What is Community Engagement and Investment?

Sustainability is about the long-term wellbeing of society, an issue that encompasses a wide range of aspirational targets including the sustainable development goals (“SDGs”) of the 2030 Agenda for Sustainable Development adopted by world leaders that went into effect on January 1, 2016. Among other things, the SDGs including ending poverty and hunger; ensuring healthy lives and promoting wellbeing for all; ensuring inclusive and equitable quality education and promoting lifelong learning opportunities for all; and promoting sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. The goals listed above are based on the recognition that society in general is vulnerable to a number of significant environmental and social risks including failure of climate-change mitigation and adaptation, major biodiversity loss and ecosystem collapse, man-made environmental planning and disasters (e.g., oil spills), failure of urban planning, food crises, rapid and massive spread of infectious diseases and profound social instability. 

Clearly the challenges described above are daunting and for most businesses it may be difficult for them to see how they can play a meaningful role in address them. While it is common for “society” to be identified as an organizational stakeholder, the reality is that one company cannot, acting on its own, achieve all the goals associated with societal wellbeing.  However, every company, regardless of its size, can make a difference in some small, yet meaningful way, in the communities in which they operate, and more and more attention is being focused on the impact that companies have within their communities. Focusing on the community level allows an organization to set meaningful targets and implement programs that fit the scale of its operations and which can provide the most immediate value to the organization and its stakeholders. Societal wellbeing projects and initiatives must ensure that the organization does not compromise, and instead improves, the wellbeing of local communities through its value chain and in society-at-large. 

While the “community” is often mentioned as one of the stakeholders of any organization, it would be a mistake to think of community as a monolithic concept. In reality, community for any organization is a complex network of multiple stakeholders, each of which must be considered and engaged including neighborhoods, community development groups, environmental organizations, development organizations, citizen associations, non-governmental organizations, local nonprofit organizations, local regulators and governmental officials, other businesses in the community, indigenous peoples and underrepresented groups in the community. All of this makes community engagement and investment especially challenging since each of these community stakeholders have their own issues, concerns and perspectives.

While the concept of community as a stakeholder typically focuses on the communities where the company is directly involved it should not be forgotten that decisions that a company makes with regard to other stakeholders can also impact communities. The clearest illustration of this is the impact that outsourcing to foreign countries by larger retailers has had on the communities in which their former domestic suppliers were operating. As those suppliers, many of which were among the largest employers in their local communities, lost the business previously provided from the retailers drastic measures were needed to keep their doors open. Many of them were forced to lay off workers, frequently people who had worked for the suppliers for many years and who had parents and grandparents who had done the same. The economic and psychological impact on the communities where the suppliers were operating was often devastating and has led to a strong activist backlash against the retailers.

Suppliers are important stakeholders and companies have taken a great interest in the actions of their suppliers and the impact of the business activities of those suppliers on the local communities in which they operate. A number of US companies have been embarrassed by disclosures regarding the poor treatment of local workers by their foreign suppliers and the adverse impact that the manufacturing processes of those supplier have had on the local ecosystems. In response, US companies have implemented due diligence and inspection procedures for their foreign suppliers to ensure that those suppliers are acting as good citizens in their communities.

Legal and Regulatory Requirements

 The legal issues associated with the community engagement and investment activities of an organization will depend on the decisions made by the organization regarding the types of contributions that will be made (i.e., cash, in-kind, human resources etc.), the nature of the projects and activities that will be supported and the specific topical areas of interest. All businesses will need to determine the appropriate legal and organizational structures for their community-focused activities and this often means that a decision will eventually need to be made about whether to form a separate legal entity, owned and controlled by the parent company, through which community investments will be funneled (i.e., a corporate foundation). Other common legal issues arise due to the nature of the business’ involvement in the community and would include mitigating potential legal risks associated with employee volunteer programs, sponsoring and/or hosting community events and entering into joint ventures and other types of alliance arrangements with local nonprofit organizations. Specialized legal guidance will be required when businesses get involved in complex and high-regulated areas such as helping to provide financial services for low-wealth and underserved communities, supporting public and private financing of community cultural facilities, participating in community-based efforts to preserve open space while expanding the availability of affordable housing and assisting local courts looking to positively and proactively address juvenile delinquency by providing vocational training and job opportunities.

Structuring Corporate Philanthropy Initiatives

While there are a number of different ways that for-profit businesses can “give back” to their communities by making gifts of cash and other items to charities and other nonprofit organizations, it is important to understand three basic methods that are commonly used for philanthropic activities: direct-giving programs coordinated through an internal group; a company foundation formed and sponsored by the business, which can be a private foundation or a public charity; and a donor advised fund. Businesses are not limited to just one of these methods and may shift the focus of their philanthropic activities from one method to another as time goes by and the goals of the philanthropic program change. For example, smaller businesses will generally begin with a modest direct giving program in order to conserve resources. As the business expands and revenues sufficient to support more ambitious philanthropy become available it may be appropriate to establish a foundation while continuing direct giving for certain types of causes and programs. Regardless of whether a company creates an internal group or a separate entity, job descriptions and roles and responsibilities need to be prepared and defined for all team members and appropriate connections need to be forged between the community engagement and development team and departments and groups within the company that can provide support such as budgeting, procurement, accounting, finance, administration and information technology.

Charitable Contributions

When businesses engage in philanthropic activities in their communities, such as making cash and/or in-kind contributions to local charities or other nonprofit organizations, they need to establish compliance programs to ensure that their activities conform to applicable laws and regulations and that their contributions are being put to effective use. Due diligence with respect to potential donees has become particularly important as the size and scope of corporate philanthropy has expanded and many businesses, particularly larger ones, have taken on global issues such as disaster relief, humanitarian crises, health and education and in doing so they have taken to giving to organizations working far away from the communities in which the companies are operating. Compliance programs for charitable contributions need to incorporate consideration of all applicable laws and regulations pertaining to the initial transfer of funds and other resources to the charitable organization and the capacity of the recipient to effectively use the funds and resources free from financial abuse and mismanagement. Among the questions that should be asked and considered before any contribution is approved and completed are the following:

•  Is the proposed recipient a duly organized nonprofit organization in good standing under the laws of its jurisdiction of organization based on certificates obtained from the authorized regulator (e.g., the secretary of state or the state attorney general for organizations formed in the US)?
• Is the proposed recipient in compliance with all requirements for tax-exempt status under the regulations applicable to its specific types of activities (e.g., in the US is the recipient a valid and current 501(c)(3) organization or equivalent)?
• Has the proposed recipient and its named directors, officers and principal donors been screened against a comprehensive set of sanctions lists, both domestically and internationally?
• Does the proposed form of the contribution create any issues that might adversely impact the nonprofit/tax status of the entity of the business that will be making the contribution (e.g., foundation status of an affiliate of the main business established to engage in philanthropic activities)?
• Has sufficient information regarding the proposed recipient between collected and analyzed to allow the business to properly report the contribution on tax and other reports?
• Have all internal policies regarding charitable contributions been complied with and has the company’s database of established charitable organizations been updated to reflect all new information gathered during the due diligence process?
• If the business will be asking employees to consider donating to the proposed recipient have steps been taken to ensure the recipient has in place adequate security procedures to protect the personal and financial information of donating employees?
• Has sufficient investigation been done of the controlling persons of the proposed recipient to ensure that there are no conflicts of interest involving directors and/or officers of the business?
• If the relationship involves volunteer activities by employees of the business that are endorsed by the business as opposed to cash donations has consideration been given to relevant legal issues?

Establishing a compliance program for corporate philanthropy is not a “one time” activity and provision must be made for ensuring that the group responsible for corporate philanthropy remains current with all relevant laws and regulations. When giving activities extend across foreign borders, attention needs to be paid to continuously changing sanctions screening and watch lists and evolving laws in foreign jurisdictions relating to money transfers, tax filings and data privacy. Fortunately, the burden of carrying out the extensive screening has become more manageable through the availability of technology platforms that corporate philanthropy teams can access to receive reliable support in screening, verification and other aspects of due diligence. 

Corporate Volunteer Programs

There is a growing body of evidence that employees who engage in volunteer activities for causes that are important to them with the support of their employers are happier and more loyal; however, employers must bear the legal risks associated with employee volunteering in mind. Two major areas of concern for businesses sponsoring corporate volunteering programs in which their employees will have the opportunity to participate are compliance with federal and state labor laws, especially the federal Fair Labor Standards Act (“FLSA”), and liability for injuries or other damages to employees arising from their engagement in the volunteer activities. The key question under the FLSA is whether the employee’s participation is truly “voluntary”, which goes to whether the employee gave up his or her non-work time to engage in the volunteer activity without a reasonable expectation of compensation from his or her employer. If it turns out that an employee had no choice about whether or not he or she should participate, was required to engage in the activity during a period that was otherwise inconvenient and was subject to directions from management personnel of his or her employer during the activity, rather than a supervisor from the party holding the volunteering event, failure to compensate the employee will likely expose the employer to liability for violations of minimum wage, overtime and timekeeping requirements. Statutory liability is also a real risk for employers in situations where failure of an employee to participate in a volunteer activity as directed, or “strongly suggested”, by the employer leads to some sort of adverse employment action against the employee.

In order to reduce potential problems under the FLSA businesses should implement clear formal policies regarding participation of employees in volunteer programs sponsored or other endorsed by the company. While businesses can, and often do, select specific volunteer activities to support, the policy should allow employees to select the programs and events that are best suited to their schedules and interests. Businesses should also allow the volunteering activities of their employees to be overseen by personnel from the outside charity or other organization conducting the event or activity. In addition, before the employee begins his or her work he or she should sign a date a certificate that includes an acknowledgement that his or her participation is truly voluntary, the location and time of the activity is convenient for him or her and that participation in the activity will not have any impact, favorable or unfavorable, on the employee. The certificate from employees described above should also be used as an opportunity to attempt to mitigate potential liability for injuries to the employee during the volunteering activity by including a waiver of liability against the employer for any such injuries. However, employers should not rely only on such releases for protection and should take other steps such as inspecting the locations where the volunteer activities will be occurring, seeking and obtaining indemnification from the party conducting the event or activity and checking with insurance carriers to confirm that the company’s general liability and workers’ compensation insurance policies covers employees participating in corporate volunteer programs.  

Events

As part of their initiatives relating to community involvement and development it is likely that businesses will hold events to which community members will be invited. Each event must be considered separately; however, there are certain issues that are fairly common place such as governmental permitting and licensing requirements; contracting for venues and/or equipment to be used in connection with the event; intellectual property issues; insurance, safety and security considerations; providing for access to events; sponsorships; and raising money and/or soliciting in-kind donations in connection with the event. In addition, businesses should consider the impact of the event on the surrounding neighborhoods in the community. For example, failure to consider how noise from the event and/or litter from persons walking to the event might impact the neighbors may trigger legal complaints from neighbors (and even if neighbors don’t make formal complaints, upsetting neighbors by hosting events does nothing to improve the “community citizen” profile of the business).

Community Consultation Requirements

Before proceeding with any community investment program, particularly one that will involve development of new structures and/or impacts to the natural habitat in the community, consideration needs to be given to laws, regulations and informal community expectations regarding engagement and consultation with members of the community. Practices within communities vary so it will be important to seek advice from local experts familiar with any permitting or licensing requirements applicable to community development activities. In most cases even a small project such as making changes to the landscaping around the company’s facility and/or adding more lighting to the parking lot used by customers and employees will require preparation and publication of an “impact report” and a minimum period of “waiting” before proceeding with the project during which community members can submit comments on, and raise objections to, the project. Evidence that the company has completed these preliminary steps will need to be presented to the regulatory body responsible for issuing permits or licenses. When a proposed community investment/development project is reasonably anticipated to have an impact on indigenous peoples, notice must be taken of the procedures that may have been established by local governments to comply with the letter and spirit of the United Nations Declaration on the Rights of Indigenous Peoples (“UNDRIP”), which identifies, describes and affirms certain rights believed to be essential for the preservation of indigenous peoples’ identity and culture including meaningful participation in decision making following consultation and dialogue. 

Fair Labor Standards

Many community investment and development activities focus on training and skills development for community members, including students, to improve their opportunities in the local job market and businesses interested in that area need to be mindful of applicable provisions of the FLSA, which has been introduced and discussed above. The FLSA includes extensive requirements between parties in an “employment relationship” relating to minimum wage, overtime pay, record keeping (i.e., personal employee information, wages, hours), and child labor, and businesses need to consider whether or not students receiving vocational training in work settings will be considered employees under the FLSA and thus be entitled to the benefits and rights of employee status under the FLSA. Recognizing that businesses may be reluctant to launch training and internship programs, the federal Departments of Labor and Education developed guidelines that can be followed to properly structure the programs so that participants have access to the protections of the FLSA and businesses have proper and clear guidance as to how the programs should be designed and executed (see, for example, the Statement of Principle relating to vocational exploration, assessment and training programs for students with physical and/or mental disabilities).

Voluntary Standards, Norms and Guidelines

Businesses have long been called upon to comply with a range of formal laws and regulations in various areas related to sustainability-related responsibilities including laws and regulations pertaining to the environmental impact of their operations, the employment relationship, working conditions and health and safety standards. However, apart from satisfying the requirements of local governments with respect to permits and licenses necessary for engaging in certain activities in the community, businesses generally are not heavily constrained by legal guidelines with respect to their community involvement and development activities. This is an area in which voluntary standards have played an important role in providing business with ideas for objectives for their community involvement. 

Since the late 1990s there has been a proliferation of transnational, voluntary standards for what constitutes CSR, including standards have been developed by states; public/private partnerships; multi-stakeholder negotiation processes; industries and companies; institutional investors; functional groups such as accountancy firms and social assurance consulting groups; NGOs; and non-financial ratings agencies. While voluntary standards focusing specifically on the relationship of businesses and the communities in which they operate are still evolving, lessons can be drawn from many widely recognized normative frameworks, principles and guidelines such as the United Nations Sustainable Development Goals, the United Nations Global Compact, the OECD Guidelines for Multinational Enterprises (https://mneguidelines.oecd.org/) (“OECD Guidelines”), the United Nations Guiding Principles on Business and Human Rights and the Future-Fit Business Framework. Specialized standards can be used as reference points for support of sustainability-related initiatives in local communities, such as requiring that recipients of grants and other investments for sustainable sourcing and agricultural activities adhere to the guidance developed by the Sustainable Agriculture Initiative Platform (https://www.saiplatform.org/).

Additional guidance comes from guidelines established for companies engaged in extractive activities where the potential for adverse impact on local communities is especially high. For example, Equitable Origin (https://www.equitableorigin.org/) is an independent nonprofit organization dedicated to promoting socially and environmentally responsible energy development. Equitable Origin claims to be the world′s first stakeholder-led, independent, voluntary standards system designed to enable high social and environmental performance, transparency and accountability in energy development. Equitable Origin has developed EO100 Standards for Responsibility Energy, Conventional Onshore Oil and Gas and Shale Oil and Gas Operations, each of which are based on six basic principles addressing corporate governance, accountability and ethics; human rights, social impacts and community development; fair labor and working conditions; indigenous peoples’ rights; climate change, biodiversity and environment; and project life cycle management. The Equitable Origin website contains references to technical information, tools, guidelines and best practices for topics covered by each of the principles including engagement and participation, resettlement, grievance mechanisms, community health, community investment and cultural impacts.

While many of the standards and guidelines discussed herein can reasonably be characterized as aspirational, the International Organization for Standardization (“ISO”) (www.iso.org) seeks to provide organizations with easy access to international “state-of-the-art” models that they can follow in implementing their management systems. ISO has developed and distributed ISO 26000 Guidance on Social Responsibility which, although not a management system standard, is a useful guide for improvement of organizational practices with respect to social responsibility. ISO 26000 identifies and explains various core subjects such as organizational governance, human rights, labor practices, the environment, fair operating practices and consumer issues and, notably for purposes of this discussion, also explicitly includes community involvement and development among its core subjects. The issues for businesses relating to community involvement and development identified in ISO 26000 include community involvement and respecting the laws and practices of the community; social investment (i.e., building infrastructure and improving social aspects of community life); employment creation (i.e., making decisions to maximize local employment opportunities); technology development (i.e., engaging in partnerships with local organizations and facilitating diffusion of technology into the community to contribute to economic development); wealth and income (i.e., use natural resources in a sustainable way that helps to alleviate poverty, give preference to local suppliers and fulfill tax responsibilities); education and culture (i.e., support education at all levels and promote cultural activities); health (i.e., promote good health, raise awareness about diseases and support access to essential health care services); and responsible investment (i.e., incorporate economic, social, environmental and governance dimensions into investment decisions along with traditional financial dimensions).

In addition to the various standards mentioned above, businesses and other organizations will also be impacted by relevant standards on their key stakeholders, particularly investors. For example, large institutional investors around the world have been moving quickly to embrace “responsible investment”, a concept that has been defined in the Principles for Responsible Investment (www.unpri.org) as an approach to investing that aims to incorporate environmental, social and governance (“ESG”) factors into investment decisions, to better manage risk and generate sustainable, long-term returns. Not surprisingly, one of the social factors is local communities, including indigenous communities, and businesses with investors that are signatories to the Principles can expect that those investors will take their community involvement activities into account in making investment decisions and require appropriate disclosures regarding their impact on the development and wellbeing of the local communities in which they operate. Investments from the International Finance Corporation (“IFC”) also come with requirements that client adhere to the IFC’s Performance Standards on Environmental and Social Sustainability which include requirements relating to assessment and management of environmental and social risks and impacts in local communities; community health, safety and security; indigenous peoples and cultural heritage.

Governance and Compliance

Community engagement and investment is a multi-faceted activity that requires formal management and planning. Working with and in the community is part of the broader CSR activities of the company and this means that management should begin at the top of the hierarchy with the board of directors or, in most cases, the committee of the board that has been delegated responsibility for overseeing CSR activities on behalf of all of the directors. The CSR committee, working in collaboration with senior management of the company and specialists working specifically on community-related matters, should be tasked with developing strategies and policies relating to community engagement and investment; deciding on the optimal organizational structure for community-related activities, including perhaps the formation of an affiliated corporate foundation; ensure that procedures are in place for conducting due diligence on prospective recipients of grants and other resources from the company and potential partners in community development projects; development and approval of projects; overseeing implementation of projects, including preparation of definitive agreements with community partners, monitoring progress and measuring impact; and compiling and analyzing relevant information regarding community activities for presentation in the company’s sustainability reporting.

Strategies and Policies

The first step in the process of designing, implementing and managing the company’s community engagement and investment should be developing appropriate strategies and policies. If the company’s activities are limited to occasional actions that fall into the realm of traditional philanthropy (i.e., small grants to local nonprofits and/or annual volunteering days) it may actually be that it has no specific strategy, which may be fine for a short period of time when the company is just launching and has scarce planning resources that need to be focused on other issues. However, as companies take on more ambitious plans with respect to involvement with communities and tackle issues that cannot be solved with one act, such as addressing poor education and poverty in the community, long-term strategies that go out three to five years are appropriate since the company’s resources will need to be committed to the issue over an extended period of time. Strategies should describe what the company expects to achieve over the planning period in relation to its vision, mission and goals with respect to community development and how it plans to achieve those goals in terms of organizing and committing its available resources.

The development of a strategy is the time for the CSR committee, and the company as a whole, to focus on three fundamental questions. First, the company should decide on the group within their community that will be the primary target of the activities. For example, many companies prefer to be involved in programs for young people in their communities, such as improving primary education and/or providing recreational spaces. Other groups that might be targeted include older people, community members with disabilities and groups that have been marginalized and/or discriminated against due to gender or ethnicity. The next thing that needs to be done is to determine whether activities should be focused on specific parts of the community, such as a particular neighborhood, or can and should be scaled to have an impact throughout the entire geographic area. For most companies, the answer, at least initially, should be to concentrate on the areas surrounding the company’s facilities. Finally, in order to have a strategy the company needs to decide on the sector and related issues on which the community-related activities will concentrate. Sector refers to the broader community development area, such as education, health, the environment and job creation, on which the company’s community-related activities will concentrate. Issues are specific aspects of the selected sector, such as early childhood education in the education sector, encouraging regular medical screenings and tests in the health sector and entrepreneurship training in the job creation sector. 

Community Engagement

Community engagement and dialogue—sharing information and listening to community members to provide them with a voice on matters that impact them—is the cornerstone of everything a company does vis-à-vis the community in which operates. Community engagement appears in many of the voluntary standards relating to sustainability and reporting on sustainability-related matters. For example, the OECD Guidelines call on enterprises to seek and consider the views of community members before making decisions regarding changes in operations that would have major effects on the livelihood of employees and their family members living in the community and the community as a whole (e.g., proposed closures of facilities) and take steps to mitigate adverse effects of such decisions on the community. The Sustainability Reporting Standards created by the Global Reporting Initiative, and discussed in more detail below, call for reporting organizations to discuss their management approach to local communities by describing the means by which stakeholders are identified and engaged with; which vulnerable groups have been identified; any collective or individual rights that have been identified that are of particular concern for the community in question; how it engages with stakeholder groups that are particular to the community (for example, groups defined by age, indigenous background, ethnicity or migration status); and the means by which its departments and other bodies address risks and impacts, or support independent third parties to engage with stakeholders and address risks and impacts.

Effective community engagement must be built on a sense of trust between the company and the members of the community and engagement should be carried out in a manner that conforms to recognized standards of professionalism and ethical conduct. In fact, the International Association for Public Participation (“IAP2”) (https://www.iap2.org/) has developed a Code of Ethics for Public Participation Practitioners that is intended to serve as a guide to the duties of public participation practitioners and ensuring the integrity of the public participation process. Among the guiding principles in the Code are enhancing the public's participation in the decision-making process and assisting decision-makers in being responsive to the public's concerns and suggestions; building trust and credibility for the process among all the participants; carefully considering and accurately portraying the public's role in the decision-making process; encouraging the disclosure of all information relevant to the public's understanding and evaluation of a decision; ensuring that stakeholders have fair and equal access to the public participation process and the opportunity to influence decisions; and ensuring that all commitments made to the public, including those by the decision-maker, are made in good faith.

Measurement and Assessment

Whenever a business is involved in a strategic planning exercise provision must be made for regular and continuous measurement and assessment of performance against the goals and objectives that should have been established early in the planning process. Measurement and assessment of a company’s performance with respect to community engagement and investment is not only important to the company, but also to the employees for which community engagement is a valuable motivator, the communities in which the company operates and, of course, the investors that provide a significant amount of the funding that ultimately is transformed into the resources that the company distributes in its community investment programs. Effective community investment also matters to customers and other business partners. Measurement and assessment is also an opportunity for further engagement with community groups and other stakeholders in that part of the assessment process should involve sitting down with partners to discuss how projects have gone and, hopefully, build further trust during those discussions.

Reporting

While more and more companies produce reports that emphasize the importance of being a good “community citizen” and effectively managing their relationships with community members and the community environment, those same reports often reflect difficulties in identifying and describing specific goals for community involvement and the impact that company activities are having on the community. As with all aspects of sustainability reporting, practices of companies regarding their disclosures relating to community engagement and investment have been evolving as time has passed and stakeholder interest in such activities has increased. Although mandatory reporting requirements have been slow to emerge, the need to keep communities informed has found its way into global standards such as the OECD Guidelines, which provide that enterprises are expected to ensure that timely, regular, reliable and relevant information is disclosed to the community regarding the activities, structure, financial situation and performance of the enterprise and relationships between the enterprise and its stakeholders; and communicate information to the community regarding the social, ethical and environmental policies of the enterprise and other codes of conduct to which the enterprise subscribes (including voluntary standards relating to community involvement and development).

The Sustainability Reporting Standards developed by the Global Reporting Initiative (“GRI”) (www.globalreporting.org) are the most widely used standards on sustainability reporting and disclosure around the world and include several types of disclosure categories that cover various aspects of community involvement, investment and impact. The GRI reporting framework covers a wide range of performance indicators and disclosure standards in three categories: economic, environmental and social. With respect to operations and other activities that might directly or indirectly have a material impact on their communities, organizations that have adopted the GRI framework are expected, among other things, to make disclosures regarding the impact that their investments and other support of infrastructure and local services has had on their stakeholders and the economy; the indirect economic impacts their operations and activities have had on their communities; community investment activities; engagement with local communities; the actual and potential negative impacts of their actions on local communities and their managerial approach to community issues. 

A framework for reporting promoted by the London Benchmarking Group (“LBG”) (https://www.lbg-online.net/), which is managed by Corporate Citizenship, a global corporate responsibility consultancy based in London with offices in Singapore and New York, is an effective tool for quantifying and organizing information about their corporate community investment activities and, most importantly, assessing and reporting on the impact of their relationships with communities and how to manage it. LBG explained its framework as being “a simple input output model, enabling any [corporate community investment] activity to be assessed consistently in terms of the resources committed and the results achieved”. Applying the framework begins with inputs (i.e., what resources did the company provide to support a community activity), continues with outputs (i.e., what happened within the community and the company as a result of the activity and what additional resources were brought to bear on a particular issue as a result of the company’s contributions and participation in the activity) and finishes with identifying and measuring the impacts achieved on various groups (i.e., the changes that occurred for people, organizations and the environment within the community and for the involved employees and overall business of the company).

Practicing Community Involvement

Community Development

One of the most-cited aspirations for business organizations with respect to their communities is providing a positive impact on community development and improving the quality of life and levels of well-being among the members of the community. ISO 26000 describes community development as improving the quality of life and levels of well-being among the members of the community. Community development is not the sole responsibility of organizations operating in the community, but rather comes from community stakeholders working together out of a sense of shared responsibility. From that perspective, the goal for each organization is to find the best way for it to contribute, and the commentary in ISO 26000 suggests that organizations can contribute by:

·        Creating employment through expanding and diversifying economic activities and technological development

·        Making social investments in wealth and income creation through local economic development initiatives both within and outside the organization’s core operational activities

·        Expanding education and skills development programs

·        Promoting and preserving culture and arts

·        Providing and/or promoting community health services

·        Facilitating and participating in institutional strengthening of the community, its groups and collective forums, cultural, social and environmental programs and local networks involving multiple institutions

·        Supporting related public policies and engaging in partnerships with governmental agencies to pursue development priorities identified during the course of the community’s own deliberative processes

·        Engaging with a broad range of stakeholders with special emphasis on identifying and consulting with and, where possible, supporting vulnerable, marginalized, discriminated or under-represented groups

·        Engaging in socially responsible behavior

ISO 26000 explains that some activities of an organization may be explicitly intended to contribute to community development, while others may aim at private purposes but indirectly promote general development. For example, programs focusing on preserving local culture and arts, which typically take the form of financial support and employee volunteerism, are generally unrelated to the core operational activities of the business but presumably provide value through enhancement of the reputation of the business and tighter integration with various segments of the community. On the other hand, investing in improvement to access roads and other aspects of the transportation infrastructure in the areas next to the facilities of the business not only provide direct operational benefits to the business but also are likely to provide indirect benefits to the community if the changes are well planned after consultation with impacted groups within the community. While each of the contributions listed above are important, businesses, regardless of size and like any other type of organization, do not have unlimited resources, nor do they necessarily have the expertise to make a significant impact, at least initially, in each of the areas. Every business has the capacity to continuously engage in socially responsible behavior; however, ISO 26000 notes that beyond that the most important contributions to community involvement and development will depend on the circumstances in the community itself, the unique knowledge, resources and capacity each organization brings to the community and the degree of alignment between the activity and the core operational activities of the business.

Community Investment

Most businesses, once they reach a certain size and level of resources, provide support for the activities of organizations in their communities that are dedicated to address social issues or needs in the community. The form of community contribution and engagement by a company can vary significantly, running from a one-time cash donation to a “good cause” to investment of cash, in-kind resources and management time into the creation of long-term partnership with a community organization that works on a broader and deeper solution to a particular issue that has a material impact on the business and the community in which it operates. ISO 26000 notes that organizations generally choose from among a wide array of potential community social investments including projects related to education, training, culture, health care, income generation, infrastructure development, improving access to information or any other activity likely to promote economic or social development; however, when creating its community social investment agenda an organization should purposefully seek to align its contribution with its core competencies and the needs and priorities of the communities in which it operates and take into account priorities set by local and national policymakers and the actions that are already being taken by other community stakeholders. 

Corporate philanthropy (e.g., grants, volunteering and donations) has a long tradition and companies have often been attempting various types of community investment. While these efforts are generally well meaning and have led to significant improvements in wellbeing in the communities in which the companies are operating, there are also signs that community investments fail to fulfill their full potential, for either the company or the community. Given that many investment projects involves significant amounts of resources, including time and goodwill, falling short on results means that employee morale may suffer and that community members lose faith and trust in the company. While companies could abandon community investments in order to obtain relief from the challenges described above, such an approach is no longer practical or advisable for firms looking to build a sustainable business. Community engagement and involvement, including community investment, is essential for attracting talent and satisfying the expectations of customers, investors and other stakeholders. As such, companies need to apply the same discipline to community investing that they do to all other aspects of their business and this means following a deliberative process to develop a comprehensive community investment strategy that effectively deploys the company’s core competencies to support community-focused projects that deliver the strongest impact given the level of investment.

Tran, in an article prepared for the quarterly publication of Social Ventures Australia, argued that the businesses should use a combination of social investment approaches as part of a well-managed portfolio in order to deliver greater impact, support the generation of social and business value in different ways and engage different stakeholders. The portfolio approach would include initiatives and activities from among four categories: traditional philanthropy, engaged philanthropy, catalytic philanthropy (i.e., catalyzing a campaign that achieves a measurable social impact) and “creating shared value”. According to Tran and others, adapting a range of approaches can provide a number of benefits and advantages to businesses including appealing to different sets of stakeholders; achieving a broader set of social and business outcomes; diversifying the risk in achieving the social and business objectives; making use of a wider range of skillsets across the organization; taking advantage of different available opportunities and forming non-traditional alliances; and designing complementary initiatives which increase the overall impact of the portfolio. 

In most cases businesses make changes in their approaches incrementally. For example, a fairly common transition for businesses is shifting from almost total reliance on traditional philanthropy (i.e., community sponsorships, grants to local nonprofits, employee volunteering and fundraising) to engaged philanthropy including multi-year partnerships with various community organizations to address a large and important social issue such as supporting local schools and creating meaningful job opportunities for teenagers in the community who have grown up in difficult conditions. As businesses become more involved in engaged philanthropy, often participating in multiple partnerships dealing with social issues that intersect with their core businesses and resource competencies (e.g., Toyota formed a community foundation to work with local nonprofit organizations on projects relating to road safety, education and the environment), they may eventually decide to stretch for even greater impact through shared value, such as launching a community innovation fund to combine financial and human capital to invent new technical solutions to social and environmental issues.

While “creating shared value” is discussed as an extension of philanthropic approaches, it is somewhat unique in that it essentially grounded in business strategy with the goal of addressing social problems at the same time that the company continues to pursue its traditional mission of creating economic benefit. Among the most vocal and visible proponents of “shared value” have been Porter and Kramer, who have pushed businesses to make a fundamental shift in their purposes away from short-term financial performance toward “creating economic value in a way that also creates value for society by addressing its needs and challenges”. According to Porter and Kramer shared value can be pursued and created by businesses in three distinct ways: by reconceiving products and services to address societal needs and/or by opening new markets by redesigning products or adopting different distribution methods in order to serve unmet needs in underserved communities; redefining productivity in the value chain; and building strong and supportive industry clusters with capable local suppliers and institutions and a healthy business environment in the communities in which the company operates.

Community Partnering

In addition to developing a comprehensive strategy for community investment, companies must master the nuances of effectively partnering with local nonprofit organizations, including community development corporations, in order to collaboratively address a social or environmental issue or cause that neither one of them can adequately address on their own and for which local government has also failed to find a solution. While partnerships been businesses and nonprofit organizations make sense, they can be challenging because they bring together organizations with different ideologies and ways of looking at problems, setting goals and measuring outcomes. On the other hand, a so-called “community business partnership” is an excellent opportunity to bring together two or more organizations with common goals and complementary resources to leverage those resources, and the talents and experiences of their employees, to pursue and achieve goals that will benefit the businesses, the nonprofit organizations and the community. Common elements of successful community business partnerships include a clearly articulated and shared mission; a commitment of time and funding; compatible strategy and values; continual measure and evaluation of programs, as well as the partnership itself; good governance and transparency; identity and integration of the partnership; open communications; and suitable programs that fit with the available resources and core competencies of the partners, organizational size and location.

Startups and Small Businesses

While corporate philanthropy and social investment are commonly discussed with respect to larger businesses, there are significant and effective ways for startups and smaller firms to engage with their communities and have a positive impact that enhances their reputation and their morale of employees. Some of the ideas that should be considered by entrepreneurs and small business owners include sponsoring the activities and/or specific events of nonprofit organizations in the community; incorporating employee volunteering into the company’s mission and personnel policies; designing a business model that “gives back” to the community (e.g., setting aside a portion of the profits from each sale for automatic investment toward a solution of a community social or environmental issue); contributing to the local economy by prioritizing hiring from within the community and selecting local vendors for procurement of necessary goods and services; and promoting local businesses to customers and other contacts through co-marketing efforts or referrals.

The Case for Community Engagement and Investment

While the potential benefits of community engagement and investment for businesses are often framed as being readily apparent, it is useful to consider ideas about the specific aims and objectives of corporate community involvement. One comprehensive list included making people inside and outside the community aware of various problems in the community; ensuring that investment and development efforts occur across all sectors of the community and in multiple areas including education, health, recreation and employment; motivating members of the community to participate in community welfare programs; providing equal opportunities within the community for access to education, health and other facilities necessary for better wellbeing; building confidence among community members to help themselves and others; generating new ideas and changing patterns of life within the community in positive ways that do not negatively interfere with traditions and culture; bringing social reforms into the community; promoting social justice; developing effective methods to solve community programs including better communications between community members and local governments; and creating interest in community welfare among community members and mobilizing those members to participate in the collective work for community development.

The Conference Board reported on the collaboration between Points of Light and Bloomberg LP to identify the 50 most community-minded companies in the US for 2014 and noted that companies included on the list were typically strong with respect to one or more of the following:

·        Employer-led community programs positively impacted employee engagement, meaning that employees who participated in community engagement initiatives with the support of the employers scored higher on measures of morale, engagement, pride and productivity than employees who did not.

·        Companies and communities found value in skills-based: skills-based volunteering strengthened employees’ morale and workplace skills while providing five times greater value to the community than traditional volunteering.

·        Companies raised their voice to advance social change by taking national leading positions on social issues related to their own operations, thus taking advantage of their ability to contribute lasting solutions.

·        Purpose was aligned with profit, with most of the companies integrating their community engagement into at least one of three business areas: marketing, skill development and diversity and inclusion.

Summary and Takeaways

Surveys have shown that commitment to CSR and related activities, including community involvement, is an important driver of employee engagement and employees care a great deal about how their employer is perceived with respect to social responsibility in the communities in which they operate. Community engagement and investment activities provide organizations with important opportunities to leverage the impact of their contributions given that businesses typically rely on their local communities as a source of talent for the employee base, for contractors for services that the organization seeks to outsource and, of course, as a market for the organization’s products and services. By contributing to educational and health programs in the community an organization can increase the skills base of potential workers, thereby reducing training costs when new employees are hired, and lower the risk of adverse impacts to productivity due to illnesses among its employees or their immediate family members, either of which can cause employees to miss time at work. Organizations can provide financial support, as well as licensed technology, to launch a local network of engineers, scientists and/or software developers to generate innovations that not only benefits the organization but also provided new opportunities for other members of the community, thus improving overall community wellbeing. Finally, the proximity of local customers makes it easier for organization to develop and communicate their marketing messages and seek and obtain feedback on the effectiveness of those messages and the quality and value of the product and services distributed by the organization. In fact, one of the compelling reasons for investing in community involvement at all levels is the relative ease of collecting and analyzing information relating to operational performance. Proximity to the human, technical and other resources that can be developed and nurtured through community engagement and investment also allows organizations to move more quickly to seize opportunities and obtain a competitive advantage.

Community engagement must be a permanent part of the strategy and operations of any organization and this means identifying community stakeholders as soon as possible, and moving quickly to establish communications and understand their needs and expectations regarding the organization and how it will operate within the community. Organizations need to under the issues that concern community members; the beliefs, values and experiences that drive the actions of community members and how community groups interact with one another. Organizations also need to carefully select that best strategies for their relationships with their communities, typically choosing from among community investment, which is essentially a one-way process of providing information and resources to the community (e.g., information sessions, charitable donations, employee volunteering etc.); community involvement, which involves two-way communications, such as consultation processes prior to launching a major project; and/or community integration, which involves sharing information and consultation in advance of launching collaborative projects that are jointly controlled with, and often led by, community groups.

Alan S. Gutterman is the Founding Director of the Sustainable Entrepreneurship Project.  The full text of this post, with footnotes, is available here. For further information, see Alan’s book Community Engagement and Investment: A Guide for Sustainable Entrepreneurs.