Philanthropic Investment in CED

Philanthropic investments in community economic development (CED) involve targeting philanthropic dollars and resources for activities that stimulate wealth and job creation in underserved or economically disadvantaged communities. Companies are becoming more effective at using philanthropic assets, such as financial contributions, employee volunteerism, product and facility donation and mentoring programs, to foster economic stability, thus creating stronger economies in which to do business. Many companies are also using operating assets such as purchasing, hiring, and siting facilities to benefit historically distressed neighborhoods, and some are combining these efforts with philanthropic investments, integrating their giving with other business and community investment strategies. Companies have begun to recognize the business benefits of this integrated strategy through increased access to new markets, improved brand image and healthier economies in communities where they do business.

Companies' philanthropic investments in CED have focused in a number of areas of community need including job readiness training, affordable housing, small business development and expansion, economic revitalization, and investment in youth education and school-to-work programs. Leadership companies have taken a comprehensive approach to economic development by supporting initiatives that involve multiple areas of CED. Various strategies include: donating money to community development organizations, partnering with non profit agencies, spearheading economic revitalization programs that involve community groups and multiple stakeholders.

Several factors motivate philanthropic investment in community economic development initiatives. CED can contribute to a stronger economy, which not only helps the community residents, but also provides a healthy economic environment in which to do business. Other benefits of CED include supporting market entry or expansion strategies, improving brand image and customer loyalty, recruiting and retaining the most qualified employees, protecting a company's physical assets, and achieving more sustainable community benefits.

  • Support market entry or expansion: CED initiatives in underserved communities can build relationships that positively impact a company's efforts to enter new markets or expand its operations. CED initiatives can also facilitate site selection efforts and open up new distribution channels. Developing relationships with strong community partners can help companies identify sites, navigate local politics and development policies, and develop relationships with local suppliers, distributors, and customers.
  • Improve brand image and increase customer loyalty: Consumers increasingly consider a company's general business practices, including its level of community involvement, when making their purchasing decisions. Companies that are positively identified with their community involvement activities are able to differentiate themselves from competitors. This is particularly relevant in underserved communities where many companies do not have an established presence.
  • Recruit and retain talented employees: A company's ability to attract and retain the highest quality employees is affected by conditions outside of the immediate work environment. Issues such as employee safety and quality of life in a community factor into employees' decisions to accept or stay in a job. Therefore, some companies provide philanthropic support to build the infrastructure in a community, which not only creates improvements for residents, but also makes a community more attractive for employees.
  • Protect physical assets: Companies have large financial investments in their headquarters communities and other locations. In cases where these communities are distressed, efforts to promote a healthier economy can protect these investments and avoid the costs of relocation. Philanthropic investments in CED can help increase property values, reduce crime, and attract more businesses to the area.
  • Achieve sustainable benefits: CED investments can lead to sustainable community benefits because they focus on long-term economic gains. Job creation, business development, and wealth creation are all outcomes that continue beyond a company's initial financial contribution.

A growing number of companies are focusing on community economic development issues and recognizing the business benefits of utilizing philanthropic dollars to support CED initiatives. Companies are utilizing several strategies to strengthen their commitment to underserved communities and to support their business interests. This is a description of such strategies.

  • Place-based strategies: While some companies focus their philanthropic giving on specific programs or initiatives, many focus their philanthropic involvement on specific locations. The reasons for this include: to better leverage assets through a concentrated giving strategy; to support investments in headquarters communities; to support communities where a company has plants or facilities; and to invest in communities where a company is downsizing in order to help mitigate potential economic impacts.
  • Strategic philanthropy: Overall, corporations are increasingly aligning their philanthropy with their business interests. They are limiting donations to areas that take advantage of their core competencies and support issues that correspond to their business objectives. Philanthropic investment in CED is a growing component of this larger trend. For example, clothing retailer Mervyn's California created the Mervyn's California Community Closet to donate clothes to underserved women in the communities in which it operates. In the first year of the program Mervyn's donated clothes to 1,000 women.
  • Measurement: As companies become more strategic with their philanthropic contributions, companies are also increasingly concerned with measuring the impacts of their philanthropic investments. Companies are finding that the benefits of CED programs lend themselves to quantifiable outcomes. The outcomes of employment programs can be measured according to the number of jobs created and rates of retention. Investments in economic revitalization can be measured in several ways including the number of businesses created or attracted to an area as a result of a particular initiative, impacts on crime rates, and positive impacts on property values.
  • Global CED investments: Many companies have global operations and have an interest in the economic health of communities where they purchase supplies and distribute their products and services. Companies are increasingly using philanthropic investments to address the CED needs of their communities. Companies have contributed to education initiatives, donated products to local organizations, provided business training and expertise to business partners, and provided financial assistance to local entrepreneurs.
  • Profit-making ventures: Some companies are focusing philanthropic investments on social entrepreneurship and profit-making ventures. This focus allows a company to leverage its business expertise to help non-profit organizations develop self-sustaining sources of revenue.
  • Non-financial philanthropic investments in CED: Many companies engage in a more comprehensive approach to giving that supplements cash contributions with non-cash assets. Companies have contributed to CED initiatives in this way by providing volunteer support for organizations, by offering mentoring programs to at-risk youth, through loaned executives to economic development organizations, and product and facility donation to revitalize a community or benefit an economic development organization.

Philanthropic investments in community economic development vary widely by topic area among companies. Listed below are some general guidelines culled from the practices of several leadership giving programs:

  • Conduct a community needs assessment: A community needs assessment can help a company determine where a community's needs and the company's business goals overlap. This allows a company to focus its business expertise, target its philanthropic resources, and address relevant community needs.
  • Develop and communicate CED goals: Developing a CED plan can help a company articulate the goals of its CED activities, and connect these to its overall business goals. Companies can communicate these goals to employees, investors, potential CED partners and communities. Goals can help create a clear understanding both internally and externally of what a company hopes to accomplish with its CED activities and provide a point of reference when evaluating the outcomes of CED initiatives.
  • Integrate CED with other philanthropic initiatives: Companies establishing philanthropic investment programs in CED may benefit from adapting their current philanthropic goals and initiatives. Companies can assess their current philanthropic goals and apply these to their work in underserved communities. For example, one of Home Depot's broad philanthropic goals is to improve the lives of children. To achieve this goal in underserved communities, the company is involved with YouthBuild USA, an organization focused on helping at-risk youth complete their education while participating in the construction of affordable housing.
  • Partner with community-based organizations: Many companies find it advantageous to partner with community-based organizations in the implementation of philanthropic programs. Community-based organizations provide content expertise and can support program implementation efforts.
  • Conduct benchmarking studies: Benchmarking studies of leadership companies and other companies in similar industries can help a company evaluate its current practices and policies. This type of information can help a company learn from its peers and competitors and develop a perspective about its internal level of knowledge and expertise on CED. Benchmarking can also provide a company with ideas about programs and initiatives it can become involved in.

By Business for Social Responsibility (BSR)


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