Social capital: Value, Impact and Reporting

UNDERSTANDING SOCIAL CAPITAL

Reana RossouwNext Generation Consultants

Next Generation Consultants 2

Introduction:

• What is social capital? • What constitutes the forms and dimensions of social capital? • How does the value of social capital differ for individuals,

organisations, and communities? • What should business leaders and organisations bear in mind when

making investments in social capital? • Examples and case studies about the importance of social capital


Why the focus on social capital?• While there are many tools and approaches for measuring social impact

available, companies are increasingly calling for a single harmonized and broadly accepted approach which will:

• Clarify best practice for business by providing a focal point for the development of best practice approaches, tools and standards for social performance measurement and management,

• Scale up the positive social impacts of business by informing appropriate action throughout a company's operations and supply chain,

• Improve business credibility by providing a solid foundation for companies to report or disclose their impacts and dependencies externally, building on existing frameworks such as the International Integrated Reporting Framework.


Why is social capital important?• It is ‘the glue that binds society together’’, and provides the opportunity for businesses

to be purposefully involved in creating a sustainable future for their operations, communities, and society at large.

• It allows companies to demonstrate the impact of their business activities on communities, the economy, and the environment through their stakeholder engagements and the social value created.

• It provides value to businesses in the form of improved performance, market opportunities, innovation and new product development, and enhanced reputation.

• It fosters economic development and growth for communities which are part of the ecosystems in which businesses are embedded.

• Companies with higher levels of social capital gain competitive advantage as a result of access to valuable resources, knowledge and information that are not easily traded.

• It provides businesses with the opportunity to gain license to operate through the social legitimacy they gain and maintain in communities.


What is social capital?• Social capital refers to the resources, knowledge, and information that accrue to an

individual, a company or a collective as a result of the network of social relationships within and between companies, institutions, and communities.

• Social capital is created when individuals and companies: • Establish connections and networking relationships with key stakeholders such as

customers, suppliers, competitors, business partners, local communities, and government officials and policy makers.

• Foster trust with their key stakeholders. • Develop shared norms, common values, and goals to influence attitudes and behaviour. • Obtain and maintain a social license to operate to demonstrate their commitment to key

stakeholders such as communities and government. • Social capital has two forms – internal and external.

• Internal social capital comes from social networking relationships and connections among individual members within a company, a community (e.g. members of a neighbourhood) or a system (e.g. members of an association).

• External social capital, on the other hand, derives from the social networking relationships and connections between an individual, a company, or a community and its key external stakeholders, as well as among other stakeholders such as mining communities.

2016/05/31


Where does social capital come from?• The International Integrated Reporting Council Framework (IIRC), is

requiring businesses to prepare integrated reports which include the need to measure a company’s social capital initiatives and its value for the company and society.

• As a result, business practitioners who are concerned with assessing the quality of their relationships with stakeholders, and those who are increasingly required to report on their company’s social capital as an input and an output to the creation of value, are interested in how to measure and determine the value from social capital.

• The interest in social capital from both social scientists and business practitioners has resulted in a vast body of literature on definitions, forms, dimensions, measurement and the value or impact of social capital.


What is the value of social capital?

•Understanding and measuring social capital will:

• Provide opportunities for businesses to explore the benefits of both formal relationships (e.g. established relationships between a business and its suppliers or the government) and informal relationships (e.g. relationships or engagement between a business and community leaders.

• Enable communities to identify the benefits that can be derived from the trust, norms and value systems that exist within communities, and the relationships they develop with businesses, non-governmental organisations (NGOs) and government departments involved in community development.

• Provide opportunities for businesses to use the connections and relationships they develop with communities to create social change, inculcate the idea of sustainability, and address the social needs of communities.


Internal & External Social Capital and Value

Internal value• Determinants:• Social Networks - Trust• Shared norms, values and goals• Benefits:• Increased information sharing• Access to knowledge - Access to resources• Buy-in and commitment to company goals• Retention of employees - Committed

employees• Value:• Improved financial and operational

performance• Efficiencies - Enhanced innovation• Project success - Change management

success• Enhanced reputation from supporting social

capital activities of employees

External value• Determinants: • Social Networks - Trust • Civic norms - Civic Engagement• Benefits: • Increased information sharing • Gain access to valuable knowledge • Access to resources • Gain valuable employees• Value: • Cost reduction - Growth of the company • Enhanced reputation - Employment growth

within communities • Obtain new customers - Achieve

sustainability • Mitigate effects of poor strategic decisions • Increase shared value - Socio Economic

Development

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Definitions of social capital:

Social Capital: Ability to secure or

obtain assets or resources, knowledge and information by an

individual, group or community for its

benefit through social networks, trust,

shared norms and license to operate

Social Networks (relationships, ties,

connections)

Obtain and maintain social license to

operate

Shared norms, values and social

structures

Trust and reciprocity


Dimensions of social capital:

Social Capita

l

Structural: Pattern of connections and

networks among actors

Relational: Relationships and interactions due to trust among actors

Cognitive: Shared goals and

values among actors


How is social capital different to other forms of capital?• Social capital can be differentiated but also share

some similarities:• It is closely linked to natural capital because it is

based on relationships between people and groups who in turn rely on the natural environment

• Facilitates the development of intellectual capital by influencing the conditions necessary for relationship building and the exchange and combination of ideas and knowledge

• Is instrumental in the development of human capital through educational experiences and social interactions with other employees

• Assists in the acquisition, management and use of manufactured capital through the shared norms, value systems, goal and social relationships with external stakeholders

• Influences the creation of financial capital by increasing profitability, market share, sales growth, operational efficiency, etc.

Natural Capital

Intellectual Capital

Human Capital

Social Capital

Manufactured Capital

Financial Capital


Similarities and differences between the capitals:• How social capital is the same

as other forms of capital

• It is a resource or an asset• It is not costless to produce, it

requires an investment• It provides a value• The value persists• Can be reduced to economic

capital in the long run

• How social capital is different to other forms of capital:

Requires relationships between and among individuals and groups

Depends on the interaction of social, political, cultural and economic factors

Cannot be sold or traded Is not easily alienable from organisations

or groups Is not subject to market exchanges Is not tangible Is characterised by unspecified obligations

and an uncertain time horizon Does not diminish or depreciate with use,

but appreciate with use


What can go wrong?• Not understanding or capitalising on the value of social capital: Marikana and Lonmin – Labour unrest

in South Africa’s Platinum Industry*• The labour unrest in the SA platinum industry led to the tragic killing of 34 people at Marikana in August 2012

and subsequently contributed to the longest strike in South Africa’s history in 2014. Viewed through the social capital lens it indicates the following aspects:• Mining management’s relationships with workers, surrounding communities and other stakeholders. These relationships

deteriorated systematically in the lead up to the unrests, which may have been identified and addressed earlier by considering a more relevant approach to social capital.• The mining management relationship with workers, specifically the rock drillers had become less and less direct because of a reliance

on intermediaries in the form of union representatives and contractors. As a result, middle and senior managers became increasingly isolated from the grievances and growing distrust among the workers. This includes managers general lack of knowledge of workers increasingly precarious financial situation, premised in large part on their exposure to unsecured loan providers and emolument orders. A social capital analysis might have indicated earlier on that there are holes in the managers network relationships with workers and that these holes contributed to a lack of pertinent knowledge and necessary trust.

• Second, managers arguably paid insufficient attention to the relationship between workers and the dominant union, the National Union of Mineworkers. As the relationship deteriorated, rivalry between incumbent and a new contender created crucial challenges for management. That is, not just relationships of employees or the organisation are vital for effective management, but also of third parities. The challenges faced by mining companies with regard to conflicts between rival factions within communities, or between municipalities and traditional authorities, provide further examples of this. A social capital analysis would focus attention on these third party relationships and ways in which the company could seek to support more conducive network dynamics.

• Third, the prolonged strike then let to 1) No income for workers 2) failure of workers to send money to dependents 3) failure of workers to pay bills and loans – ultimately this led to the collapse of African Bank and the regional economy.

• Fourth – following on from the collapse of the regional economy and the deteriorating relationships between business, government and communities lead to the burning of 25 schools in the Vuwani District as a result of integration with other municipalities.

• Five – this clearly shows how social capital can 1) influence relationships 2) influence capital formation or destruction 3) prevent children from going to school thereby impacting on their human rights 4) the increase of racial conflict 5) the growth of political influence and party politics (i.e. the conflict between the ANC and EFF 6) the shutdown of businesses and services due to prolonged strikes and violent protests 6) the collapse of the education system in Limpopo* Based on the work of Ralph Hamman – UCT GSB


What is happening?• ArcelorMittal South Africa has developed a customized methodology to objectively assess the social,

economic and environmental impacts of its operations on South African society. Based on the analysis, each impact area is classified as ‘mostly positive’, ‘positive and negative’, or ‘mostly negative’. Its regular application allows identification of key areas where performance can be improved and informs specific, actionable steps

• Companies are also coming together to define a common methodology. A number of companies, including BASF, BMW Group, DSM, Goodyear, Philips, AkzoNobel and L’Oreal, are working with the Roundtable for Product Social Metrics to advance life cycle indicators and approaches for social sustainability assessments at a product level and recently published the Handbook for Product Social Impact Assessments.

• Most recently, Nestlé has embarked on an effort to better understand approaches to measuring and monetizing social and environmental impacts. Nestlé conducted a study aiming to calculate a value for environmental impacts, and define how to carry out a similar assessment of their social impacts.

• SABMiller’s Sustainability Assessment Matrix (SAM) uses five levels, ranging from minimum standard to leading edge, to assess the progress of their businesses around the world based on their sustainable development imperatives. The results, combined with a wide range of additional performance indicators and supplementary data for the business globally and locally, are made publicly available to explore via their SAM reporting tool.


An input-output-outcome model of social capital value

Social Capital InputsSocial Networks - Trust and reciprocity – Norms, values and goals – Civic engagement – License to operate

Social Capital OutputsInformation Sharing – Access to knowledge – Access to resources – Social cohesion – Increased communication - Empowerment

Social Capital OutcomesIndividual: Job creation, skills development, access to information, services, empowermentCommunity: Increase household income, reduce crime, improve health outcomesOrganisation: Efficiencies, improve performance, market share, innovation

Social Capital Impacts

Greater profitability - Economic growth – rural development – new

product/service/market/customer development – higher human/manufactured

capital


An integrated model of capital sources, definitions, measures and value

Determinants

Social networks

Trust and Reciprocity

Shared norms, values and social

structures

Obtain and maintain social

license to operate

Definition

Ability to secure or obtain assets or resources and information by an individual, group, organization or

community for its benefit through social networks,

trust, shared norms and license to operate

Measurement

Social Networks•Network structure•Relationships, ties and connections

•Social cohesion

Trust and Reciprocity•Generalized• Interpersonal• Institutional•Reciprocity

Norms•Shared Norms•Civic Norms•Values•Goals

Civic Engagement•Association membership - Civic participation - Volunteerism

•Political Participation - Social Support

Benefit/Value

Source of privileged

knowledge - Job Opportunities - Organizational Performance

Sharing of sensitive

information - Lower transaction costs - Diminished

resistance

Self-sustaining solutions - Higher

social role definition

Improved health outcomes – Reduced Crime – Higher

corporate social responsibility


Lets get practical: Examples of impact and value of social Capital (1)

Discipline

Examples of potential Impact or value

Examples of Mechanisms

Economics • Leads to efficiency and growth• Minimises free-rider phenomenon in

economic exchanges• Promotes economic growth• Leads to higher standard of living• Increases household income• Leads to early adoption of innovation• Minimises losses from exchanges• Obtains refers that increase business

opportunities

Addressing Industry failures:The upheaval in the music industry with the arrival of streaming services The print journalism world with the proliferation of profuse free and cheap digital content. Examples:• Corporate venturing• Impact investing• Co-investment in commercial funds

Health • Social capital elements such as trust, reciprocity and membership in voluntary associations are significantly associated with higher life expectancy

• Reduces obesity rates• Reduces mortality rates from hearth

diseases, strokes, unintentional injury

Delivering value through development:Procurement teams don’t always understand the power that they hold and how they can drive social value. It is important that social value plans outline what they expect from different contracts and that community investment teams are involved throughout the procurement process. There needs to be flexibility within procurement so contractors of all sizes can play their role, and we need to look beyond apprenticeships to other types of activity that can deliver social value.

Business • Increase efficiency of transactions• Reduces costs• Enhances entrepreneurship• Increases access to financial resources• Creates and supports knowledge access and

acquisition

Perception Surveys and Inclusive Business: Catalyzing solutions that integrate the base of the economic pyramid (BOP) into companies’ value chains as customers, suppliers, retailers, and distributors. The focus lies on scaling up action, gaining greater insights, and overcoming both internal and external barriers to scaling up these ventures around the world.


Lets get practical: Examples of impact and value of social Capital (2)Sociology • Provides explanations of social class

differences• Helps explains racial, ethnic and cultural

disparities in health• Increases achievement in mathematics

and reading• Promotes well being of individuals and

organisations

Industry Collaboration:Toilet Board Coalition,” together with Kimberly-Clark, Unilever, and Lixil Corporation as well as 15 sanitation expert organizations, to foster the co-innovation needed to accelerate sanitation solutions in developing countries.39 Their goal is simple but daunting: to catalyze a robust business sector to deliver sustainable and resilient sanitation to the 2.4 billion people who lack it, of which almost 1 billion defecate in the open, and in turn improve health, productivity, and living standards

Government/ Political

• Increases civic engagement and citizenship• Facilitates stable democracies• Increases confidence in government systems• Contributes to poverty reduction• Helps resolve disputes and crises

Rural Livelihoods: Aiming to enable effective cross-industry collaboration to make rural areas more attractive places to work, live and invest in. The business solution responds to challenges faced by companies in ensuring sustainable access to natural and human resources, and improving health, safety and working conditions throughout rural supply chains. To tackle the root-cause of these challenges, the work focuses on (i) outlining a shared understanding of rural development needs; (ii) launching collaborative projects that provide proof of concept and encourage wider engagement; (iii) clarifying appropriate roles for business and partners; (iv) and establishing a platform for companies and partners to catalyze connections, match challenges with solutions, stimulate collaboration and fill capability gaps in rural areas.

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Case StudiesNestle Shared Value Standard Bank Report to

Society


More Examples• Product redesign

• Designing motor cars to be more fuel efficient, using renewable energy, reusing recycled materials

• Product accessibility• Redesigning products to be accessible

to hearing, vision impaired• Servicing previous

unserviced/underserviced markets i.e. using technology (MPESA), Mzansi Accounts

• Solving social issues - Unemployment• Retailers training unemployed,

unskilled workers for entry level positions – cashiers/call centers

• Public Private Partnerships• Mining companies developing

infrastructure such as schools, hospitals, clinics

• Supply Chain Management• Responsible sourcing, consumption

• Future employee skills development• Bursaries, Internships, Science & Maths

Programs• Reinventing purpose

• Nestle – from food to Nutrition• Nike – from shoes to Health• IBM – from IT to Smart Cities• Automotive – from cars to Eco mobility


Related concepts entering the lexicon:

• New Buzz Words• Inclusive economy• Circular economy• Social capital• Social value• Conscious capital/investment• Collective/social impact

• Old(er) news• Shared/Blended value• Social economy• Social entrepreneurship• Social innovation• Impact investment

• New drivers• The Sustainable Development Goals• Sustainability and Integrated

Reporting• The forgotten

• National Development Plan


In Closing: Going Forward• Currently companies all over the world are focusing on understanding their social

impact, mitigating social risks, determining social value:• A lot of work is being done around social impact measures:

• KPMG and the True Value Methodology• PWC and the Total Impact Measurement and Management (TIMM)• True Cost • Social Profit and Loss accounting• Social Life Cycle Analysis• GIIN offers the IRIS catalogue of social, environmental, and financial performance metrics

as a free public good to support transparency, credibility, and accountability in impact measurement practices

• SROI Network will convene experts across social enterprise, impact investing and the public sector to collaborate with business to advance the technical practice of valuation and monetization

• NEXT GENERATION CONSULTANTS: THE IMPACT INVESTMENT INDEX – Measuring the impact and return on investment of social development


Reana Rossouw: Next Generation Consultants• Website: www.nextgeneration.co.za• Linkedin: https://www.linkedin.com/company/next-generation-consultants and https://www.linkedin.com/in/reanarossouw

• Google+: ttps://plus.google.com/+reana rossouw• Pinterest: https://www.pinterest.com/reanarossouw/• Facebook: https://www.facebook.com/nextgenerationconsultants/

• Slideshare: http://www.slideshare.net/Reana1


Next Generation Consultants• Who we are:• Next Generation Consultants helps

organisations across the African continent to become more sustainable and have greater positive impact on the economy, society and the environment.

• In the investment and development sectors - we provide consulting and advisory; research and engagement; training and facilitation; impact assessment and due diligence services.

• We have developed the Impact Investment Index™ - a methodology that measures the impact and return on investment of social / community and enterprise development investments.

• What we do:• We have developed the Impact Investment Index

(III)™ in 2009. • Since then we have assessed more than R3 billion

worth of social/community and enterprise development investments. This includes more than 600 programs across 15 focus areas/investment portfolio’s.

• We have conducted these impact assessments on behalf of Multinational Funders, Corporate Donors and the Development Sector – within the mining, retail, manufacturing, government, media, communications and financial sectors.

• Our work resulted in an indicator library with more than 5 000 qualitative and quantitative indicators. We have also identified 21 dimensions of impact and more than 15 dimensions of return.


Resources• Network for Business Sustainability South Africa

• Measuring and valuing social capital – a systemic review• Journal of South African Institute of Mining and Metallurgy• Nestle – Creating Shared Value• Standard Bank – Report to Society• Mark Kramer – Creating shared value – the role of business in

society• World Council for Sustainable Development – Measuring impact

framework