Wednesday, 4 May 2011

Companies & development: not-so-strange bedfellows

Businesses are not development agencies. That much is clear. But, like it or not, they are in the business of development. How so? Through the jobs they create, the supplies they procure, the taxes they pay, and products they sell. All these activities have economic and social implications beyond the factory gates.

That much isn’t new. What is new is that companies are getting better at gauging the size and nature of their overall socio-economic footprints. Progressive corporations have been good in try to capture their immediate impacts. A prime example is AngloAmerica's SEAT assessment tool, which focuses at a local community level. But 'cradle-to-grave' impacts, from sourcing to product disposal - that represents a whole different order of magnitude. Yet companies such as Unilever are giving it a go. The Anglo-Dutch consumer goods giant has calculated that it provides almost 1% of all South Africa’s tax revenues. As for the national labour pool, for every South African on the company’s employee payroll, there are 22 others in its ‘value chain’. So too Standard Chartered. The economic activity – both directly and indirectly – generated by the $65.5bn UK-based bank was found to equal 2.6% of Ghana’s total gross domestic product. 
Such calculations are by no means easy. Relevant data (especially in developing countries) is not always available, nor are accounting frameworks always in place. Yet early some early measurement models are emerging. Efforts by the likes of Prof. Ethan Kapstein at INSEAD (to whom both Unilever and Standard Chartered turned) and the World Council for Sustainable Development (which published the ‘Measuring Impact Framework’, together with the International Finance Corporation) are helping navigate the way forward.

Interesting though these early studies might be in their own right, the numbers are just a small part of the picture. How will managers use this information? That’s the key question, says Peter Davis, Ethical Corporation’s politics editor and author of a recent report on socio-economic impact. His answer is refreshingly simple: use it to make better decisions. The example he gives is Heineken. The beer maker mapped some of its African operations and saw an opportunity to swap imported malted barley and maize (which is shipped in a great cost) for sorghum, a local equivalent (which was cheaper and resulted in jobs for domestic farmers). ‘The end goal is not just to optimise social economic impacts, but business operations themselves’, he clarified during Ethical Corporation's two-day Responsible Business Summit, which concludes today.

Companies may feel uncomfortable with the label of ‘development actors’. Don’t be. Not only is it a fact (and therefore unavoidable), but a better understanding of your relationship to society at large will stand you in better stead for the future. Standard Chartered, for example, is now increasing its investment in SME services in Ghana as a direct result of the impact “gap” (read: opportunity) highlighted by its value chain assessment. 

In the desire to be ‘business-like’, however, don’t ignore what the development community can teach. Not about programmes so much (leave that rightly to the NGO experts), but about assessment. Davis points to the ‘results chain’ approach used by large donors. Such an approach accepts the complexity of the development process and frequent disjunctions between cause and effect. In so doing, impact measurement standards employed by the likes of the Donor Committee on Enterprise Development move away from producing isolated data and focus instead on the “consequential effects” of development interventions. That helps development actors tell the broader story of their role in, and impact on, society. It works for NGOs. It would for companies too.

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