The state of CSI in SA

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Corporate social investment (CSI) expenditure in South Africa for the 2014/15 financial year is estimated to be R8.1 billion. This estimate, according to Trialogue’s 2015 CSI research, represents a year-on-year decline in expenditure of 6% in real terms, following a real decline of 2% in 2013/14.

The primary reason for the decline given by companies participating in the research is a reduction in corporate profits. Companies typically commit a percentage of profits to CSI initiatives, but it appears that the growth the CSI sector experienced between 2001 and 2013 has entered a period of decline.

The Trialogue CSI Handbook, now in its 18th edition, contains a breakdown of where this CSI expenditure goes, as well as the trends in social investment.

From its first issue in 1998, Trialogue’s CSI Handbook has mapped South Africa’s corporate social investment landscape and helped establish the standards for best practice in CSI, becoming the go-to reference guide on every CSI practitioner’s desk. The 18th edition of Trialogue’s CSI Handbook extends this strong tradition of research to understand what corporates are funding and how they are doing it, as well as how non-profits are using the funds.

This year the two questionnaires (one each for corporates and non-profits) were updated, some sections were streamlined and questions on community trusts, the revised Broad-based Economic Empowerment (BBBEE) Codes and corporate/grantee relationships were added.  

How does it work? Professional researchers conducted one-on-one interviews with representatives from large South African companies. For the first time, companies were allowed to complete the questionnaire themselves and all self-completed responses were verified by the researchers. Of the 81 companies included in this year’s sample (in 2014 there were 99), 63 (77%) also participated in the previous year’s study. In addition, 123 NPOs responded to Trialogue’s online survey (there were 171 in 2014) and 28% of these were repeat participants from 2014.

According to the research, corporate respondents continue to represent the diversity of the South African business sector. Financial services was again the best-represented sector in the sample, with 21% of the total response (2014: 22%), followed by retail and wholesale (14%, up from 13% in 2014). As in 2014, more than half (54%) of the sample was characterised by a combination of business-to-consumer (B2C) and business-to-business (B2B) elements. Thirty-one percent followed a B2B model, while 15% followed a B2C model. The research sample included companies of various sizes, as measured by workforce and total annual income. In 2015, more than half (54%) of the respondent companies employed less than 5 000 people, whereas 12% had staff complements greater than 20 000. More than three-quarters (78%) of companies in the sample had annual income of over R1 billion in their latest full financial year.

"NPOs were also measured by staff complement and annual income and asked to provide two years of data for both metrics. There were no significant shifts in staff numbers since 2014. More than 50 people were employed by 34% (2014: 34%), 26% employed 11 to 30 and 27% employed one to 10 people. Similarly, annual income has held relatively constant with the greatest proportion (27%) raising between R5 and R20 million in both years.

"In 2015, we expanded the reputation component of our research to include corporates’ and NPOs’ impressions of the good work that the NPO sector is doing. Similar to the corporate rankings, we asked respondents to list three organisations they feel are having the greatest impact and we ranked top companies/NPOs by the number of mentions they received. This section describes the findings," according to the handbook.

Mining companies tops 

Non-profit organisations and corporates alike agreed that Anglo American continues to have the greatest developmental impact. Anglo American's global spend amounted to R1 474 billion and Anglo America Platinum's annual published spend was R236 million. The annual public spend of African Rainbow Minerals was R282.5 million, that of Kumba Iron Ore was R202.3 million and Royal Bafokeng spent R133. Looking at CSI spend across sectors, the mining, retail and financial services sectors together accounted for just over 70% of the total R8.1 billion of CSI expenditure, with mining alone accounting for over 40% of total CSI expenditure. The distribution by sector remains broadly consistent with 2014.

There was a great deal of consensus, as most companies were named on both lists. The exceptions were Pick n Pay, which appeared only on the NPO list, and MTN, Transnet, Telkom and MultiChoice, which did not feature on the NPO list. Nearly all of the names ranking highly for reputation are regular features of this annual exercise; however, 2015 marks MultiChoice’s first time on the corporate list. With a smaller sample of corporates participating in this year’s research, the number of mentions received by top companies declined accordingly. Despite a similar decrease in NPO participation, the number of mentions for top companies on the NPO list remained similar to previous years, suggesting a greater degree of consensus in 2015.

Total CSI expenditure declining

Over the past year the total CSI expenditure in South Africa was estimated to amount to R8.1 billion. This estimate is based on Trialogue’s analysis of the CSI expenditure of large South African companies and state-owned enterprises: a broader sample than its primary research
component. This means that for the first time since Trialogue started tracking CSI expenditure in 1998, there has been a decline in both real and nominal terms. Until 2013, Trialogue consistently found that the total annual estimated CSI expenditure was growing in real terms and 2014 was the first time that CSI expenditure experienced a negative growth of 2% in real terms, but a slight increase in nominal terms. In 2015, the CSI estimate revealed a 1% decline in nominal growth and a real decline of 6% from 2014. This suggests that the growth that the CSI sector experienced between 2001 and 2013 is beginning to decline.

"Despite a small decline in total CSI expenditure, social investment continued to grow within Trialogue’s primary research sample of 81 companies. This increased spend from companies within the primary research sample seems to contradict the total expenditure findings above. However, it should be noted that the primary research group is a smaller, select sample, while the estimated overall CSI spend is extrapolated from a broader range of companies, using publicly available data. The disparity is explained by notably lower expenditure by a few companies with large CSI budgets that did not participate in our research.

"CSI expenditure remains concentrated among larger companies. The top 100 companies (by CSI spend) invested R5.4 billion, or 67% of the total CSI expenditure. The distribution of expenditure by the top 100 companies is shown in the chart below. Just 15 companies accounted for close to half (48%) of the total amount spent by top 100 companies, while 30 companies accounted for more than two-thirds (68%)," the handbook reveals.

Nick Rockey, Trialogue’s MD, says within the corporate primary research sample, giving was on the rise. The majority (59%) of companies reported increased expenditure in 2015, slightly down from the 64% that reported increases in 2014. The most common reason given for increased expenditure was an increase in corporate profits (41%, up from 37% in 2014), followed by growing requirements of the projects funded (26%, up from 25% in 2014). Least common was a more inclusive definition of CSI or policy change, with 7% each. Similarly, decreasing profits were the most often-cited reason for declining budgets (55%), with policy changes (6%) the least common cause.

"The average total CSI spend rose from R51.0 million in 2014 to R57.1 million in 2015. The median---a figure less influenced by outlier companies (for example, the one company claiming to spend over R1 billion on CSI)---rose from R14.4 million to R16.6 million.

"In South Africa, the BBBEE Scorecard requires large companies to spend 1% of net profit after tax (NPAT) on socio-economic development (SED). In 2015, our sample again reported giving more than this target, with expenditure averaging 1.7% of the previous year’s NPAT, up from 1.2% in 2014," says Rockey.

Non-cash giving stabilising

Research shows that in 2015, the trend seen in recent years of increased giving of non-cash donations reversed. Approximately one-third (34%) reported non-cash giving, down from 40% in 2014. In line with this decline, the overall proportion of non-cash giving decreased marginally to 10% (2014: 12%). Product and service donations accounted for the vast majority of non-cash giving. Twenty-nine companies reported figures for these donations, equating to 5% of total giving and 95% of non-cash giving. By comparison, 14 companies quantified the value of their employees’ volunteering time (less than 1% of total giving and 5% of non-cash donations).

Furthermore, the breakdown of corporates’ CSI expenditure by cost type remained largely unchanged from the previous year. Nearly all (97%) respondents reported some of their expenditure going directly to the projects they supported (2014: 100%). This direct project expenditure accounted for an average of 87% of companies’ total spend, down slightly from 89% in 2014. The remaining 13% of companies’ CSI expenditure went towards management and support costs. Aside from direct project expenditure, no cost type accounted for more than 3% of total expenditure or was included in the budgets of more than half the respondents.

As for geographic distribution of CSI funding and development focus areas:

  • Corporates are most likely to be involved in projects in Gauteng (70%), but gave the greatest proportion of CSI funding to national causes (34%);
  • Education continues to be supported by most corporates (92%) and received the greatest share of corporate funding (47%). Social and community development overtook education as the most common development sector among NPOs (73%); and
  • Companies in the sample gave to an average of 4.6 developmental sectors in 2015.

Rockey says national projects continue to receive the largest portion of CSI expenditure Companies again gave to an average of four provinces in addition to their national and/or international projects.

"While projects in Gauteng were the most commonly supported among corporate respondents (70%), the province’s relative share of corporate funding declined slightly from 27% in 2014 to 24% in 2015. By comparison, projects with a national focus were supported by fewer respondents (62%) but garnered a greater portion of budgets (34%, up from 29% in 2014). Corporate support for projects in the Western Cape, Free State, North West Province and Limpopo fell during the year. Nine respondents (11% of the sample) reported international giving in 2015, with the lion’s share (91%) of their giving going to projects in Africa.

"The NPO funding footprint of our sample is concentrated in Gauteng and the Western Cape. Whereas the proportion of NPOs operating in Gauteng declined marginally from 50% in 2014 to 49% in 2015, 30% of NPO resources went to the province (2014: 26%), with only 15% allocated to national projects (2014: 13%) (see figure 15). Comparing NPO funding with corporate funding, a significantly larger portion of NPO funding was directed to projects in the Western Cape (21% as compared to 11% of corporate funding), but this is most likely due to our NPO sample being drawn predominantly from Gauteng and the Western Cape. NPOs in the 2015 sample reported supporting an average of two provinces, down from three in 2014," he says.

Looking at the sectors which were supported best, education continues to receive the greatest share of corporate support. Each year Trialogue asks corporate participants which development sectors they support and what proportion of their CSI funding is allocated to each sector. Education was again the most popular sector, with 92% of respondents supporting this sector, followed by social and community development (74%) and health (58%). For the first time, Trialogue added disaster relief as a sector to understand how companies have responded to high-profile events. While a significant 17% of companies reported giving to these types of causes, they accounted for less than 1% of total giving.

Causes supported include floods in Cape Town, Mozambique and Malawi, as well as xenophobic attacks, the Ebola crisis and fires in Kya Sands and Cape Town. Education again received the greatest share of total expenditure, however by a slightly smaller margin (47%, down from 49% in 2014). Social and community development and health continued to hold second and third positions, receiving 17% and 12% of CSI spend, respectively. Despite the addition of disaster relief to the research, there was little shift in the distribution of funding across the development sectors; no sector gained or lost more than 5% of funding from 2014. Companies reported giving to an average of 4.6 different development sectors, up slightly from 4.5 in 2014.

Cathy Duff, Trialogue Director, says NPO respondents follow a similar, but not identical, development footprint to their corporate counterparts. "Social and community development overtook education as the most common area of focus, with 73% and 71% of NPO respondents, respectively, supporting these sectors. (2014: 57% and 62%). In 2015, NPO respondents were involved in an average of 4.5 development sectors, more than double the 2014 sample’s average of two sectors."

Corporate relationships with NPOs:

  • The vast majority of corporate respondents (90% of the sample) channelled a significant proportion of CSI funding (52%) to NPOs.
  • While NPOs are most likely to have corporate donors (66% of the sample), government surpassed companies as the largest source of funding (20%) to NPOs.
  • NPOs are accessing funding allocated to BBBEE Scorecard requirements, most commonly socio-economic development, cited by 82% of respondents.
  • Companies are giving multiple grants (70% gave more than 20 grants during the year) to many organisations (58% gave to more than 20 organisations).

Government's involvement

Within the sample, the NPO funding landscape has changed notably since 2014. Corporates, the most common source of NPO funding in 2014, have been surpassed by the South African Government as the largest source of NPO income. The former dropped from 22% in 2014 to 18% in 2015, whereas the latter nearly doubled from 11% to 20% during the same period. This was likely fuelled by a sharp increase in the proportion of respondents that received funding from government (63%, up from 45% in 2014). It is important to note that these changes may be due to the different sample of NPOs responding to the survey in 2015. NPO income from private individuals and self-generated funding declined by more than 5%, whereas income from trusts and foundations increased from 9% in 2014 to 13% in 2015. Investment income, while only accounting for 2% of total NPO income, was nevertheless relatively common among NPO respondents, with 38% citing it as a source of income. Other sources of income included churches and proceeds from the sale of property.

As for the newly introduced section on BBBee Scorecard funding, NPOs are capitalising on BBBEE Scorecard requirements in securing their funding from companies. Socio-economic development (SED) was the most common element of the Scorecard for accessing funding, with 82% of NPO respondents; however, nearly a third (31%) of respondents were drawing on skills development funds and a quarter (25%) drew on enterprise and supplier development funding.

Skills development

Duff says there is a weak link between CSI and skills development, enterprise and supplier development, with little change expected. The Department of Trade and Industry’s (dti) BBBEE Codes of Good Practice are designed to encourage transformation of the country’s business sector through a number of practices, including investment in socio-economic development (SED). In their most recent verifications, 48% of corporate respondents received the full five points for SED, down from 63% in the previous year. Giving among these respondents averaged 1.1% of NPAT.

"We asked corporate respondents how their CSI activities relate to skills development and enterprise and supplier development, and how changes in the codes will affect their practices. While the greatest proportion (47%) of companies reported no linkage between their CSI and skills development programmes, nearly the same amount of respondents (42%) used their CSI programmes as a feed-in to their skills programmes. This afforded them a more targeted development of a pipeline of talent from which to ultimately draw employees. Most companies (60%) foresaw no change to the relationship between skills development and CSI as a result of the revised BBBEE Codes. Greater integration between the functions was the most frequently anticipated change (19% of respondents), while a mere 7% expected expenditure on skills development through CSI to increase (see figure 33).

"The relationship between CSI and enterprise development closely mirrors that of CSI with skills development. Most respondents (60%) reported no linkage between the programmes; however, the most common linkage was for CSI to feed into companies’ ED programmes (23% of respondents). Two-thirds of companies (66%) did not expect the revised BBBEE Codes to impact this relationship. Among those who did anticipate change, it was most often in the form of greater integration (26% of the sample) and increased ED expenditure (15%)," Duff concludes.

 Lindsay King

Nick Rockey (1).jpg Cathy Duff.jpg
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