Understanding the Social Impacts of Corporate Investment

The idea that a company’s mission can transcend profit is becoming more mainstream. More businesses are realizing that by reorienting around a purpose-driven culture, they can attract and energize employees, delight and retain customers and achieve better business outcomes for shareholders.

As companies transform into purpose-driven businesses, the need to articulate impact beyond financial measures has become more acute, especially as shareholders are increasingly evaluating potential long-term value creation through the lens of anticipated social and environmental impact.

Companies and communities have traditionally relied on economic impact tools to measure the benefits of a business operation on a community. States and cities seek to attract and retain business investment to help achieve their mission to create jobs, elevate the standard of living for residents (grow income), increase the tax base and diversify the economy. Companies, on the other hand, will portray the value of their corporate investments (existing and future) in terms of job creation and capital investment. Governments and businesses typically utilize economic impact modeling techniques to express the value of job creation and capital investment in terms of direct, indirect and induced effects on the economy.

The problem is that economic impact tools result in somewhat esoteric jobs, output, and income figures that are often difficult to comprehend by stakeholders, the press, and the public. Many cities believe that new and existing business activity is beneficial for the community, such as reduction in poverty, increases in average income or educational outcomes, but have had no ability to estimate these social impacts. Purpose-driven companies, in turn, want the ability to demonstrate how their business activities enable positive social outcomes in each community that hosts them. Once equipped with social impact measures, senior executives can make changes to their existing supply chain, manufacturing operations and footprint to optimize social outcomes.

Deloitte has been working to address this need by researching and developing new tools that estimate social impacts. By combining newly available geospatial data on community statistics and corporate investment projects with sophisticated statistical analysis, we can now forecast the likely social consequences of a business investment in a specific location along defined community metrics. Deloitte’s Social Impact Measurement Model (SIMM) estimates the social impacts that are likely to arise from corporate investment projects. This machine-learning model estimates the social impact of investments at the U.S. county level for the four years following the investment, analyzing 142 social measures ranging from child poverty and reading proficiency to carpooling and population migration. While the SIMM does not isolate an investment as the sole cause of a change to a social measure, the model forecasts with a very high degree of accuracy how social outcomes will change as a result of the size and type of capital investments in a geography.

How the Social Impact Measurement Model Works

Knowing that communities are undergoing constant change, Deloitte’s approach to estimating social impacts of corporate investments needed to control for natural growth, economic cycles and other ambient effects cities experience. To accomplish this control, Deloitte used a “matched pair” design, wherein we found similar counties, one of which experienced a corporate deployment project, while the other did not. This approach is similar to NASA’s Twins Study, , in which one of the twins (Scott Kelly) went into space for one year while the other twin (Mark Kelly) remained on Earth as a control subject. NASA has been observing and reporting on the differences in the twins’ physiology since Scott Kelly’s return. In Deloitte’s SIMM, by observing how the twin counties changed over time, we found causal inferences across a multitude of social outcomes.

Quantifying the estimated social impacts of a capital investment allows CEOs, government relations teams, economic development entities, and other interested parties to bring data to discussions about the community benefits of proposed or existing corporate investments. Understanding what a specific investment’s impact might be, as well as why certain locations would see greater or lesser improvements than others, can support more informed decision-making by companies, community leaders and policymakers.

The SIMM gives corporate leaders more data that can help guide business decisions, enabling them to ask more sophisticated questions about the social and community impact of their location footprint choices, such as:

• Where should we consider making capital investments? For which communities would the positive social benefits of a corporate deployment be the greatest?

• Are our company’s capital investments consistent with our social impact goals and expressed mission?

• For community-specific project investments we have made over the past five years, what has been the social “payoff”?

• What might we do to amplify the good social impact and to ameliorate possible adverse social impacts?

For example, applying the SIMM can shed light on the ways investments of the same amount in the same industry can have different impacts in different locations. For instance, population density often matters: the SIMM forecasts that a $500 million investment in a rural, wealthy county will have less overall social impact than the same level of investment in a more densely populated, wealthy county. Similarly, investments can create more meaningful change in childhood poverty levels in urban poorer counties; the poorest children in these counties also benefit in educational attainment for reading and math scores.

To be clear, the SIMM estimate is just that—an estimate. It is meant to supplement established methods of gathering information, conducting analyses and bringing the derived insights into the capital allocation and planning process.

What it offers is a quantitative and statistically rigorous way of linking financial inputs to social outcomes in a way that has not been done before. By estimating the social impacts of operations, CEOs are better equipped to support the transformation to a purpose-driven business and drive engagement with employees, customers, and stakeholders.