Rethinking corporate philanthropy for the post-ESG era

People today look to businesses to step up with solutions to global problems such as climate change, economic and social inequality, health disparities, and food insecurity. The private sector, with its innovation and financing capabilities, can help fill the funding gap and speed up actions towards these goals.

By Kate Olsen

Let’s explore what’s required to do it effectively.

A recent survey by The Weber Shandwick Collective shows that consumers expect businesses to act on critical issues, bridge societal gaps, and uphold democratic principles. Employees, too, want their organizations to operate in line with their values and contribute positively to the world.

For several decades, top companies have adapted their business strategies to meet these changing expectations and pressures from investors, activists, customers and employees. They’ve also responded to the growing demand for transparency in environmental, social, and governance (ESG) matters. While the ESG conversation has become politicized, the substance of corporate investments remains the same: to create shared value for the long-term health of the business and the communities it serves.

Corporate philanthropy strategies and innovations have not kept pace with the evolution of corporate purpose overall.

While the business invests in solutions to those material issues…the foundation has more latitude to address complementary issues or solve adjacent problems.

Despite the lag, corporate foundations have a key role to play to help overcome barriers to social and environmental impact and find opportunity in disruption to advance lasting progress for the people and communities that matter most to their business.

Typically, the foundation operates as an extension of the broader purpose strategy, reflecting community partnerships and programs aligned to signature material issues. And while the business invests in solutions to those material issues to drive more sustainable operations or find business transformation opportunities ahead of risks, the foundation has more latitude to address complementary issues or solve adjacent problems.

In these ways, corporate philanthropy is an important lever companies can engage to foster cross-sector collaboration that can spark new approaches and identify scalable solutions to tackle urgent issues. These may include a growing mental health crisis, rising human impacts of a changing climate, worsening economic inequality and a widening digital divide.

Now is the pivotal moment to rethink the role of corporate foundations.

Three core tensions in the landscape open new opportunities in the corporate philanthropy space:

The term ‘ESG’ has become polarized and problematic. Companies no longer find it constructive to use ‘ESG’ as a shorthand for all purpose and sustainability efforts and are relegating the term to investor relations contexts. This development opens opportunities for companies to rethink how they frame their purpose story and reassess where philanthropy fits.
Many areas of corporate investment have become commonplace. To stand out, companies need to set and achieve bold goals or take on unique challenges that stakeholders find authentic to the role of business in society. Where a strong business case for a signature investment is lacking, philanthropy may provide a starting point.
The rise of mandatory corporate disclosure reframes investments as compliance. Adhering to responsible business practices and regulations focuses attention on material risk mitigation and alignment across internal functions. Solving shared social and environmental challenges requires an innovative and collaborative mindset. Corporate philanthropy and cross-sector partnerships can pilot new approaches and discover new frontiers for social innovation that make sense for the business to address together with community stakeholders.

As companies rethink their purpose strategies and storytelling in light of these tensions, they can use philanthropy in more expansive ways to incubate signature investments and new impact models that are not constrained by the current debate over the role of business in society.

Use a strategic recalibration exercise to determine your corporate philanthropy sweet spot.

Companies can assess their unique opportunities to deploy corporate philanthropy as an accelerant for their purpose strategies. Start by exploring and answering these critical questions:

Misaligned priorities. Where is there misalignment among the business strategy, materiality assessment, organizational culture and stakeholder expectations of the company? What does that misalignment reveal about underleveraged issues that may fit under a philanthropic approach?
Overlooked issues. What values, causes or issues are of high priority to your most critical stakeholders — especially employees and customers — that are currently not being supported by the purpose strategy? Is there an opportunity to explore a new giving or volunteering program or philanthropic partnership to address them in parallel to social or environmental impact programs embedded in the business?
Emerging threats. What are the social and environmental problems or externalities that are adjacent to the current business strategy but may become material issues down the road? How could piloting philanthropic partnerships or programs help explore longer-term innovations, business model transformations or collective solutions that would help the business stay ahead of threats?
Collective solutions. Where might an industry-wide initiative or cross-sector partnership help scale solutions to social and environmental issues that are too complex or systemic for any one organization to address? How might a philanthropic partnership approach open broader collaboration opportunities, especially with entities that would not normally partner one-on-one with a business?

In this era of complexity and change, companies need to articulate an integrated impact strategy — with a clear role for philanthropy — aligned to the business and calibrated to the bigger context.

This is the only way to solve big challenges and create sustainable and shared value for the business — and the world.

Author

KATE OLSEN

Kate specializes in developing strategies and integrated engagement campaigns that help purpose-driven clients build brands and advance sustainable development.

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