Pandemic, bushfires trigger surge in corporate giving

 

Philanthropy is becoming an important strategic choice for companies as they fight to attract and retain talent and keep consumers, local communities and investors onside.

A crisis, it is often said, brings out the best in people. It can also bring out the best in companies, it seems.

This article was published in the Australian Financial Review Boss section on Feb 12th 2021, written by Boss Editor Sally Patten. The original article is available here. Each year our GivingLarge research is used as a reliable source for this annual AFR feature.

Last year BHP gave $50 million to support coronavirus research and treatment, while Telstra gave $44 million towards bushfire relief.

The devastating bushfires of the 2019-20 summer and the outbreak of COVID-19 are two of the biggest disasters to hit Australia in living memory. The fires destroyed 13 million hectares across Australia, killing 33 people, while the COVID-19 pandemic has so far infected nearly 29,000 Australians and killed more than 900.

Macquarie Group, Newcrest and Rio Tinto gave $20 million or more to causes related to COVID-19.

BHP’s hefty donation helped it to claim the number one spot on the list of Australia’s biggest corporate givers in 2020, having given $221 million to worthy causes. The mining behemoth was followed by Coles, which distributed $125 million, and Commonwealth Bank, which gave $70 million.

The sizeable gifts to the bushfire and COVID-19 relief efforts may well reflect those companies’ desire to help the communities in which they operate, but research by UNSW Business School concludes that philanthropy can also boost the bottom line.

In a paper published last September UNSW Business School finance lecturer Cara Vansteenkiste found that “corporate giving also has a value-increasing component, as it can increase firms’ reputation and social image”. This was particularly the case where companies donated to major, high-profile events such as natural disasters, which attract heavy media attention.

The bushfires of the 2019-20 summer burnt millions of hectares and prompted large corporate donations. Getty

Corporate giving can be used as a marketing and reputation-building tool that increases sales, attracts new clients and capital, builds the firm’s image in the community, and increases support from employees and other stakeholders, the research concludes.

“If the strategic benefits are sufficiently large, firms can use corporate giving to increase their financial performance,” Vansteenkiste says.

The academic also notes that in-kind donations, whereby companies donate products or equipment, tend to be perceived more positively by the market, Cash donations trigger more negative market reactions.

James Ensor, chief executive of BHP Foundation, doubts the miner’s donations to COVID-19 will boost sales and profits, noting that in any case BHP is not a consumer-facing company.

“And I don’t think [boosting profits] should be a driver [of philanthropy],” Ensor says.

“We make our investments based on the public good and maximising societal outcomes from our investments without being driven by providing any benefit to ourselves in terms of reputation.

Lyndall Stoyles, general counsel and group executive of sustainability, external affairs and legal at Telstra, also denies the bottom line plays any role in the telecoms company’s philanthropy program.

There is an expectation that corporations will step up and contribute in a meaningful way to the world’s most significant sustainable development challenges, says James Ensor, CEO, BHP Foundation. Arsineh Houspian

Asked whether enhanced profits might be an unintended outcome, Stoyles says: “It could be. We don’t measure it. If you track back through Telstra’s history, philanthropy has been going on for a very long period of time. I think that concept of it being good for the bottom line is a newer concept.” The scale of Telstra’s response to the bushfires was, Stoyles says, dictated by the scale of the disaster.

Overall, Telstra distributed $30.3 million to philanthropic causes in the 12 months to June 2020. Telstra’s bushfire support was spread out over a longer period than the last financial year.

The total sum given by Australia’s top 50 corporate philanthropists in 2020 was $1.3 billion, 18 per cent higher than in 2019, research provided exclusively to BOSS by Jarrod Miles, founder of Strive Philanthropy, and John McLeod, co-founder of JBWere Philanthropic Services shows.

“What makes this all the more remarkable,” says Miles, “is that it has happened at a time when pre-tax profits over the year have declined by almost 30 per cent for the same institutions.”

The combination of higher donations and lower profits meant that companies gave 1.24 per cent of their pre-tax profits to charitable causes last year, up from 0.72 per cent in 2019. The proportion is significant because 1 per cent of pre-tax profits is a globally encouraged benchmark for corporate philanthropy.

The threshold to make the top 50 list in 2020 rose to $4.3 million from $2.5 million a year earlier.

“It was fantastic that companies increased their giving when profits were down,” says McLeod. The increase helped to fill a gap left by a fall in private giving, blamed on the inability of not-for-profit organisations to hold fundraising events last year because of social-distancing requirements.

The increase in corporate giving last year, notes McLeod, was almost all due to the large scale of COVID-19 and last summer’s bushfires. “It would have been flat without those,” McLeod says.

Of a group of more than 150 substantial corporate donors, 113 companies gave $145 million to bushfire relief, while 30 companies contributed more than $176 million to COVID-19.

McLeod doubts last year’s largesse will be repeated in 2021. “I expect giving to be lower this year because of lower profits,” he says.

Several companies made large increases in their charitable giving last year. BHP’s total was 64 per cent higher than the year before, Newcrest was up 110 per cent, Macquarie was up 82 per cent, KPMG up 78 per cent and Medibank was up 111 per cent.

But the biggest jump in corporate giving came from Who Gives a Crap, the toilet paper subscription firm that donates 50 per cent of profits to help build toilets and improve sanitation in the developing world.

A spate of panic buying ahead of mass lockdowns across Australia – which resulted in empty toilet paper shelves in the major supermarkets – led to a huge increase in toilet paper sales in 2020, enabling the company to lift donations 750 per cent to $5.9 million.

Even without any direct impact on the bottom line, Jarrod argues that corporate giving is “quickly becoming an important strategic choice” for companies as they fight to attract and retain talent and keep consumers, local communities and investors on side.

Others argue there is also an element of risk mitigation. Giving programs can help a company to demonstrate it does more than pay lip service to its values.

“These days, a major ASX company simply can’t afford not to give,” Jarrod says. “The big industry [superannuation] funds representing teachers, nurses and the media, for example, demand that the companies they’re investing in give back. Major ASX players, which rely heavily on super money for capital, need to have a social agenda.”

Stoyles says: “I do think you are seeing a change where society is looking more broadly at the full picture rather than just the bottom line … We are seeing more of a discussion about broader issues than just the bottom line than we were even five or six years ago.”

Adds Ensor: “If you think about the leading international institutional investors, the expectation is that corporations will step up and contribute in a meaningful way to the world’s most significant sustainable development challenges. So that’s the driver, certainly, I think, for the [BHP] foundation.

“If there is a dissonance between societal expectations of a particular corporation and the behaviours and the policies and the practices of that corporation, then that inevitably generates an investment risk for a large-scale institutional investor over time.”

Sources for the list include the GivingLarge report and publicly available company sustainability and CSR reports.

The latest GivingLarge Report and all past reports are available here