By Michael Cohn
Deloitte recently formed a Social Impact Practice to help clients deal with pressing global issues such as food security, health, education, clean water and the environment.
“We created the social impact business because we saw a market opportunity for a number of reasons,” said Jerry O’Dwyer, leader of Deloitte’s Social Impact Practice. “One is, as we looked around at what’s going on with our clients, the megatrend we see is a blurring of the lines that have historically defined the social sector, the private sector and the public sector. Increasingly our commercial clients have to step into what appears to be a void, from the inability of public sector governments to solve certain social issues, whether it’s education, workforce training, etc.”
He noted that Deloitte has had distinct practices over the years in each of those sectors, but never brought them all together. “We see more power in coming together and taking more of an issue orientation, as opposed to a functional orientation,” said O’Dwyer. “We focus on things like education, health, social entrepreneurship, etc. We see more solutions and ideas bringing capabilities from each of the sectors to solve a problem.
Given the apparent dysfunction at many levels of government around the world, the private sector has increasingly seen the need to step in to try to solve some of the problems that used to be handled by the public sector, such as health and education. That has aided some companies with their recruitment efforts in attracting Millennials who care about social issues.
“More and more companies are expected, by the Millennials and others, to not only serve themselves but also do some form of good,” said O’Dwyer. “Now, with the ubiquity of social media, you have instant global commentary, so they have to respond to it. We see a real market opportunity to take a leadership role and form a consulting practice around this.”
“A lot of Millennials want to connect to the work they are doing, but they also want to align with brands that have a more holistic view towards social change and climate change,” said Nate Wong, a manager in Deloitte’s social media practice. “There’s a recognition that the landscape has changed dramatically with social media and technology. That really promotes accountability and transparency. If anything, there’s been a huge shift in the corporate sphere where social impact is not just a PR play or a ‘nice to have.’ It’s really an imperative.”
Deloitte executives recently met with officials from the United Nations Foundation to discuss how to achieve some of the U.N.’s Sustainable Development Goals by the target date of 2030. Kathy Calvin, president and CEO of the U.N. Foundation, told the attendees at a Deloitte dinner that for the first time they see the role of the private sector as a key enabler in the achievement of the U.N.’s Sustainable Development Goals, according to O’Dwyer. “Until recently, the humanitarian sector has been reluctantly engaged with the private sector,” he noted. “Now there’s tacit recognition that there is a meaningful role for the private sector to play.”
Among the areas of focus for Deloitte’s Social Impact Practice is economic development and inclusive growth.
“That one is really interesting,” said O’Dwyer. “How do you bring market-based principles to emerging economies and solutions that otherwise have historically relied on aid. The thesis is that if you base it on market-based principles, it will be sustaining. It will have an economic engine to sustain itself and won’t have to rely on donor aid. We do a lot of work around how you raise up the lower rungs of the economic ladder so they become the emerging middle class. There’s an economic engine to that. It’s about empowerment and those types of things. We also do a fair amount of work around a very hot topic, which is food security and agriculture. If you think about the growing global population, how do you secure the food supply? How do you make sure you have enough food where it should be? The corporate sector is actually playing a huge role around that.”
As part of its work, Deloitte is also advising not-for-profit organizations, non-governmental organizations, donor organizations and local governments and businesses on ways to tackle some of these problems.
“You’re seeing much more cross-sector collaboration,” said O’Dwyer. “No one entity or sector can solve these problems. The social sector can only innovate and test and pilot. They can’t get to scale because they don’t have the resources. Governments increasingly are struggling with budgets, so they have to make really tough choices around where and how they spend their citizens’ money, but the private sector can get to scale in issues that are key to them as well.”
Deloitte also tries to help such groups make sure that aid money is spent productively. “We worked on a project for a large global donor organization, funded by a private sector client, who was trying to think through what’s the role of innovation in the humanitarian sector, and what does an innovation ecosystem look like and what’s the role of the private sector in that,” said O’Dwyer. “You see many forward-thinking progressive companies who are trying to play a role, but working in collaboration with some of the large donor organizations. We don’t really see too much waste, fraud and abuse, but we do see lots of, shall we say, ‘gentle nudging,’ from the private sector to do things differently in the social sector.”
Financing can act as both a carrot and stick in terms of providing incentives to make sure development projects work. Wong pointed to trends in the social investing space such as performance-based financing and social impact bonds. “You can really align goals so you’re not just doling out money and hoping the right outcome will be achieved,” he said. “You’re actually incentivizing all the different players to be aligned with that end goal, and you will pay them once those outcomes are achieved.”
Deloitte recently produced a research study on the social practices of Fortune 500 companies, and found that only 11 percent of them focus strictly on maximizing shareholder value, according to Wong. While some of the companies could be classified as “social innovators,” where their social impact is considered to be an intrinsic part of their corporate identities, and others as “shareholder maximizers,” the majority of companies were somewhere in the middle on the bell curve. Deloitte classified “corporate contributors” as companies where social impact is mainly driven by external factors such as key stakeholder relationships, and “impact integrators,” which see social impact as more of a window into building new market opportunities.
“Most of the companies within the Fortune 500 are really in the ‘corporate contributor’ and ‘impact integrator’ models, but only 11 percent of the Fortune 500 companies really ascribed to the shareholder-maximizing view,” said Wong. “The orthodoxy for corporations is that they’re generally very much shareholder focused and that’s the primary purpose of a company. Going through this research, we only found that 11 percent of companies are solely focused on shareholder maximizing. That seemed to represent a pretty big shift, if you think about 10 years ago, in the nature of what companies are doing in the social impact space.”