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Commercial approach can help fill the gap

The idea that businesses can use profitmaking activities to improve child nutrition or supply clean energy is a seductive one. Yet as global leaders gather at the UN’s Rio+20 summit, the question is whether corporations will do these on a big enough scale to make a difference to global challenges such as climate change, hunger and disease.

Since the 1992 Rio Earth Summit, the corporate sector has certainly started speaking loudly about its role in promoting the “green economy” (the theme for Rio+20). Today, it is hard to find a large company that does not issue an annual corporate responsibility report or whose website has no “sustainability” section.

Last year, one of the world’s leading management gurus even weighed in on the subject. In “Creating Shared Value”, Harvard Business School’s Michael Porter, with his co-author Mark Kramer, argued that if commercial activities benefit communities and the environment, they have the potential to generate positive growth for the whole of society.

But while the rhetoric is impressive – and many companies have been quick to announce their adoption of Porter’s “shared value” principles – it can be hard to distinguish genuine action from public relations noise.

Of course, the corporate sector could be forgiven for not fully participating in the development agenda. It has taken some time for multilateral agencies, NGOs and others to embrace the idea that progress in the fight against poverty or disease can be achieved by organisations whose primary purpose is to make profits.

In 2005, when a UN Millennium Project taskforce came up with seven recommendations for halving hunger by 2015, no mention was made of the role of agribusiness or large global food and beverage companies. These days, public-private partnerships are very much the norm, but pockets of resistance cling to market-based strategies to pursue development goals.

Nevertheless, shrinking budgets at multilateral institutions mean that these organisations have redoubled their efforts to harness the power of business in helping meet their development goals. The UK’s Department for International Development – which is among the very few agencies to have seen an increase in its aid budget – is keenly focused on engaging the private sector. Through mechanisms such as challenge funds, DfID is deploying much of its funding to remove investment risk for companies using business models to generate economic growth in poor countries.

And with there not being the funds thought necessary to help developing countries adapt to climate change, private sector involvement is seen as a possible solution. This is particularly true in the agricultural sector – whether that means commodities buyers providing agronomic training for farmers, or banks developing micro-insurance products to compensate far­mers for climate-related crop failures.

Meanwhile, what has also changed in the 20 years since the last Rio summit is that more and more companies see sustainable business as going beyond minimising the environmental footprint created by their activities. Many now believe their responsibility extends to managing the impact on the communities that are their neighbours, customers and employees.

Large apparel and footwear companies have been early adopters of this idea, particularly those that were the subject of campaigns against poor labour standards in supplier factories.

Nike, once attacked by activists, is now a leader in managing conditions in the factories that make its products. It is one of a few companies going beyond requirements for social audits of factories to look at how its practices – from design and purchasing to product-launch scheduling – can put pressure on workers at the other end of the supply chain.

Large companies are starting to use business strategies to tackle issues such as unemployment, small-holder empowerment and malaria. Initiatives include those launched by giants such as Novartis, a pharmaceuticals group, Cemex, a cement maker, Heineken, a drinks company, and DSM, a Dutch life sciences and materials sciences group.

These companies were among the winners of the 2010 Business and Development awards, a biennial competition rewarding corporate initiatives that use business activities to contribute to meeting the Millennium Development Goals, the eight targets drawn up by the UN in 2000.

Some companies have recognised that targeting underserved communities also makes sound business sense, and helps to develop new markets for their products. Influenced by the “base of the pyramid” theories of the late CK Prahalad, a management theorist, many are exploring new lines of commerce that provide affordable goods and services to the billions of people in the world who earn only a few dollars a day.

However, when margins are so low, turning a profit through such ventures is not always easy. This means some companies need to experiment with operational models, some of them philanthropic and funded by corporate foundations, others run as separate non-profit units.

In some cases, a hybrid of the two proves workable. DSM taps into its philanthropic budget when working with the UN World Food Programme to develop fortified foods that address malnutrition. The programme goes beyond mere philanthropy, since DSM can also sell the products it develops through commercial channels.

Of course, it is one thing to engage in development issues when much of your supply chain consists of smallholder farmers, textile factories or other suppliers in Africa, Asia or Latin America. But where the case for “inclusive business” is not as strong, or companies do not feel a need to make long-term commitments, the temptation may be to seek suppliers that offer the lowest prices.

Meanwhile, rapidly expanding companies based in places such as India and China may be less concerned to engage in issues such as poverty alleviation or ecosystem conservation – particularly if they have no recognisable brand to shield from criticism.

Yet it is arrogant to think that companies working to manage their social and environmental footprints hail only from Europe or America. Emerging markets are a source of tremendous innovation in this respect. One example is India’s Jain Irrigation Systems, a family-run business that has developed an affordable drip irrigation system to help smallholders make substantial reductions in their water use while enhancing the productivity of their seeds and fertilisers.

Natura Cosméticos, a Brazilian cosmetics producer, works with NGOs and rural communities to source its raw materials and manufacture and sell its products, and promotes economic development while conserving biodiversity and ecosystems.

It is this marriage of environmental and social concerns that many believe is the next phase in the evolution of “sustainable business”. And as the interconnectedness of global problems becomes clearer, more people are arguing that protecting the planet goes hand-in-hand with fostering economic development.

But while companies such as Nike, Unilever and Nestlé are known for their efforts to integrate environmental sustainability and human development into business operations, they remain part of a relatively small group of corporations adopting such strategies.

So while world leaders at Rio+20 struggle to agree on environmental goals and targets, other discussions may focus on how to embed social and environmental considerations more deeply into corporate thinking.