Are corporates the new players in impact investing?

Monday, 04 January 2016

Tagged under: eur2015 esg csr

Guest Blog Post by Jonelle Maltay about a workshop (Session C3) at TBLI CONFERENCE EUROPE 2015, chaired by Arthur Wood, Total Impact Capital, about the role of corporates in the field of impact investing. Arthur Wood was joined on the panel by Dean Sanders, Founder of GoodBrand, Jerome Perez, Head of Sustainability at Nestlé Nespresso, Ron Layton, CEO Light Years IP and Oliver Griffiths, President Recipco Capacity Exchange. 
Views and opinions are that of the writer and are not the official views of TBLI CONFERENCE.

The workshop which examined the role of corporates in the field of impact investing was appropriately titled ‘Beyond CSR’. Historically, CSR in many instances (despite all of its good intentions) has just been ticking boxes with minimal effort and little impact. The panel participating in this discussion was comprised of several TBLI EUR 15 Workshop Arthur Woodsexemplary members in the fields of the impact investing and corporate social responsibility who have gone above and beyond traditional CSR through their roles.
Members included Arthur Wood: Founding Partner of Total Impact Capital, Ron Layton: CEO of Light Years IP, Dean Sanders: Founder and Chief Strategy Officer of GoodBrand, Jerome Perez: Head of sustainability at Nestle Nespresso, and Oliver Griffiths: President Recipco Capacity Exchange.

The discussion started with an observation which really grabbed the audience’s attention; it was the idea that foundations in the United States control $600B in assets which sounds like a massive amount until compared to the $600B spent annually by the pentagon. Maybe this suggests that the funding for impact investing exists in the market, but it’s just not easily accessible. The markets are controlled by 65-70% of people who can bring the scale needed to impact investing with the vast amount of resources at their disposal. Unfortunately however, impact investing is often seen as only a nice thing to do instead of a fundamental aspect of mobilizing capital which is what it actually happens to be. The corporate sector is highly likely to be the area that the needed growth will come from.

GoodBrand for example, helps corporate clients connect their business strategy with their sustainability strategy. There are indications of real ambition from clients to increase scale, and they are seeking innovative tools and investment options to accomplish this. Paul Polman whose words precisely sum up the need to go beyond ticking boxes when it comes to CSR once said: “Why would you invest in a company which is out of sync with the needs of society and that doesn’t take its social impact in its supply chain seriously?”
What we are also seeing in the market is a collapse in the demand for global brands, and conversely an increase in demand for local brands. People are seeking more companies involved in the key principles of supplying goods: responsible sourcing, responsible consumption, responsible packaging and responsible marketing. Although it is a challenge for brand owners to bring this into their strategy, if they want to see customer retention, healthy reputation and overall longevity in the market then it’s just a prerequisite that they will have to fulfill.

Unilever has successfully been implementing these principles through something as simple as increasing water availability in rural areas. It has a twofold effect whereby it not only helps the company ensure that people can potentially use their products like face wash or detergent, but also that they have the water resources to do so. This helps locals to free up time spent on fetching water long distance, and instead focus on other more meaningful activities.
A successful sustainability strategy involves a few key managerial characteristics such as leadership from the top, an appetite for innovation, and financial literacy for managers and CEOs. In addition to this there are also strategic issues which have to be addressed including: the alignment of KPI’s amongst all parties within the corporation, a clear definition of TBLI EUR 15 Workshop Jerome Perezinvestment goals and expected returns, and availability of financing for business units and brands focused on impact within corporate entities. So far, social impact bonds have done a great job of introducing impact investing to the market, and giving corporates the opportunity to test out ways of improving their CSR strategy whilst also increasing the amount of funding that goes towards it.

For example at Nespresso the sustainability strategy is called The Positive Cup and the important thing to know about it is that it’s not driven by charity but by creating value. There are three pillars to the strategy which are: 100% coffee sourcing sustainability, 100% responsibly sourced aluminum, and 100% carbon efficient operations.  In 1990 Nespresso started the first recycling program in Switzerland, and they are a member of the Aluminum Stewardship Initiative aimed at bringing transparency to the aluminum supply chain.
In addition to this they launched a creating shared value initiative which is focused on investing in central mills to use less water and protect the sources of water, as well as ensuring the coffee quality. They are also in the process of trying to create infrastructure to allow for more recycling programs to be developed in more places; but these types of endeavors require investments and one company cannot bear the costs alone when in reality the programs would benefit many others. But even starting small is important, and Nespresso is also planting trees to help farmers prepare for climate change as well as working towards reestablishing the coffee supply chain in Sudan.

Light Years IP is also working in South Sudan and various other areas in Africa because although intellectual property accounts for 85% of TBLI EUR 15 Ron Laytonthe global economy, within those regions there are little to no frameworks in place for the protection of what is created there. Many people see South Sudan from the perspective of a war torn region, but what they neglect is the fact that much of the war originates from colonization which drew borders in the wrong places, and forced tribes which already had vast differences and difficulty in getting along to then live in close proximity. But even apart from this many people neglect the opportunity to cultivate the vast resources in a responsible way that improves the lives of the citizens and also supplies the product demand of the world.

There are numerous tribal brands that people often aren’t even aware of the origin of the products they use like Marula oil, Ugandan Shea, Fine Robusta coffee, Black Soap and many more. To global wealthy consumers these and other similar products are distinctive commodities superior in taste, aroma, value, reputation and other characteristics, so they are willing to pay the premium to obtain them. Africa has a substantial amount of intellectual property and therefore the capacity for massive impact in the market; each country has 5-6 distinct products and the average product can generate $100M revenue if correctly positioned.

The problem arises in how remote some of the areas are and the lack of infrastructure needed for transportation. Additionally, exploitation of both the natural and human resources is rampant since there is no agreed no commodity price, and local labor is paid as low as 50cents or sometimes even nothing. The irony is that major corporations barely want to pay, but they are the ones who charge a big markup and sell many of these same items as luxury goods. By bridging the gap investors can help change those economies and bring money to the people who have none by building a fund or forming consortiums.

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