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Is Corporate Social Responsibility Extinct?

By - Nov 5 2015

dinoz

When Tyrannosaurus Rex stomped through the Earth 65 million years ago it seemed, at the height of his majesty, that he was untouchable, certain to remain on top of the world—or at least on the top of the food chain—forever. Yet 65 million years later we’ve seen many titans fall and know that no giant—no ruler, nation, corporation, economy, or trend—is truly immune to the impacts of time and development. Even Corporate Social Responsibility (CSR), a concept or trend which can be traced back to the 1950s and whose growing popularity painted a picture of permanence, has shown signs of decline. And that might be a good thing! An increasing focus on the sustainable has certainly penetrated the private sector and though consumers are increasingly demanding that their preferred brands operate in this way, but corporates’ approach to “responsibility” has shifted, and possibly for the better.

Yet this shift isn’t carrying the corporate world in one direction alone. Instead, it’s brought us to a crossroads, providing us several potential avenues that arrive at a destination replete with social, environmental, and financial returns. To help you navigate this crossroads and the increasingly fast-paced waters of the corporate world, we will walk you through some of these avenues today. While they differ in method they make one thing clear: gone are the days of one-off CSR initiatives, and to stay is an approach that does well by doing good.

  1. Acting Sustainably and Inclusively: A recent report—released by Citi Foundation (a valued partner of us here at the Inter-American Development Bank), the Fletcher School at Tuft’s University, and Monitor Institute—has coined a new term, citing an adoption of sustainable and inclusive business activities (SIBA) as an emerging and popular alternative to traditional CSR. “Where companies once viewed the wider context that surrounds the business opportunities and the challenges therein… through the lens of CSR or philanthropy,” the report states, “today many of these ‘contextual gaps’ pose real threats to business expansion…” In other words, SIBA operates on the notion that emerging economies—though lucrative—are beset by challenges. While they account for two-thirds of global GDP growth over the past decade and about 40% of current global output, companies looking to prosper in these settings may encounter such barriers “as poverty, poor sanitation, poor governance, missing institutions and unskilled labor.” New consumers (millennials and others—myself included!) welcome this. To overcome them, they must often address them, investing in social and environmental solutions that allow their company to thrive. For an example of SIBA look to Mexico, where PepsiCo teamed up with the IDB to incorporate healthier sunflower oil into its snacks as a new ingredient. To ensure it would receive the best sunflower product possible, PepsiCo engaged in capacity building with Mexico’s smallholder sunflower growers, operating sustainably by tying this social initiative to its core business and operating inclusively by ensuring these farmers benefitted from the exchange.
  2. Creating New Markets: In Latin America and the Caribbean (LAC) there exists a massive untapped market, one worth $759 billion and comprised of 405 million people who are more urban, connected, and educated than ever before. This market—the Base of the Pyramid (BOP)—consists of low-income families who together form a huge consumer base offering companies major opportunities. They say a rising tide lifts all boats, and LAC’s BOP proves just how true this is. A recent report by the IDB’s Multilateral Investment Fund reports that the region’s economic growth between 2000 and 2010 had a positive impact on BOP families, such that discretional expenditure increased by 33% to account for 18% of total household expenses. This means that the region’s BOP has more purchasing power than ever, and that companies stand to thrive while also providing goods and services to underserved consumers. Furthermore, the report deems this BOP market “doubly attractive,” increasing in both size and purchasing power while a substantial portion migrates into the middle class. In other words, companies who create new markets among the BOP stand to forge brand loyalty that will follow them as they trickle into the middle class. For an example of new market creation at work, look no further than MasterCard. Alongside a contribution to the IDB’s multi-donor Transparency Trust Fund, in 2014 MasterCard pledged to bring electronic payments and financial services to LAC’s BOP, reaching the underserved with financial products that can serve as vehicles out of poverty.
  3. Investing in the Value Chain: “Over the last few decades, two fundamental changes have transformed the face of global production and world trade,” opens a 2014 report by the UN’s Economic Commission for LAC and GIZ, Germany’s agency for cooperation. It highlights two factors—the integration of world markets, and the disintegration of production processes—as these changes, deeming them responsible for shaping production and commerce as we know it today. While the latter of these (like all fundamental changes) gave rise to its fair share of challenges it also made possible significant opportunities, most crucially (for our purposes, at least) the value chain, or the strategic dispersion of value added activities at various levels of the supply chain. In the value chain, companies have yet another route they can travel to reach the sustainability consumers now demand. Also, they meet specific consumer expectations about how supply chains should operate. As McKinsey reports, “The expectations of citizens and governments have never been higher. Companies are expected not only to obey the law or meet certain standards within their own businesses but also to ensure high standards across their supply chains.” Within our own partnership portfolio we see many value chain success stories. Across Central America, for instance, SABMiller empowers its mom and pop distributors with management training, at once improving the lives of these tenderos and enhancing its beverage supply chain.

Despite the emergence and growing popularity of these new concepts, CSR—unlike the dinosaurs—is safe from true extinction. CSR will slowly give way to more sustainable approaches but will nevertheless remain on the scene, both as a stepping stone for businesses looking to gradually integrate sustainability within their core business or as efforts by companies to engage their communities in other positive ways. Yet this focus on sustainability appears to be here to stay, transforming the role of the private sector in society and raising our expectations for sustainable business across the board.

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2 Responses to “Is Corporate Social Responsibility Extinct?”

  • Felicidades Matías. Este tema pasa de ser solo novedoso a fundamental en el ámbito de nuestra realidad latinoamericana. La CSR o SIBA, crecerá en la medida que las empresas tractoras logren entender su enorme capacidad para inducirla en su cadena de valor tanto interna como externa.Los beneficios sociales y ecológicos solo las han logrado mover a generar donaciones; pero cuando masivamente las empresas empiecen a percibir los beneficios financieros por su intervención deliberada en la cadena de valor habremos de presenciar cambios radicales en el comportamiento del consumidor y del mercado mundial. Felicidades por este espacio para compartir sobre el tema.

  • Felicidades Matías. Este tema pasa de ser solo novedoso a fundamental en el ámbito de nuestra realidad latinoamericana. Felicidades por este espacio para compartir sobre el tema.

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