Giving Compass' Take:
- Here are three reasons forward-thinking companies should make long-term commitments to social good and social impact during the recession.
- Why is it critical for companies to leverage their resources for social good? How will this help strengthen meaningful DEI practices?
- Read more about strategic steps for CSR.
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Uncertainty is one of the predominant themes in corporate spaces and conversations these days. While predictions on if and when we will enter a recession remain in flux, the economy has certainly slowed, and corporate leaders face pressure to keep costs down and profit margins up in the near term. Immediate cost-cutting measures are spreading across industries, including mass layoffs, salary freezes and reductions in employee fringe benefits, and a slowdown in capital projects.
This uncertainty has created a perilous environment for corporate social impact. DEI, CSR, ESG, and purpose initiatives are often first on the list to be frozen or underfunded during recessionary times. Cutting costs on these initiatives can feel like an easy decision for companies who see social impact as a “nice to have” or simply a box they must check based on political and societal pressure. However, this thinking has proven to be short-sighted, as research has shown that sustained investment and focus on social impact aspirations not only enhance the potential to drive meaningful change, but also contribute to business value and long-term resiliency.
We are seeing these short-term decisions play out in real time. A 2023 McKinsey analysis of racial equity commitments found that the pace and breadth of monetary commitments has slowed since it spiked in 2020 following the murder of George Floyd and an increased national spotlight on racial injustice. Monetary pledges are down 32% since 2021 and are coming from only 8% of companies, compared to the 18% that made pledges from May to November 2020. DEI-related job listings are down 19% over the last year, and we are also seeing a decrease in companies publicizing diversity initiatives. More potential cuts are on the horizon—in response to a recent KPMG survey, 59% of CEOs said they may pause or reconsider their ESG efforts due to financial pressure.
At the same time, there has also been a mounting backlash to ESG, with Republican politicians taking a more vocal (and misleading) public stance against the practice, saying it is putting impact ahead of profit at a time when the economy is flagging. Silicon Valley Bank’s focus on ESG and DEI has already been used as a convenient scapegoat in its recent collapse (ignoring countless other, legitimate factors), signaling what will likely be an uptick in this type of rhetoric as we approach the 2024 election cycle.
While this moment can feel disheartening, we believe that forward-thinking companies can leverage these circumstances as an opportunity. This isn’t the first economic cycle companies have been through, and it won’t be the last. Companies that stay the course and/or double down on their commitment to addressing some of our world’s most persistent challenges will differentiate themselves from peers both now and well into the future because:
- Disinvesting in social impact erodes trust from stakeholders
- Business gains from social impact cannot be achieved through interim solutions or strategies
- Sustained commitment is critical to achieving impact
Read the full article about companies committed to social impact by Erin Sullivan, Lolita Castrique-Meier, and Shumeca Pickett at FSG.