Author: Sandra Cuevas, Intern, Global Engagement and Evaluation, Child & Youth Finance International
Fifteen years ago the world was getting ready for unprecedented change. It was getting ready to welcome a new era, as leaders all around the world engaged in discussions to address the most pressing issues of our planet. Since the adoption of the eight Millennium Development Goals significant progress has been made and a lot has been achieved. However, many of the critical issues that were identified at the turn of the 21st Century (poverty, lack of education, health, violence) are as important today as they were 15 years ago, and in many ways have been compounded. Today, we are mobilizing once more in a joint effort to make the world a better place. As the Sustainable Development Goals are being adopted at the international level, we are, again, ready for change. But this time, we will all need to be on board.
Private Sector Commitment Not Strong Enough
For a long time, the private sector has been blamed for prospering at the expense of local communities. As profit maximizers, firms tend to align their strategies with the financial interests of their business and their shareholders rather than of society, causing environmental and societal problems. However, there is an inevitably strong link between businesses and the community, since they depend on each other as providers and demanders of goods and services. The Corporate Social Responsibility (CSR) model intends to overcome the tension between them by encouraging firms to give back to society in a philanthropic manner. While this approach stems from a positive intention, CSR has several limitations. Firstly, the social engagement of companies through CSR is not always linked to the operational activities of the firm, making donation decisions particularly subjective. Most importantly, it implies a tradeoff between profit and societal benefits: inevitably, one has to be chosen over the other. Likewise, this often represents a conflict of interest for shareholders, who are rather attracted by the distribution of dividends. Such conflicting priorities can potentially threaten the governance structure of the company. As a result of all this, the commitment of the private sector to improving society is not as strong and efficient as it could be. So does this mean that the CSR has come to a dead end?
We are always told that sharing is caring, but until now it never occurred to us that perhaps we’re just not sharing properly. Perhaps “charity giving” is not the solution. If firms commit to improving livelihoods because they believe it is in their best interest - and not just because they feel responsible for it - their help will be much more effective. What’s more, there would not even be enough resources to solve worldwide issues by mere redistribution. The answer to overcome both these challenges is, instead, the creation of profit, and as Michael Porter and Mark Kramer suggest, it is possible to do so while also creating social value. What they offer is an alternative to CSR called Shared Value, a model they first introduced in their article “Creating Shared Value”, published in 2011 in the Harvard Business Review. This model supports that what is good for society is also good for business. For instance, when a firm focuses on reducing pollution, it makes its consumption more efficient and ultimately cuts operational costs. Similarly, adapting products to the needs of lower income communities may allow businesses to expand and gain clients and profit. Thus, by creating environmental and social value, the private sector can simultaneously gain economic value and enhance its competitiveness.
However, creating shared value is no easy task. It requires time, energy and effort. Other projects of the firm may be delayed due to the time that is required to identify the potential areas of mutual benefit for the business and the community. It is also likely that the company will need to allocate resources for the development of new business models and/or products that are compatible with the real needs of the population, incurring additional costs. However, these initial expenses should be seen as a long-term investment, since the creation of shared value ultimately helps redefine products and services, enable cluster development, build closer ties with the community and expand business activities, all while increasing profit.
This approach requires a shift in mind-set on the role of the private sector in advancing the SDGs and achieving sustainable development. It is with this objective that from the 23rd to the 25th of June, over 12,000 companies joined the conversations at the UN 2015 Global Compact Summit. In this context, Paula Caballero, Senior Director of Environment and Natural Resources at the World Bank, affirmed that “the SDGs can only be implemented in strong partnership between private and public sectors.” While governments and civil society organizations have for long been developing sustainable strategies in order to solve the world’s greatest challenges, they are only capable of collecting and distributing resources. On the other hand, the private sector has the unique ability to generate economic value, hence its enormous potential to help achieve the SDGs and match societal needs. Thus, the social engagement of businesses in the post-2015 world is not only valuable, but also fundamental.
Sustainability is at the core of Economic Citizenship
Child & Youth Finance International (CYFI) believes that at the core of economic citizenship lie financial sustainability, social responsibility and a respect for community and environment impact. Therefore, CYFI supports companies that are adapting their business strategies to contribute to gender equality or to the empowerment of children and youth through financial inclusion and education. For instance, since 2009, Coca Cola offers a program for low-income communities in Brazil that provides technical training and career guidance for unemployed youth. As of January 2014, the program had trained approximately 60,000 youth, 70% of whom were women, in more than 100 communities across Brazil. Thanks to this action, Coca Cola managed to increase its sales swiftly and improve the consumer-retailer relationship in those communities. Similarly, Telefónica’s Think Big and Talentum programs create shared value by focusing on youth entrepreneurship as a way of empowering young generations. Shared value initiatives also extend to providers of financial services, as is the case of Visa. The enterprise’s efforts concentrate on financial inclusion by facilitating the delivery of aid payments to conflict-affected areas, allowing, in turn, the outspread of their products among hard-to-reach populations.
Finally, the Australian bank Bendigo is an excellent example of how a firm can empower a community while also increasing its returns. Its Community Bank program provides financial services to underserved communities and allows members to freely manage and reinvest a share of the earned revenue. Today, the program counts almost one million clients in 300 community-led branches across Australia and has “generated $23.8 billion in business and $1 billion in revenue, reinvested $110 million in communities, and posted average growth rates of 18 percent over the past five years”. With these encouraging results, more and more companies and organizations, such as ChangeLabs in Australia, are joining the Australian Shared Value Project and the global Shared Value Initiative, which intend to spread the concept of shared value both locally and internationally.
Unite and Strengthen
It is now time for other companies to follow these inspiring examples and strive for the attainment of positive results for their businesses and the community. The public sector and NGOs must not be left alone in the post-2015 framework. The role of the private sector in advancing the Sustainable Development Goals is crucial and, hopefully, more and more firms will understand the importance and benefits of their social commitment in solving urgent issues. CYFI urges companies and financial service providers to develop, inter alia, social programs with a special focus on education, gender equality and the empowerment of children and youth through financial inclusion and financial education. Now more than ever, we need to unite and find our “shared values” in order to improve social, environmental and economic livelihoods and achieve a status quo where the private sector and society can not only coexist, but also complement and strengthen each other.
This blog is the third in a series of summer blog articles related to the Post-2015 Sustainable Development Goals and are authored by youth interns at Child & Youth Finance International. Join the discussion on social media by following @ChildFinance and using the hashtag #cyfiyouth.