Steinbeis experts help create a radar system that allows companies to improve how they manage their contributions to society
The rising cost of climate change, increasingly tighter requirements laid down by legislators, and higher expectations from investors – these demands all highlight the role sustainable action plays as a guiding principle of modern times. Many people have high expectations of companies, which now consider sustainability an established key success factor for their strategies. Small and medium-sized enterprises are particularly likely to struggle in this area. How can they translate social responsibility into measurable, actionable goals? It’s known that ignoring sustainability poses a risk to your reputation, but in a number of ways the regulations – which are complex and difficult to fathom – depend on voluntary action. A team of specialists at zeb/business.school, the Steinbeis Transfer Institute, has joined forces with experts at zeb management consulting and the Funk Foundation to develop a system that will help companies systematically work out targets for required areas of action, each underpinned by KPIs that will be accepted by regulatory authorities and investors.
Ignoring public expectations poses a major risk to any business. On April 18, 2017, the German CSR Directive Implementation Act (CSR-RUG) came into effect, laying down comprehensive reporting demands with respect to corporate social responsibility (CSR). These now affect all companies with an average annual workforce of 500 people or more and a capital market orientation, activities in banking, or insurance business.
This poses a number of challenges for companies. On the one hand, there is still a great deal of uncertainty regarding definitions and meanings. For example, where is the demarcation line between sustainability and CSR? Is sustainability more to do with environmental protection and cutting greenhouse emissions? Yet there are no uniform statutory regulations that go beyond the CSR-RUG. Instead, it is entirely up to companies as to which of the many guidelines, guiding principles, codices, policies, official seals, or ratings they wish to use in order to break down their responsibilities as a company into measurable and manageable goals. Most KPIs and parameters are expressed as rigid frameworks, and the different elements within those frameworks generally stand alongside one another, seemingly unconnected. In addition, they are often not broken down into tangible measures or mutual interdependencies.
CSR and sustainability – what’s the difference?
Sustainability refers to the ability of an economic or ecological system to regenerate itself and thus maintain its existence in the long term without overall systems breaking down. Safeguarding sustainability is thus a task for society as a whole and something businesses can only contribute to. CSR refers to the extent to which a company takes responsibility for the impacts of its actions on society and acknowledges societal norms. When companies fail to meet the entirely justifiable expectations of society, they risk losing access to resources – for example clients and suppliers will walk away from them, or there will be public scandals that harm their reputation.
Using the CSP Radar to gain a better overview
Funded and closely supported by the Funk Foundation, the experts at the Steinbeis Transfer Institute zeb/business.school are currently developing a radar for corporate social performance: the CSP Radar. The Steinbeis experts use CSP to refer to the difference between assuming corporate social responsibility (CSR) and assuming corporate social irresponsibility, which they call CSI. For instance, a firm may choose to invest in social projects but still be paying bribes to industrial clients. The factors shown on the radar have not simply been positioned next to each other, they overlap and influence each other. For example, a technical innovation could offer improved energy efficiency and simultaneously reduce greenhouse emissions and resource consumption.
One problem with available guidelines and performance indicators is that the factors they are based on appear to have unavoidably been chosen at random. “We try to solve this problem with AI-based text analysis. By using computers to sift through different topics – so-called topic modeling – we’ve pulled together and categorized nearly 4,000 pages of relevant sources for describing sustainability and ESG standards,” explains Steinbeis expert Professor Dr. Joachim Hasebrook. Based on the quantity of hits and matches, a number of key concepts were identified before being whittled down to those that relate to specific corporate action. To do this, all concepts were extracted that, for example, correlate strongly with terms like activity, measure, aim, performance indicator, etc. The project team also interviewed experts at the Funk Foundation and Steinbeis University to filter over 260 actionable concepts down to 26 core areas of action, which can also be clearly described and assessed in measurable terms. These were summarized on a radar screen that allows companies to plan courses of action.
The process was underpinned by an evaluation of existing key indicators used to measure CSR and environmental social governance (ESG) – such as the ratings used by all DAX 30 companies and the guidelines of the European Banking Authority (EBA). Overall, more than 300 key indicators were examined. Out of this information, the project team identified 70 KPIs, which were then categorized according to different areas of action. The CSP Radar thus helps companies navigate the jungle of different specialist terms when it comes to sustainability and concepts such as CSR, CSP, and ESG. It also enables firms to determine goals based on specific actions, and these can also be managed by using the KPIs.
Simulation and system development
The identified areas of action and corresponding KPIs are currently being modeled with the help of an AI simulation method that takes into account 26 areas of action, 70 KPIs, and more than 600 correlations between different factors. This will be used to ascertain the effectiveness of different areas of action in the short, medium, and long term. The process also involves understanding influences that mutually amplify or even hamper one another over time. Based on these methods, areas of action can be identified with strong influences on each other, such as resource consumption and greenhouse emissions.
The ultimate goal is to produce a tool that works via a standard browser or app and to provide user access to the areas of action, complete with KPIs and explanations. This will make it possible to establish the CSP status of individual companies and use scorecards to produce structured reports.