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Insurance Giant Allianz Targets Climate Change Risk: Expending “Unavoidable Emissions”

09 Wednesday Jul 2014

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Picture_Martin_EwaldAfter chatting with Barclays’ Director of Citizenship Jillian Fransen on the financial institution’s allegiance to carbon offsetting and how she is leveraging the increasingly popular mechanism to not only offset its unavoidable carbon footprint, I turned to insurance giant Allianz who has also chosen to use carbon offsetting to target deforestation and reduce its environmental footprint.

Excerpts from my conversation with Martin Ewald, Head of Investment Strategy and Renewable Energy/Infrastructure Equity with Allianz Global Investors.

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Describe your emissions reduction program and goals.

Allianz has set itself the target of avoiding, substituting and reducing its own CO2 emissions and is 100 percent climate-neutral since 2012. This means that all remaining emissions are being neutralized – in particular through direct investments in climate protection projects.

By 2015, Allianz aims to reduce its carbon footprint per employee by 35 percent compared to 2006.

What are “unavoidable emissions”?

Unavoidable emissions are CO2 emissions that are intrinsically linked to our business activity, like business travel, that we cannot always avoid or only avoid at very high expense. These emissions are still harmful to the climate. Corporates can take a leadership role in offsetting emissions related to their business activity by investing in responsible sustainability projects – this is not required by regulation in our sector.

But it is responsible behavior and makes good business sense. In fact, we have identified climate change as one of the three most critical sustainability challenges for Allianz (alongside demographic change and access to finance).

Where does offsetting fit into your sustainability strategy?

In addition to our carbon reduction target, being a carbon neutral business is the second pillar of our commitment and contribution to achieving a low-carbon economy.

In 2012, 175,000 credits, each accounting for one metric ton of carbon avoided, were sourced and retired from projects we support – retiring credits means that CO2 certificates, each representing one ton of avoided emissions, are taken off the market. Our remaining carbon footprint was neutralized by credits bought from the carbon market, which underwent a stringent sustainability screening to ensure they met the same high standards as the credits from projects we invest in.

The quality of the underlying projects determines the value of each and every credit in the voluntary sector, and REDD+ rate amongst the highest valued carbon credits.

Why did you choose REDD+ as one of the preferred offsets?

Our investment in REDD+ is consistent with our strategy of supporting effective climate projects in emerging and developing countries. We have invested in forest protection in Kenya with Wildlife Works, one of the leading developers of REDD+ projects. These projects don’t simply protect threatened forests; they also involve the local population and provide them with a source of livelihood.

REDD+ will also raise awareness of how to deal with resources in a responsible manner, besides helping preserve the habitat of the local population. Due to the considerable impact generated, we plan to continue investing in the REDD+ sector.

How has supporting REDD+ benefitted your company – and its stakeholders?

For the CO2 stored by the forests we receive certificates, which we can then use to offset business-related CO2 emissions. This way we ensure our climate neutrality and at the same time make a worthwhile investment. For us the yield also includes enhancing climate protection and biodiversity. We may also benefit from positive branding, but it is too early to tell since 2012 was the first year that we were carbon neutral.

As a financial institution, what is Allianz’s most challenging source of carbon emissions?

Ninety eight percent of our emissions stem from energy, travel and paper. So, the focus is on reducing CO2 emissions in these three areas.

In times of growing business, this is a challenge but we managed to reduce emissions across all three key areas in 2012, i.e. by sourcing lower-carbon energy or by making better use of video conferencing rather than traveling to business meetings.

How are these programs hallmarks of “responsible corporations”?

Since our business activity is not very carbon intensive, investing in REDD+ and similar projects today allow us to lock-in emission reductions over many years. We consider this to be responsible corporate practice: leveraging our capital base to build up the low-carbon infrastructure of tomorrow – be it forest protection or renewable energy, railways or electricity grids. This strategy also pays off, which is important to meet the expectations of our clients and shareholders. And this is a good basis to expand on our sustainable leadership agenda.

What role do you prescribe to Allianz in addressing climate change globally and locally?

We have introduced a group-wide strategy, which commits us to play a lead role in addressing climate change. For us it is about addressing the risks, e.g., the uptake in insurance loss from natural catastrophes, and making use of the opportunities. We have invested about EUR 1.7 billion in renewable energy projects, for instance, and set up a renewable energy fund, which has already attracted significant financial interest from our clients.

Moreover, we offer around 130 green products and services to our customers, including renewable energy home insurance, advisory services related to renewable energy and insurance premium discounts for drivers of electric/hybrid cars. The aim is to integrate climate change into our business  model, step by step building the business case for a climate friendly economy.

How can the private sector play an important role in reversing/addressing climate change? 

By understanding the climate issue as an investment case. Protecting forests is the cheapest way of saving carbon. To speak bluntly: if we first cut down the forest and then try to reduce the same amount of carbon we emitted, it would be much more expensive than just avoiding deforestation.

But as stated before, the most distinguishing factor about REDD+ is the opportunity to carry out investments that help improve social livelihoods and support local communities as well. Therefore supporting projects like the pioneering activities of Wildlife Works are appropriate activities that corporations need to support.

As long as there is no internationally binding climate protection agreement and as long as national regulation lacks teeth, the REDD+ market allows us to participate in voluntary projects around the world to address climate change. Consequently we have just carried out an additional REDD+ transaction in Indonesia.

What do you expect from policy makers to help expand your clean investments?

We stand at a critical juncture. We can continue business as usual with a small but dynamic niche of renewable energy projects and a reliance on fossil fuels for the big chunk of our economy. But this will not prevent dangerous levels of global warming.

Or we embark on a trend change, as we hopefully are seeing right now in Germany.

For this, we need a clear and reliable regulatory framework that gives investors appropriate incentives and the necessary regulatory certainty to finance clean technologies rather than coal or oil.

Originally written for and published on CSRwire’s Commentary section Talkback on September 5, 2013.

The Social & Environmental Case for Carbon Offsetting: In Conversation with Barclays

09 Wednesday Jul 2014

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This is Part 1 of a series examining how leading companies are leveraging carbon offsetting and REDD+  to sustain their environmental footprint and target climate change.

“Our vision is about having a proportionate social impact on society.”

That’s how Jillian Fransen, Barclays’ director of Citizenship describes the bank’s elevated – and recently refreshed – sustainability agenda. Among the new elements: a three-year CSR strategy released last year, new stretch environmental targets, supporting growth among the SME sector, and a new Balance Scorecard, which benchmarks remuneration for the bank’s top 125 executives according to four Cs – one of which is Citizenship.

Fransen’s team is also on the cusp of launching an industry-leading Code of Conduct, besides managing and maintaining a 60 million-pound Community Investment Fund and a 20 million-pound Social Innovation Fund, created specifically to seed projects and partnerships that really push the needle on sustainability.

But, of all the things Barclays is doing, what piqued my interest was a core concentration on reducing its unavoidable emissions through carbon offsetting in the company’s climate program.

Carbon Offsetting: Need vs. Efficacy

Now while carbon offsetting has suffered from its share of misconceptions – and remains a relatively new idea in the U.S. – there is a critical need today to get past the debate and begin addressing unavoidable emissions.

Because despite the most robust plans in place that curb air travel and other activities, commerce requires both energy and fuel. And with the growth, availability – not to mention supporting infrastructure – of renewables relatively slow, it becomes a question of operating with what’s available. That is the reality for businesses. And Barclays is no exception.

Calling them “unavoidable emissions,” Fransen explained:

“We buy offsets for the footprint we incur outside our minimization program. We are doing everything we can to minimize emissions but there are those unavoidable emissions that we just cannot remove – like air travel. So to minimize their impact, offsetting fits quite well in our Climate Program.”

The Program focuses on three areas: climate change, developing products for low carbon economies and risk management services for clients with low carbon opportunities.

The firm, which wants to minimize its environmental footprint by 10 percent by 2015, works with Wildlife Works and Reducing Emissions from Deforestation and Forest Degradation [REDD+] projects for its offsets strategy. According to the United Nations website, REDD+ “is an effort to create a financial value for the carbon stored in forests, offering incentives for developing countries to reduce emissions from forested lands and invest in low-carbon paths to sustainable development.”

As Sibilia decoded in his article, the intended impact of the offsetting (emission reductions) leads to not only forest conservation but also a parallel movement to create self-sustaining social enterprises that recuperate the local economies and build social independence. Therein lies the true impact of UN REDD Programmeoffsetting, he concluded.

For Fransen, similarly, the appeal of working with REDD+ lay in Wildlife Works’ expertise and experience in protecting threatened forests  – and its track record with local communities. “Twenty percent of emissions come from deforestation so it made sense for us to partner with organizations that could help us find areas where forests were being destroyed. That way we can have direct impact where it is most needed,” she said.

Then there is the added advantage of targeting local communities in key markets where Barclays operates. “We wanted to take accountability for our footprint. Additionally, Wildlife Works operates in Kenya, which is a key market for us. We are in 13 African countries – the oldest bank across eastern Africa — so having an on-the-ground partner there was key for us. ”

The real impact of implementing a carbon offsetting strategy then for Barclays?

“Create accountability for a footprint that the firm is otherwise unable to get rid of. That wakes people up. When we can have localized impact, it’s a win for us,” she responded.

Climate Change: Decoding the Impact of a Bank

Besides what seems to be the main area – air travel – what is Barclays most challenging source of carbon emissions?

“We have a network of hundreds of small branches. Our biggest challenge is availability and collection of relevant data about our water and paper use as well as waste. Not all our operations have the same level of management and facility support. Especially in Africa, it is very hard to ensure commitment to some of the improvements that are required in this year,” she said.

Another challenging area is the bank’s indirect impacts through its lending practices. “Where we choose to lend and what impact that has on the environment is critical. We need to hit this on a macro level. When you go to lend to an oil and gas company, we need to stand up to our commitment. They work with a minimum of 16 banks – we’re one piece of a large network,” she explained.

The Need For “Some Serious Leadership”

While our conversation mostly focused on Barclays’ carbon reduction strategy, it was hard to contextualize that without questioning what role Fransen’s contemporaries in the financial sector needed to play to sensibly address climate change.

Could Barclays continue to make progress without reciprocation from a sector busy repairing tarnished reputations from the financial crisis?

“There is a major shift going on toward a realistic understanding of what we need to do to adapt to climate change. In my opinion, none of this is happening quickly enough though. We need some serious leadership within our industry in the next five years to change gears on climate change,” she emphasized.

“Our biggest challenge is making it real for everyone in the organization. We have 142,000 employees that manage a matrix of clients and customers. The [impact they can have] is profound. I’d like to see us capitalize on this matrix much more. There’s a feeling, not limited to banking, that we’re doing our bit and everyone else will do theirs – and we’ll be okay.”

“Fact is, the issues are way more pressing for us to rest on that assumption.”

Originally written for and published on CSRwire’s Commentary section Talkback on August  28, 2013.

Crowdfunding for Capital Creation: Fad or Business Opportunity?

03 Thursday Jul 2014

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Co-written with Patricia Smith

“You can’t evolve into being a social media company. You have to be born social,” began Lou Kerner, veteran internet analyst and former managing director of the Private Shares Group at LiquidNet, an institutional equities marketplace. {Kerner departed LiquidNet within three months of taking the job citing differences in views with upper management.]SoHo_Loft_Capital_Creation

The event: The SoHo Loft conference on capital creation and crowdfunding at law firm Reed Smith’s palatial New York City office.

The topic: Crowdfunding and social media, i.e., how investors, analysts and executives can now use the power of social crowds to raise capital.

Crowdfunding isn’t just the newest — and hippest — way of raising capital for entrepreneurs today. It is also a wide open opportunity for investors, analysts and activists to build new enterprise and address the change they continue to seek from traditional business. Crowdfunding, essentially, builds on our hunger for social connections to raise awareness, pique interest and channel that into opening access to capital for worthy projects.

Case in point: Kickstarter, RocketHub, Seedmatch, etc. Some would even put DonorsChoose in the same category.

Congressman Patrick McHenry, R-NC, who opened the conference, alluded to President Obama’s recent appeal to pass the crowdfunding legislation, titled The Entrepreneurs’ Access to Capital Act, to free up capital for entrepreneurs. A firm and emphatic supporter of the bill, he added:

“The marketplace desires this. Why else would so many people come here on such a gloomy day if you didn’t want this? Capital must flow where it is best used. This is what is at the heart of capital formation. Get to the point where the American dream was to grow a business and eventually access our public markets.”

Choosing to use Innovator Dilemma author Clay Christensen’s theory of disruptive innovation, Kerten exemplified Wal-Mart and Amazon not dominating the fast-growing social media space today despite their size and history because “you have to be born social to be social.”

Web 2.0: Banking on Social

KickstarterPrimarily “Second Internet” or Web 2.0 companies are all about facilitating sharing, he emphasized. Facebook is the dominant platform for these activities, he continued, adding that Twitter, Tumblr, LinkedIn, Pinterest and YouTube represent formidable platforms in their own user following and growth.

In this landscape, brands can no longer buy audiences. “They have to earn them because users choose what messages they’ll share with their social network,” he argued. Example: Gaming company Zynga’s ability to drive Cityville to 100 million users in just seven weeks by leveraging Facebook users’ willingness to share their passion.

Smart brands understand people with high social media influence can do a lot to help or hurt their brand with a simple tweet or Facebook post. Klout is the perfect example of this growing niche of influencers. In its short existence, Klout has rated over 100 million individuals’ influence on social media and devised a score that Kerner termed as the equivalent of a FICO score for the Internet.

The Palms Hotel in California, in fact, is using these scores to decide who gets an upgrade. Some airlines are using it to decide who gets bumped from a flight, he added.

Social Media: Fad or Opportunity?

Offering up a recent study of Facebook usage, Kerner noted that 16 percent of Facebook users’ time spent online was on Facebook. Further, that time spent online was up 40 percent from the year before. Compare this, he said to Facebook’s latest product, Frictionless Sharing, which allows you to share content with your Facebook network without actually being on the Facebook platform. The opportunities? Endless.Zynga_s_Cityville

Twitter’s uniqueness, on the other hand, is in the immediacy it offers users. This, according to Kerner, is only going to grow. Pointing out that news organizations were one of the weaker members when it comes to using social media, he added: “Of the top news organizations, 93 percent have Twitter links going back to their own content and only 2 percent have links that send them someplace else.” For Kerner, this emphasis on pushing out content and resulting failure in engaging their audience in real dialogue translates as lost revenue.

We’re already using social media to channel our passions, thoughts and build deeper relationships. So, why not also to fund projects and new ideas?

What do you think? Could crowdfunding be the way forward for budding entrepreneurs tired of working in a closed-door market?

Originally written for and published on CSRwire’s Commentary sectionTalkback on February 28, 2012.

The Story of a Successful Social Entrepreneur: What Is It That You Are Meant To Do?

04 Tuesday Oct 2011

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How is a social enterprise born? Is it born out of a recognition that some thing needs to change or is it much more complex than that?

For Sameer Hajee, the decision to give up a lucrative career as a micro-process engineer in Silicon Valley was a simple one. “After working for four years, I needed a change in geography,” he tells me over a recent Skype call. A few months later, he was working for a telecom operator in Afghanistan.

From Silicon Valley to Afghanistan

Six months in the war-torn country offered Hajee a unique perspective on the impact of energy in one of the most impoverished regions of the world. “Afghanistan opened my eyes to how impactful appropriate energy use can be. I decided right then that this is what I would focus on after business school,” he recalls.

Nuru Light: A Winning Solution

Sameer Hajee, Founder and CEO, Nuru LightHajee is the founder and CEO of Nuru Light, one of five winners of this year’s Powering Economic Opportunity: Create a World That Works competition co-hosted by the eBay Foundation and Ashoka Changemakers. Nuru Light is a social enterprise based in East Africa, built on the simple premise of hyper-local economic communities.

But Hajee’s story isn’t as intuitive or linear as it might seem in hindsight. After completing his MBA at INSEAD, Hajee went to work in Kenya as a member of the United Nations Develop Programme (UNDP). Then, in 2005, the social enterprise trend was growing and market-based solutions were becoming the latest tactic for the socially conscious.

In Kenya, my role was of a convener.  A small group based out of the United Nations was trying to work with multinational companies to create pro-poor for-profit businesses and it was my job to see where the opportunities were and to connect the folks.

This not only meant a lot of nuts and bolts groundwork in one of the world’s poorest nations but also skillfully lobbying for regulations, increasing capacity, ensuring quality of local products and much more. “These private public partnerships exposed me to a lot of different business models and industries. I was able to see firsthand what was working and what wasn’t.”

Africa: A Broken Value Chain

Next stop: Free Play Energy. “I was starting to get frustrated with the bureaucracy within the UN. When Free Play approached me to help them market crank radios and other products to the camping market in rural Africa, I decided to jump ship,” he says. Hajee worked for Free Play Energy for two memorable years.

The experience was incredible.

We found out, for example, that these off grid products would be very valuable to the poor but the delivery model was completely ineffective. It was taking $20 to produce something and by the time you got to the consumer, the price had jumped to $50. The value chain is so convoluted in Africa that the end customer is always given a very expensive product.

His team’s solution: A donor model with help from the UNDP. “Free Play became a viable business but we didn’t have control of our products now,” he says.

And he was itching for something new. Again. So in 2008, along with two colleagues, Hajee left Free Play to start Nuru Light.

The Big Idea: Using Energy to Solve Social Problems

“Human power as a hand crank wasn’t going to work for very long. We knew that then, it gets old very quickly.  But the immense power of human energy has been untapped and compared to solar or other alternatives is much more appropriate,” he says.

With initial funding from the World Bank, Hajee spent two months living in Rwanda to understand specifically what “they need energy for what they were currently using.”  “Remember that these are the poorest of the poor populations. Their needs are basic. My research identified four specific needs: Cooking, lighting, mobile phone charging and radio,” he says.

Essentially, what Hajee realized then was that most of us use energy for specific tasks, especially those that don’t have a continual power source. We learn to adapt and make the most of our resources.

“The fact is that the power required to power these things wasn’t a lot. It all came down to tasks: the entire room did not need to be lit up. They just needed enough task light, as long as it was multi-use and multifunctional,” he emphasizes.

What also emerged was a need to pool resources and share. “Some of them said they would like to have room lighting for visitors. So why not have multi-use lights that can be connected for such occasions?”

The Economy of A Sachet

The hyper-local model Hajee discovered has been successful for a long time in India. With a significant percentage of the Indian population still living well below the poverty line, these sachets have gone a long way in helping those with limited disposable income afford basic necessities.

For the African poor, Nuru Light, a basic, rechargeable light, has similar potential and meaning.

But how do you take it to market?

First, you need seed investment. For Nuru Light, this meant a complete initial dependence on grant money to get through the first two-and-a-half years of research and testing. “We were completely funded by grants. It took every penny of the $500,000 we raised to make this work in Africa.”

Africa’s “Green Jobs”

“One of the ways to eradicate poverty is to offer economic opportunity. So we thought, why not put this into the hands of micro entrepreneurs who could set up recharging stations for these single, handheld lights?”

So, a lot like the successful domestic business models like Netflix and Zip Car, the Nuru Light micro entrepreneurship model was born. What made the idea instantly sellable were two factors: Setting up the business required minimal funds and the profits would be significantly steep than what the community was making.

The following months began to show concrete results with most of the micro entrepreneurs paying off their initial setup loans within six months. “They were making $1.50 for 20 minutes of charging. That’s what they made earlier by working the whole day,” he explains.

As for customers, the value proposition presented by Nuru Light was equally attractive. According to Hajee, a recharge costs 30 cents, which typically provides for with about 10 days of lighting.

A whole month’s supply? No more than one dollar for most.

Dissecting a Social Enterprise’s Business Model

While the product was an instant success with customers who really felt that their needs had been understood and the solution affordable, things were not as smooth running internally.

Our revenue model really evolved through those initial months. From low margin and a high volume approach we went to carbon credits. In fact, we are the third registered carbon credit company in Africa.

They also needed to figure out how to ensure that Nuru Light was sustainable for and with their team of micro entrepreneurs. “The fee from the recharging stations was a significant third stream of revenue that we had anticipated early on. But turned out, we were spending much more on fielders doing the rounds to collect the money than was worth it,” he says.

Nuru Light is a social enterprise that sought to invent an affordable and clean off-grid lighting system for the world’s poor.

Nuru Light

Next challenge: Automating the process.  The answer, Hajee realized lay in mobile money. A lot like the rechargeable pay-as-you-go mobile phone system, the micro entrepreneurs were set up with prepaid energy credits that could be refilled, by purchasing 20-digit pin numbers. Now, the flow was corrected, in place, much more easily manageable and yet simple.

Scaling a Social Enterprise

The social inequities and empowerment that Nuru Light has been able to demonstrably address aren’t lost on Hajee.

In fact, what caught my eye on the Nuru Light website is the “Impact” section. I asked Hajee to discuss how he believes Nuru Light is helping the African community besides fixing a basic need for light.

Our product helps reduce the use of kerosene, a significant cause for respiratory diseases. We’re helping the local environment by removing the fumes and toxicity of kerosene from the air. We are creating job opportunities for the community. Plus, for the first time the kids in the community now have the ability to complete schoolwork at their leisure, freeing up for time for play and extracurricular!

As a technology, Nuru Light, of course, presents a win for Hajee who recognized a severe need coupled with crippling factors of few resources and economic underdevelopment.

Next Stop: India

Now with new support – financially and otherwise – from the eBay Foundation, Hajee is ready to work on his next venture: The rural population in India.

In fact, Nuru Light has had ground troops in Mumbai and Delhi doing initial research since 200, he told me.

“It took all of the $500,000 we raised for Nuru Light to work in Africa. We now have the same amount to invest in our model in India. And eBay has shown a real commitment to help us scale our business by offering us their resources way beyond the financial support. Their approach has been starkly different from other donors and we’re lucky to have that,” he says.

If Africa took a few months, why was the Indian market proving such a hard nut to crack? “The reason it is taking us so much longer is that no one is working on provided microfinance opportunities in India. So off grid products like ours end up remaining largely, off grid,” he admits.

But the roadblocks in India are more convoluted and will require a whole new round of rethinking and perhaps, even a regurgitating of Nuru Light.

We have learned a lot in the last two years and now know what can work.

The research is complete and the funding is in. That success story is yet to be written for Hajee and Nuru Light, but his recent accomplishments leave me with little doubt.

Passion, a clear sense of business responsibility and market-based solutions drive Sameer Hajee. What will it take to motivate you?

Connect with me @AmanSinghCSR or leave a comment.

Does Expending Resources on CSR and Sustainability Destroy Economic Value?

13 Tuesday Sep 2011

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Corporate Social Responsibility isn’t about giving money away and adopting the latest cause of activists. CSR and sustainability are approaches to business operation and execution that build employee engagement, improve environmental performance, create positive social impact, enable operational efficiency, reduce cost, foster innovation, strengthen relationships with customers and consumers and ultimately…create business advantage.

That was Dave Stangis, VP for Corporate Responsibility with Campbell Soup Company responding to University of Michigan Professor Aneel Karnani’s infamous editorial in The Wall Street Journal, “The Case Against Corporate Social Responsibility.”

Then, the argument was “capitalism versus corporate social responsibility, CSR versus profits, and where an idea like CSR fits into a business’ main objective, which is to make profits for its shareholders.”

Despite numerous debates [Fenton’s BIG CSR debate] and as many editorials and reports [Why There Is a Case for Corporate Social Responsibility], the inequity of the idea — or the perception that being responsible will cost a company money and therefore is an expense business doesn’t need — prevails.

But the actual essence of this debate no one can seem to pinpoint. Are we fighting over semantics or strategy?

Is it the misperception that CSR is a cost, a tagged on responsibility, and therefore, unnecessary for companies? Or that CSR is completely estranged from the notions of capitalism as Professor Karnani believes — and is, in fact, the wrong argument?

Since his controversial editorial, Karnani of course has continued to incite criticism for what many call an “extremely shortsighted and narrow view.”

Now, the associate professor of management and strategy for Michigan’s Ross School of Business is headed to New York City to debate his argument in real-time on the occasion of the CR COMMIT! Forum 2011, organized by Corporate Responsibility Magazine and NYSE Euronext [Details below].

Fashioned as an Oxford-style debate [DEBATE: RESOLVED that when companies expend resources on corporate responsibility and sustainability they destroy economic value], Karnani will be joined by Gerry Sullivan, president of the VICE fund, on the pro-markets side.

On the pro-sustainability side will be Paul Herman, CEO of HIP Investor and Dr. Vinay Nair, founding partner of Ada Investments and adjunct associate professor of finance and economics at Columbia Business School.

In a sneak peek, I talked to three of the debaters [Dr. Nair couldn’t make it] on the essence of their arguments as well as: How does each of them define CSR?

Take a read:

Thriving on the Value of Vice

Gerry Sullivan from VICE funds believes in the power of capitalism. His funds select well performing stocks of tobacco, alcohol, gaming and weapons companies because they believe that, “Vice industries tend to thrive regardless of the economy as a whole.” Anyone reminded of the root of the financial collapse?

“I believe in capitalism because it ensures that products and services coming out are tested on the profit mandate and ultimately are good processes because they come through the interaction and the ability to gain profit,” he said.

Fair enough. Historically, companies who do well tend to share more.

Making Too Much of CSR?

“My biggest fear of CSR is that people want to make more of it than it really is. A company’s ability to employ better people and deploy profits is the real goal. Everything else is settled by the market,” he continued.

But clearly there is a differentiator between companies that invest in their community and immediate environment over the long-term and those that focus on short-term yields?

Affirmative, says Paul Herman.

Citing the ever quotable example of BP, he said, “When you look at their track record, BP was not a good corporate citizen and lost 40% of shareholder value in just a few months post the oil spill. Companies are not prepared for the volatility of climate change and its effect on cash flows and natural resources.”

Further, “Research from Wharton School and other academics has shown measurably that companies that help solve social and environmental problems can enjoy a higher shareholder and portfolio value,” he said.

“This decreases risk for business and increases value,” he added.

CSR Cannot Dictate Social Enterprise, But Profits Can

Because it had begun to sound like a battle between two followers of capitalism with opposite operational ideologies, I asked Karnani to step in.

“Companies can maximize profits and social enterprise at the same time, which is why capitalism works well. This is where Paul makes a good argument. Of course companies should do all this,” he said.

“But we don’t need CSR to make this argument. It’s as simple as ‘make the money, help employees.’” he added.

Here is where the caveat comes in however, he said. “This isn’t always true. When markets fail, we cannot appeal to companies to sacrifice profits for CSR and it is naive of anyone to think that all the stakeholders are always aligned in their interests. If this were true, we wouldn’t need the study of economics,” he argued.

His solution? Going back to what he had argued in the WSJ editorial last year: Government regulation.

And this is where my problem with the debate starts: How can government regulate behavioral change, cultural perceptions, and a deteriorating environment? Or are we now talking of CSR as a program, an initiative, a fundraising for charity opportunity?

If so, was Karnani suggesting the route the Indian government took recently by “mandating 2.5% of net operating profits must be spent on CSR” by all publicly traded companies?

Perhaps, although we won’t know till the live debate at the COMMIT! Forum.

Back to Square One: What the heck is CSR?

Clearly, the next question: How are these men defining corporate social responsibility? Intentionally or not, I had hit the nail on its head.

VICE Funds: “CSR is Green, And It Isn’t Generating Green”

According to Sullivan, “CSR is embedded into green and green hasn’t generated green for most companies.” Also blaming the government for supporting “and pumping a ton of money into green jobs,” which many say has been a failed effort at reviving the economy, Sullivan continued:

The internet bubble taught us that having pool tables and kegs doesn’t make the companies money. If the jury is still out on whether good companies will do good things, I say they’re smart enough to treat their employees well. You don’t need CSR for that.”

“I would like the companies I invest in to not be socially responsible but responsible to their shareholders and producing products that the government can use to generate revenue. I certainly hope that these companies think highly of their employees but I’m less inclined to think that they would give up profits over socially responsible activities.

HIP Investor: “CSR is Generating Top Line Growth”

For Paul, the question isn’t about green or management. “You start by asking yourself what social or environmental problem you are solving. Companies who are doing well have a core mission of improving the world in some way and making money while doing so.”

Citing the example of banks, he explained, “Banks were started to help people grow their income and wealth and became more integrated in their communities.”

“Starbucks in the U.S. spends more on the health care of its employees than the coffee beans because they support a better quality of life for employees and a higher labor standard.”

The argument, at least for Herman, isn’t about the validity of CSR anymore. “It’s about generating top-line growth and bottom-line profits. That’s why employees and investor relations teams are key in solving this paradigm,” he concluded.

Karnani: “If CSR is Beyond Making Money, Then It’s Not Making Money”

“CSR is a very confused notion. If you just mean businesses doing good for society, then capitalism is actually good [for society]. If CSR goes beyond ‘making money,’ then it’s not about ‘making money.’ When a company does something socially useful and loses money over it, that’s CSR. And definitionally, CSR loses money,” he concluded.

Confused? Irate? Redeemed?

Want to attend the COMMIT!Forum? Register here or connect with me on Twitter @AmanSinghCSR for a special discount code. The Forum begins on September 26, 2011, at the Javits Center in New York City and offers a full two-day agenda complete with a CSR careers symposium, keynotes and workshops.

And if you cannot make it, stay tuned here for more coverage.

The Convergence Economy: A New Reality For Business (Sustainability) and Nonprofits

10 Wednesday Aug 2011

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If ever we needed proof that conventional development approaches are failing to address poverty, disease and malnutrition, the 10 year checkpoint for the UN’s Millennium Development Goals provided it.

The shortfalls in achievement in parts of Africa and South Asia cruelly expose the limits of our current efforts. Debate has recently turned to how business, governments and NGOs can work together in ways that align commercial self-interest with societal value. But the emergence of a ‘convergence economy‘ will disrupt incumbent development providers and ask many questions of businesses.

The Good News… and The Bad News

The good news is that the struggle against seemingly intractable problems such as malaria, drought and extreme poverty coincides with a time when global companies are looking for new markets. It’s no surprise, therefore, that NGOs and the private sector are increasingly working together. But all too often this collaboration is for one-off projects and conducted at arm’s length.

Business provides funds and NGOs deliver solutions. This may give business a license to operate in new territories, but it misses a large opportunity to transform communities for the long-term.

What is the Convergence Economy?

It is based on a merging of issues: Water, sanitation, education and disease, for instance, can only be addressed effectively together. It recognizes that the interests of NGOS do not run counter to those of business. And this results in a convergence of solutions, where it no longer matters whose logo is on the product or service that is improving the welfare of communities. 

We are all aware of how leading brands are supporting local communities and farmers, but beyond ethical supply chains and community based business practices, some businesses will have to consider more radical transformations of their operations.

Accenture's New Era of Sustainability 2010 Report

We can expect to see hybrid organizations that genuinely bring together NGOs and businesses in newly formed entities that have joint and flexible value chains at their heart. Danone’s collaboration with Grameen in Bangladesh illustrates this and has resulted in entirely new products to combat infant malnutrition. In some cases, we can expect the private sector to receive grants rather than NGOs.

The ‘convergence economy’ therefore requires businesses to create new business and operating models in local markets and to identify where they may have the best capabilities to ‘touch’ local communities in place of or in partnership with traditional aid providers. These new businesses or subsidiaries may be in joint partnerships with NGOs and other players.

For solutions to be sustainable, they will need to feed back local innovations into the broader business to maximize commercial benefit. To maintain their commitment, they will have to persuade shareholders that these commitments with longer term pay back periods are essential for future growth.

What does the convergence economy mean for NGOs?

According to our survey with the United Nations Global Compact of 766 CEOs, 27 percent of CEOs saw NGOs as key stakeholders in areas of sustainability in 2007. That figure fell to just 15% in 2010.

NGOs will still occupy a vital position in development—indeed they must, as they possess the local knowledge and knowhow, but they will see their role changing.

NGOs will act as coordinators, not just providers.

They will attract investment finance as well as seeking grants. They will support free markets as a tool for development. This means adopting new capabilities and, to some extent, a new cultural outlook. In the same way private sector companies are used to disaggregating their businesses and outsourcing non-core operations, NGOs will have to redesign their structure and purpose.

They will need a venture capital mentality to create conditions for investment.

The convergence of development and commercial enterprise is not therefore merely about ethical supply chains or profit seekers embracing a broader definition of value.  It is about a far deeper and more fluid operational collaboration across sectors. As multinationals enter new markets, they will have to redesign their models and assist NGOS to do the same.

Then, what could be seen as a marriage of convenience today can become a more committed and productive long-term relationship in the future.

–By Gib Bulloch, Executive Director, Accenture Development Partnerships

Gib is the Founder and Executive Director of Accenture Development Partnerships (ADP), a ring-fenced not-for-profit consulting group within Accenture, whose clients include many of the major international NGOs and development agencies. ADP’s main focus is bringing affordable business and technology expertise to the international development sector and promoting private sector engagement in sustainable development. In 2007, ADP was awarded the Management Consulting Association (MCA)’s CSR Award and in 2008, Gib was named as the Sunday Times sponsored Management Consultant of the Year in the Best Partner/Director category.

Gib has lived and worked extensively in developing countries and is a regular speaker on the role of business in development, corporate social entrepreneurship and cross-sectoral partnerships.