What is Corporate Social Investment (CSI)?

Gone are the days when companies were shaped solely by their primary objective to maximise profits for shareholders, with virtually unfettered powers to do so without taking responsibility for their impact on society and the environment. In fact, business is no longer viewed as separate from society, but as an integral part of it: in its development, its wellbeing, and its continuing stability and prosperity. The prevailing view of ‘business in society’ has seen the corporate spotlight, globally and locally, turn to social, environmental and broad-based economic issues beyond the traditional financial bottom line. Increasingly, companies are expected to respond – either voluntarily or through regulations and legislation – to a range of non-traditional business imperatives and responsibilities. This trend has particular significance in the South African context where business is explicitly called upon to contribute to national development goals.

Accompanying this trend we have seen the emergence of a plethora of terms – such as corporate social responsibility, corporate social investment, sustainability, transformation, local economic development and socio-economic development – which describe various aspects of business’ broader role in society. While these frameworks have formalised and guided progressive corporate behaviour, they have also brought shifts – and sometimes uncertainty – in how companies define and approach their social responsibility activities.

There is considerable confusion between the terms corporate social responsibility (CSR) and corporate social investment (CSI) and the two are, incorrectly, often used interchangeably. Many people mistakenly conflate the two, understanding CSR in a very narrow sense as being a company’s CSI activities and contributions. On the contrary, corporate social responsibility is an overarching value-based framework, which encompasses all aspects of business operations, ensuring that how a company conducts business, and manufactures its products, is done in an ethical and socially responsible manner.

Within this overarching social responsibility framework, CSI refers to a company’s financial and non-cash contributions – beyond its commercial operations – to disadvantaged communities and individuals for the purpose of social upliftment and welfare. While CSI programmes do not operate in isolation of other CSR considerations, CSI is only one way in which companies fulfil their social responsibility obligations and, as such, is only one element of the broader CSR agenda. Nevertheless, in South Africa, CSI has become an important part of this agenda. This is reflected in CSI’s evolution, over the last decade, from ad hoc philanthropic gesture to strategic business consideration.

In part, companies understand the business case for giving to society; that a healthy business depends on a healthy society, and that making a contribution will ultimately reflect in a stable bootom line. At the same time, government’s prescriptive approach to harnessing corporate resources for transformation and development has also seen CSI become a strategic necessity for most of the country’s large companies. A host of regulatory pressures have undoubtedly shaped corporate thinking in respect of the role of business in society. The net result is that social giving is premised on a new mindset, in which CSI is considered an integral – and unavoidable – part of doing business in South Africa.

Regulatory pressures: Charters and Codes

There are a number of significant drivers encouraging companies to give to society and spend money at community level. Since 2002, several industry charters – including the Mining Charter, the Petroleum and Liquid Fuels Charter, the Financial Sector Charter, the Construction Charter, and the ICT Charter – have come into effect, setting varying social spending targets as a licence-to-operate requirement for these industry sectors. The charter process laid the groundwork for new laws and regulations which have served to entrench CSI as a formal part of the corporate sector’s contribution to broad-based transformation.

The introduction in February 2007 of the Department of Trade and Industry’s BEE Codes of Good Practice, and CSI’s de facto inclusion as part of the socio-economic-development (SED) element of the BEE scorecard, thrust CSI onto every corporate agenda. While the BEE Codes outline a discretionary transformation framework, companies wishing to do business with government are required to comply with the BEE scorecard.

Similarly, the Mineral and Petroleum Resources Development Act (2002), which came into force in May 2004, has been a critical driver in pushing mining companies to contribute towards social upliftment in their operating and labour-sending areas. To obtain a ‘new order mining right’, mining companies are required to implement a local economic development (LED) programme as a core component of mandatory Social and Labour Plans (SLPs), which must be submitted to the Department of Mineral Resources (DMR) as a condition of their continued licence to operate.

State-owned and public enterprises and the large telecommunications operators are also obliged to include a social component in their business activities, as a condition of their licence to operate. In the case of telecommunications companies, government has awarded a licence to operate in exchange for assistance with community-level service delivery, especially in rural areas. These companies are furthermore obliged to make a social contribution in the form of discounted services to disadvantaged sectors to ensure their ongoing licence to operate.

New parameters for CSI

New laws and regulations have had an enormous impact on the CSI terrain. In particular, the major regulatory frameworks – issued by the Department of Trade and Industry (dti) and the then Department of Minerals and Energy (now the Department of Mineral Resources) – have changed the way companies approach and manage their social investment activities. In many cases, this has translated into increased social spending, particularly among mining companies. At the same time, new terminology – such as socio-economic development (SED) and local economic development (LED) – and differing requirements for different industry sectors, has also created some confusion about what constitutes CSI. The way in which social spending is allocated, captured and reported is also changing, in accordance with new reporting requirements, and it has become more complex to define and track CSI expenditure.

In Trialogue’s view, based on our ongoing monitoring of the various elements of corporate giving, CSI refers to the total corporate investment in society, and as such SED and LED (with the exception of a few elements) fall within the realm of CSI.

CSI refers to a company’s total non-commercial contribution to society, which is not part of employee benefits or commercial sponsorships. This includes all SED initiatives, as defined by the BEE Codes of Good Practice, and most of what constitutes an LED programme, as set out in the Social and Labour Plan.

How does CSI relate to SED and LED?

In terms of the BEE Codes and the Social and Labour Plan framework, there is much overlap between what has traditionally been considered to be CSI and what is now being called SED or LED. The way in which SED and LED articulate with CSI is explained in more detail below, while the accompanying diagram provides a graphic illustration of the relationship between CSI and regulation-driven social spending.

In terms of Code 700 of the BEE scorecard, companies are required to spend 1% of NPAT on socio-economic development initiatives that facilitate sustainable economic inclusion for previously disadvantaged beneficiaries, 75% of whom must be black. SED initiatives, as defined in the Codes, clearly fall within the traditional scope of CSI. However, CSI has a broader ambit, covering these activities as well as a broad spectrum of CSI activities, including welfare, food security, arts and culture, environmental, safety, and sporting initiatives. While some companies may undertake only what is required for scorecard purposes, most companies do more than what is undertaken and verified for scorecard purposes. In other words, SED is only one component of a company’s CSI programme.

According to the DMR’s Social and Labour Plan, the local economic development programme must focus on three objectives at community level:  poverty eradication, community upliftment and infrastructure development. These objectives and project activities fall well within the scope of CSI. However, an LED programme must also include measures to address employee nutrition and living conditions as well as procurement progression plans for suppliers; elements which are not considered to be part of CSI. Nevertheless, the bulk of LED activities are clearly within the ambit of CSI, and spending on the community components of LED programmes count as part of a company’s CSI expenditure.

A broader spectrum of giving

One of the most visible impacts of regulation is that the spectrum of giving has broadened, both in terms of the numbers of companies allocating a percentage of their profits to social causes, but also in terms of the expanded nature of giving. Increasingly companies are investing in their surrounding and stakeholder communities, while more companies are finding creative ways to leverage their products and services to make a social contribution. On balance, this has translated into more expansive corporate social investment programmes and increased social spending.

Originally published in The CSI Handbook, 12th edition (2009)