How does your business determine how to make social impact investments? There is no single way that companies choose to express the public-facing ‘S’ in their ESG strategy. Some companies choose to align around a particular cause or passion. Others largely leave it up to CSR officers or the marketing & PR department who collaborate with nonprofit leaders to form longer-term partnerships. Still others have no strategy at all, making charitable donations to whatever feels right.

In Josh’s blog post last week, he noted that the ‘External S’ is the next frontier of corporate impact - a chance for companies to build custom expressions of their purpose and reimagine community relationships that will yield mutual benefit. And as Josh noted, “We believe that activating the people power of a company – the very customers, employees and shareholders that are driving the ESG shift to begin with – is a big part of how companies will be evaluated in the future. Transactional social impact activities are shifting to more meaningful and strategic expressions of commitment to causes.”

This sounds great - but we know the challenges of reimagining a social impact strategy can feel overwhelming on a good day. This is why we believe that every company needs a Theory of Impact.  

What is a theory of impact? 

For years, nonprofit organizations have built ‘theories of change’ to help illustrate the way their interventions and programs will achieve their vision, leading to long-term community impact. It is an important exercise, helping to clarify an organization’s value proposition, while ensuring that programs and activities are all designed to support an intended impact.

As our team has worked with more and more corporate clients over the last year, it is a construct that we are finding equally helpful in the private sector. We’ve worked with several companies to better define their impact, align internal employee engagement with external social activities and launch pilot projects designed to demonstrate measurable impact. In every single case, starting with a Theory of Impact was critical to a successful project.

It aligns impact with your company’s purpose. 

Rather than staking impact efforts on ‘corporate charity,’ developing a Theory of Impact ensures that your company’s social impact strategy becomes an expression of your overall purpose. Many companies can name their corporate purpose - but when it comes to their ‘External S’ - their social impact - it is often disconnected.

The light bulb moment for many companies happens when the two are aligned. Initially, some companies balk at this notion. Shouldn’t charitable efforts be motivated by altruism rather than benefit? We don’t think so.

When External S efforts are aligned with a company’s own goals and superpowers, that’s where the magic happens. This can look like identifying a challenge - a sluggish workforce pipeline, a need for local name recognition or the desire to see a thriving, economically mobile community that will help business thrive.

One recent financial company we worked with found traction when they connected economic mobility with their own desire to help people confidently invest. They built a Theory of Impact that focused on helping students achieve the financial resources needed to attend and persist through higher education using a range of programs that leveraged their own resources. This framed their educational efforts in a whole new light and enabled their team to create targeted, measurable programs connected to their own purpose.

It balances risk and opportunity.

A Theory of Impact can also help mitigate risk, turning exposure into opportunity. ESG measures have traditionally been centered in more of a framework of risk - what potential downside risks does a company have based on environmental, social and governance impacts of its business model? For example, many companies are seeking to diversify their supply chain while also also examining where vendors may have potential areas of exposed risk.

A thoughtfully designed Theory of Impact can turn these risks into opportunity, taking areas of exposure and mitigating them with genuine community impact. When companies tap into their own materiality - areas of exposure that are surfaced as a function of their own business processes - they can discover authentic ways to express an external social impact that makes sense for them to advance. In this way, it is natural for a real estate developer to care about affordable housing and gentrification, just as a mortgage lender would focus on first-time homebuyers or a law firm would consider pro bono casework.

Whatever your company’s inherent business risks, external social impact efforts can be custom-designed to help mitigate these risks while supporting related community needs.

How is Next Stage supporting companies developing their own Theory of Impact? 

The benefits of a defined Theory of Impact are wide-reaching and significant. When done well, aligning impact with your business purpose and practices becomes the opposite of a traditional ‘feel good investment.’ Instead it helps turn risks into opportunities, engages employees, creates strong community brand recognition and best of all - builds opportunity and success within a community.

Our team has a strong background in the ways practices and programs knit together impact in a community. We launched our Impact for Business service line with the goal of partnering with companies to ‘work at the intersection of social good.’ As outlined in Profit & Purpose, there are many bottom-line serving ways that embracing ESG - and a Theory of Impact - can translate into increased brand visibility, employee retention and yes, increased profitability.

Next Stage can work with your company to identify ways social impact can help address some of your biggest business challenges, building a Theory of Impact that both mitigates risk and addresses some of your community’s biggest needs.

ESG may be disrupting the status quo but we believe it can be harnessed to leverage the win-win-win potential hidden in every company. Want to learn more? Reach out for a free consultation.