. Some organisations predominantly focus on integrity and the need to shield the corporate social investor from any commercial interests of the related company. Others tend to shift the discussion more towards impact and how important it is to demonstrate the claimed positive change. This gives rise to a series of questions. First, what is impact integrity? What challenges do corporate social investors face? And how can they deal with these challenges and risks?
We define impact integrity as safeguarding an organisation’s societal mission from negative external influence. But what does this mean for corporate social investors? Let’s take for example corporate foundation X which is related to an oil and gas company committed to carbon neutrality in the coming decades. Corporate foundation X could be confronted with the challenge of managing corporate influence, as the foundation is ideally positioned to support early-stage solutions that have a high potential to contribute to the company’s targets. On the other hand, corporate foundation X could see its legitimacy questioned due to its link with the company. It is regularly confronted with allegations of impact washing despite its operations being completely independent from the company. Corporate foundation X, therefore, needs to demonstrate its independence and provide evidence for its impact to address the scepticism coming from key stakeholders (i.e. social sector, regulators, media).
In fact, managing corporate influence and signalling legitimacy towards key stakeholders are equally important to maintain impact integrity, and even go hand in hand. Corporate social investors can only signal legitimacy if they well manage the corporate influence, while strong integrity alone will not guarantee legitimacy: corporate social investors also need to show their own social impact.
Two major factors are at play here when it comes to assessing whether impact integrity is indeed at risk: how dependent the corporate social investor is on its related company and how it aligns with the corporation. When dependence is high, when for example the board is only composed of representatives from the related company or the CSI’s impact is communicated via corporate channels, the CSI may be unduly influenced by the commercial interests of the related company. Likewise, if the corporate social investor and the related company have a strategic alignment, the risk to impact integrity increases. Stakeholders such as media or the social sector can also perceive these risks, leading to a ‘double whammy’ that also jeopardises the organisation’s perceived impact (and implicitly, its legitimacy).
Assessing the impact integrity risk
So how can corporate social investors deal with these challenges and risks? The first step is awareness: recognising that a high degree of dependence and the deliberate choice of a closer alignment with the related company comes with consequences – even if there are often legitimate reasons for high dependence (e.g. to facilitate collaboration with the related company) or close alignment (e.g. stronger coherence on impact ambitions). The second step is risk assessment and, if required, risk management. Despite appearances, the ‘high-risk’ category does not have a negative connotation as such. Rather, it indicates a need to further evaluate the risk, identify challenges, and, if necessary, mitigate the risk by using appropriate actions.
Mitigation actions partially depend on the kind of challenges a corporate social investor encounters. For example, to signal legitimacy towards stakeholders, a CSI could start by demonstrating commitment, thus going beyond minimum requirements (i.e. compliance) and adhering to the highest voluntary standards with regards to impact management. The most comprehensive action would be to ensure transparency by measuring and communicating the impact achieved, as well as disclosing procedures and processes.
To manage corporate influence, a first step could be to introduce safeguards through external organisations (e.g. regulatory authorities, external audits) as a ‘shield’ from interference. A more drastic mitigation action would be to completely separate strategy and operations from the related company (i.e. operating in different buildings, diversifying funding sources, communicating on their own channels), and can go as far as rebranding. While it might be necessary for some situations, corporate social investors should consider this carefully, as the less drastic mitigation actions may suffice.
Interested in the topic? Our research will be expanded by case studies and a self-assessment tool to evaluate impact integrity risk.