Editor's Note: This post originally appeared on the Business Fights Poverty blog.
By Kelly Liu
‘Potential cocoa shortage by 2020’ was an obvious business case for a company like Hershey to invest in being resilient to climate change in order to sustain long-term profits. Hershey has even surpassed its 2014 goals, announcing that 30 percent of its globally sourced cocoa is independently certified and verified. Cost reduction strategies by Pacific Rubiales Energy encouraged the development of a water treatment process that helped to avoid $400 million in spending over 15 years and simultaneously provided an estimated 2,000 local jobs, as well as water to irrigate crops in the water-scarce southeast plains of Colombia.
But how do sustainable business practices like these get initiated and valuated? Though materiality assessments continue to advance in sophistication, in order to initiate sustainable or inclusive business projects, managers must still demonstrate the business case, usually in the form of Profit = Revenue – Cost.
Achieving revenue growth in the name of sustainability is a difficult feat achieved by very few including Whole Foods, a large-scale U.S. grocery chain featuring natural and organic products. I’ve heard several industry practitioners complain that millennials have yet to walk the walk and actually pay more for sustainable products like they say they will, according to Nielsen’s data. However, other companies like Novartis have found the opportunity to add revenue streams and achieve top line growth through “inclusion.” Novartis targets lower-income or underserved populations in new or emerging markets through its Social Ventures program to expand access to healthcare.
The difficulty of measuring the performance of these activities and their ability to contribute to the top or bottom line is a hindrance to some companies, but not all. Just as the public relations industry struggled to confirm proof of concept in the early 1990s, the sustainability industry struggles to show proof of impact. Today, corporations understand the necessity of investing in PR as a risk mitigation strategy to avoid reputational damage. However, how much capital and billable man-hours must be injected into activities like these to achieve the desired outcome – or in the case of sustainable and inclusive business – the desired social, environmental and financial impact?
Sustainable and inclusive business projects are sometimes initiated at concessionary rates with the built-in expectation that they could perform below the cost of capital. Similar to pharmaceutical R&D, a portfolio approach allows some corporations to invest in some more risky projects to achieve overall balanced returns. Scorecards of many kinds, held proprietary by sustainability consultants, work to marry the qualitative and quantitative elements of measuring impacts such as supplier relationship satisfaction and product life cycle analysis. Corporations like Novartis that are reaching customers at the base of the pyramid receive small margins on a large consumer base, but they struggle to demonstrate impact on increased access to healthcare because so many other uncontrollable factors affect these consumers’ ability to achieve better health outcomes, such as poor living conditions and sanitation.
Despite the obvious hurdles of measuring performance per dollar invested, sustainable and inclusive business activities are still initiated top-down, bottom-up, and anywhere in between from within the multinational enterprise. So far, there is no unifying structure or one-size-fits-all approach to starting them; they can occur within compliance, quality assurance, procurement, and product innovation departments, to name a few initiation points. Providing data to prove the business case and developing actionable solutions to initiate sustainability efforts is difficult. However, managers of all levels still find ways to make impact as intrapreneurs.
I think these efforts to make an impact will not go unnoticed, even by the average consumer. Consumers are becoming more active in demanding transparent supply practices and can actively check where ingredients come from. Even the most watched event in America’s television history, this year’s Super Bowl, featured an ad promoting an “all natural burger” of grass-fed beef with no antibiotics, no added hormones and no steroids. Despite some skeptical response to the Nielsen data, maturing millennials with increasing purchasing power in the next 10 to 15 years could become key drivers of demand for more sustainable strategies. As employees, millennials have already moved the needle in demanding many corporations to act more responsibly, by exercising their choice to work at more socially responsible businesses.
As a research associate at the Institute for Business in the Global Context at Tufts University, I work to answer how businesses conduct sustainable and inclusive business activities and why they don’t invest enough. This collaborative program, funded by Citi Foundation, aims to build an empirical case for inclusive business, and strengthen the ecosystem for it to be more common for these developing profitable innovations with social impact to succeed with reliability at scale. By compiling data on how companies initiate and valuate these activities, we hope to share best practices with today’s practitioners in order to help them in their day-to-day challenges of managing sustainable and inclusive business initiatives.
Help us move the needle by telling us how you initiate and valuate the sustainable and inclusive business activities at your firm by taking our survey. Click here to take the survey.
Kelly Liu is a Research Associate at the Institute for Business in the Global Context at Tufts University.