June 2003, AccountAbility, Business for Social Responsibility (BSR), Brody Weiser Burns
- What value is there in companies measuring, managing, and reporting on the economic impact of their business activities?
- What are the implications for both managers and public policy?
These questions frame this report, the first output from an ongoing program of work from AccountAbility and Business for Social Responsibility in association with Brody Weiser Burns. Funded by the Ford Foundation, this research explores the basis on which leading companies measure, manage, and report their economic impacts on poor and disadvantaged communities. This project is designed to enhance the ability of companies to manage and improve their economic development activities.
The initial phase of the programme aims to increase understanding of:
- How leadership companies are managing their economic impacts on communities
- The role of social and sustainability reporting, and broadly emerging corporate responsibility standards, in shaping how companies report on economic impacts
- The public policy implications of this research for companies, government and other stakeholders
- How corporate responsibility frameworks might better support companies interested in managing their economic impacts on communities.
The research methodology included analyzing corporate responsibility standards, reviewing social and sustainability reports, carrying out workshops and interviews with companies and advocates, and developing in-depth company case studies.
Over the next five to ten years, economic impact will become the litmus test for how society judges multinational companies, with the public scrutinizing where corporations site their facilities and how they source their goods and services. Why? Because economic choices result in social and environmental outcomes and because the corporate sector is viewed, correctly, as the key driver of economic development in a global economy.
Businesses are already under tremendous pressure to meet high standards for the social and environmental impacts of their work. But the business community and policymakers are increasingly realizing that the economic impact on poor and disadvantaged communities leads, in turn, to social and environmental effects. The more established and embedded accountability is in companies, the more economics is seen as the critical path to such desired outcomes.
In a global economy, the corporate sector is increasingly the predominant driver of economic development in low-income communities. Here are several well-known facts. Of the world’s largest one hundred economic entities, fifty-one are companies and forty-nine are countries. The world’s top two hundred corporations account for over a quarter of global economic activity while employing less than 1 percent of its workforce. In 1970, 70 percent of the capital flows to the developing world were from the government sector and 30 percent were from the private sector. Today, the situation is reversed: 20 percent are from the government sector and 80 percent are from the private sector. Accordingly, governments, nonprofits, and citizens concerned with economic development at home and abroad are focusing more and more on how corporations affect the economics of the communities they are involved with.
How well do companies understand the economic impacts of their activities and take action to manage them so that they have the desired outcomes? And in terms of public policy, how does this view differ from the economic approach of the 1980s, when it was argued that societal good was a natural by-product of individual corporations’ selfish actions?
