The SDGs Can Benefit Society And Profit Margins

Posted on by Eduardo Tugendhat

Profit is the primary reason for being in business. It shouldn’t be considered a dirty word. Making money can be done while also making society better. In short, satisfying the pocket and the heart are not mutually exclusive.

To sustain a healthy bottom line, your organizational reputation is critical. It is based on trust and high quality relationships with stakeholders. If you can get that right, commercial success should take care of itself.

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It’s important to remember that the customer is your key stakeholder. They’re becoming far more aware about whether businesses are a force for good, or not. That’s why engaging with the United Nation’s 17 Sustainable Development Goals (SDG) is increasingly important for companies.

Signing up to help achieve the SDGs is an ethical and perhaps pragmatic move. If adopting the goals influences whether customers are more likely to buy products, services or shares in a company, can you afford not to?

The SDGs can benefit society and your profit margins precisely because long-term commercial success is threatened by a world that doesn’t prioritize social development. Larry Fink, CEO of the world’s largest investor, Blackrock, recently outlined this reality in stark terms: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

Established in 2015, the SDGs are a 15-year ambition to turn the tide on the major social, economic and environmental issues of the world. Governments have agreed to embrace the SDGs by introducing new regulation, incentives and strategies.

It would therefore seem prudent for businesses to position themselves as cheerleaders, putting sustainability at the core of business growth – not only to stay ahead of the competition but also be on the receiving end of reasonable regulation.

“As well as representing a clear moral imperative, the Sustainable Development Goals also present undeniable market opportunities for responsible businesses,” said Borge Brende, President, Member of the Managing Board, World Economic Forum.

A large amount of investment is required to achieve the SDGs. Governments and donors including foundations and individual philanthropists cannot foot the bill alone. One UN study has calculated $1.4 trillion of investment is needed per year until 2030 of which $600 billion will have to come from the private sector.

We believe that for business to be involved, the SDGs have to be clearly linked to fundamental business challenges and opportunities. The future growth and prosperity of many companies depends on finding solutions. For example: unsustainable supply chains, accessing difficult to reach populations and bridging the skills gap.

Solutions to these challenges can be structured in ways that make a profit for companies and investors, while also creating new opportunities for millions of entrepreneurs and social enterprises in revitalized ecosystems.

For many businesses, the SDGs articulate noble aspirations that are supported through Corporate Social Responsibility (CSR) programs. By donating to mission-driven NGO’s and charities, companies prepare CSR reports on how they contribute to addressing the SDGs (while also receiving a tax deduction). Other companies encourage (and report on) employee engagement which is also seen as useful in both motivating staff and recruitment.

But is CSR effective? It’s a communication tool to tell everyone what the company is doing to help the community in which it sells its services or products. But does it fundamentally change much? Is it just an add-on, a nice-to-have? We believe a different approach is needed where contributing to society should be at the heart of your business operations, embedded in every part of the value chain.

Of course, saying and doing are very different things. How can you possibly make this all possible? This month’s Harvard Business Review outlines in detail the four steps to truly inclusive growth: Be Bold, Think Collaboration, Unlock Capital, Align and Govern. The Positive Impact Summit 2018 being in held in London this March will look at how this concept can be turned into reality.

The SDGs are a motivational rallying point for governments and civil society. But more than that, they represent a business opportunity for progressive corporate leaders who recognize that commercial and social impact and inextricably linked. How are you going to rise to the challenge?

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Sustainability Programs Don’t Always Lead to Sustainable Business

Posted on by Eduardo Tugendhat

Can I do this forever? That’s the key question to answer if you want to figure out if something is sustainable.

Plastic, for example, has been part of our daily lives for the past fifty years or so. Used in everything from food containers and toys to bottles and bags, one of its main qualities – its durability and the fact it takes millions of years to decompose – has become its biggest drawback. And simply, it’s unsustainable for us to continue consuming such vast quantities.

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The key idea of sustainability is that we must act responsibly so that resources on this planet will be able to support the many generations to come. Companies, of all shapes and sizes, have announced ambitious goals from sustainable sourcing and reducing waste to so-called “decoupling” in which the production grows without corresponding increases in environmental pressure.

But how are we getting things wrong? From my experience, it’s far easier to measure both the financial and social benefits if companies have direct control over how solutions are implemented, such as reducing water or inputs in production processes. Sustainability programs, which invariably have complex systems and multiple actors, tend to flounder when there’s a lack of direct control or direct relationships in the supply chain.

Take the garment industry in Asia, for example – a major employer with a vital role to play in alleviating poverty. Typically, brands in developing countries outsource the manufacturing to suppliers many thousands of miles from their headquarters. The brand is several steps from the process and may be unaware that child labour is being used, or that workers are inadequately trained on barely livable wages in unsafe factories.

One response has been to hire certifiers to inspect for child labour or unsafe conditions and provide grants to NGOs. But is there a sustainable “livelihood” solution for these children and workers or just risk mitigation for the brand? What happens when the grant to the NGO dries up? Is there a viable platform for continuing to deliver a service such as a skills or education program?

Bangladesh, for instance, ranks below nearly every neigboring country on literacy, education and skills. More than eight out of ten laborers is either illiterate or has no formal schooling. An incredible 60% of pupils fail to complete primary school and just 5% have received some sort of training. It’s holding Bangladeshis back from securing quality jobs.

To do better, governments and businesses need to take a longer term view. Investing in developing the technical skills of workers is a sustainable approach.

One such program is Sudokkho, which focuses on private sector training for the poor, particularly women. Trainees contribute hard-earned money to the cost, which alongside the garment industry’s financial support, makes the training sector less reliant on subsidies.

Within two years of the program beginning, more than 10,000 people were placed into semi-skilled or skilled jobs. Almost half (4,825) – mostly women – were sewing machine operators. The increased skills resulted in an additional £4.26 million of net income for those who had undergone training. Ultimately, the five year program aims to help improve the skills of 100,000 people by 2020.

The benefits are not only increased productivity but an improvement in the quality of products. Companies stand to benefit financially from a more efficient and competitive process – the time it takes to get a t-shirt, for example, from the factory to the shop floor is less. Better skills also means higher pay and improved conditions for workers.

The key to success is that all of the actors in this system, including major global retailers, move from a short term transactional relationship based on price, to a longer term relationship where they all have an incentive to invest in the transformation of the supply chain. Over time, skills development pays for itself, like any good investment.

Now that’s sustainable. And yes, we can do it forever.

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