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Tuesday, November 30, 2010

"Goodwashing" and the Power of a Sustainable Supply Chain

Why companies should think inside the box.

I want to mention a suspicion I’m having about the CSR (Corporate Social Responsibility) wave we’ve been experiencing throughout the last decade. I’ve officially coined the un-witty term “goodwashing” as a parallel to the concept of “greenwashing”. For those of you who are new to the idea, our good friends at Wikipedia describe greenwashing as  the “deceptive use of green PR or green marketing in order to promote a misleading perception that a company's policies or products are environmentally friendly”. 

Goodwashing, then, is the same idea but goes beyond environmental sustainability to imply deceptive use of marketing to create a misleading consumer perception of a company’s socially responsible practices. Despite the huge annual increase in published CSR reports, I cannot help but suspect there remain consumer deception techniques that stay behind the boardroom doors. 

Where does this accusatory opinion come from might you ask?
Answer: Pure Speculation. 

HOWEVER, there is reason behind my speculation. I see tons of large companies making donations or supporting wonderful causes. I will go ahead and coin this term as “external CSR”, that is, chopping off a piece of the bottom line and sending it off to do some good. My concern is that companies are using these socially responsible activities to mask some serious ethical gaps in their own internal operations.

An example of how to build a sustainable supply chain
By simply analyzing a supply chain, I have no doubt large corporations will find opportunities to take out some of that external donation funding and put it towards free-trade products, manufacturing facilities in developing countries, more nutritious (and less processed) meats and packaged foods, safety enhancement….the examples are endless and vary widely across industries. 

If every company embedded socially responsible practices into their supply chains (“internal CSR”) instead of directing the funds to often unrelated causes (external CSR), I believe the overall social and environmental impact would be significantly higher. 

As for the not-for-profits that so badly rely on donations, I think companies should support these causes— as long as they are simultaneously working to perfect their own. Sustainable supply chains will decrease the number of charities aching for our donation dollars because they will inevitably eliminate many of the issues charities are trying to solve.

I should end by clarifying that I recognize that many companies are on the path of internal CSR, and they are an example to the remaining corporate giants. Further, I am a huge advocate of non-profits, and I happen to work for a great one; I simply feel that many companies aren’t investing their CSR dollars in an optimally impactful way. 

SO, I conclude that a coffee company which donates millions of dollars to youth-related causes should stop the goodwashing and start feeding some of those funds up their supply chain to support their coffee-bean farmers. Simply put: sustainable supply chains lead to sustainable economies.  

                                                                   Click here to see image source

Wednesday, November 24, 2010

Does “social” scare investors?

A discussion of Impact Investing and why it 
deserves more attention.

As opposed to the accepted, often confusing financial jargon we are most privy to in the financial world, impact investing is exactly what its name implies. While a standard investment calls for optimized return, impact investments are driven by the triple bottom line.

A presentation made about a month ago at MaRS Discovery District in Toronto provides a comprehensive definition of impact investing:
“Impact investments aim to solve social or environmental challenges while generating financial return. Impact investing includes investments that range from producing a return of principal capital to offering market-rate or even market-beating financial returns” (see full presentation below)
It seems the concept of impact investing has enormous potential; but if this is the case, why haven’t Canadian investors adopted these practices yet? What is the difference between the risk taken on by venture capitalists and that of impact investors? 

In theory, both parties are betting their bucks on a new, innovative idea whose future success is unknown. And if the risk is the same, is it the social purpose attribute of the investee that is intimidating investors? My instinct responds with a reluctant “YES”.

Venture capitalist Tim Jackson, Founder and Partner of Tech Capital Partners, was my source of inspiration for writing this post. He supports my questioning with the following powerful words:
“When it comes to funding innovation, however, it is frustrating to see the different, almost opposite, approaches we take in supporting traditional businesses compared to social enterprises... This process of trying new ideas, failing, and learning from them, is an accepted practice in the for-profit sector. Why, then, do we put up so many additional hurdles for social enterprises? We expect the non-profit sector to be innovative and creative, while at the same time, we make adequate funding extremely hard to attain. Then we force them to operate within a complex regulatory regime that makes entrepreneurial activities difficult.

My experience is that non-profit leaders are extremely entrepreneurial and resilient. They have to be when confronted by all of the roadblocks we put up. Funders require detailed business plans and proposals while providing little to no contingency funding, which means that non-profit leaders have no latitude to experiment. Funders ask for detailed reports on successes but don’t encourage stories to be shared about failures.
We need a way for social enterprises and non-profits to enjoy paralleled freedom to  innovate. Bill Young, Director of Social Capital Partners, suggests the three steps Canada must take before we see significant growth in impact investing activity:

1. Foundations have to bridge the divide between the grant-making side of their organization and the investment side
2. The federal and provincial bodies that regulate foundations need to make it clear that they encourage this practice.
3. Canada needs to develop financial intermediaries that can provide attractive impact investment opportunities to foundations.

Bill’s solution is both insightful and plausible. I’d like to add a fourth step to his list, with my optimistic belief that more information brings us closer to social and environmental change:

4. Canada’s social finance leaders must build an awareness strategy for institutional, foundation, and corporate investors to understand the benefit of impact investing. With solid outreach, the ‘impact’ of impact investing will self-exemplify throughout Canada, attracting all types of investors to this ground-breaking movement.

Saturday, November 13, 2010

Sustainable Plastic Water Bottles: The Ultimate Oxymoron

“In the sustainability community, there appears to be general consensus that a reusable water bottle is preferable to one time use recyclable bottle. But isn’t a recyclable bottle consistent with the mantra in, “reduce, reuse, recycle?” Sure, it would be best to first reduce consumption, and reuse materials as much as possible. Recycling, even the tiniest thing as water bottles, also plays a vital role towards a sustainable future.”
This is an excerpt from a post on entitled, “Showdown: Recyclable versus Reusable Water Bottles”. When I initially saw this title I was very excited to read the post, as plastic water bottle use has become an unnerving pet-peeve of mine over the past couple of years. I expected the writer, who happens to be a sustainability guru, to rant about the wastefulness of plastic water bottle use. I know I would rant if I happened to meet the CEO of Nestle Waters, Kim Jeffery. 

I am sure Jeffery is a nice man, no doubt he is very bright, but for this post’s author to say that recycling plastic water bottles will help build a sustainable future is an oxymoron in my opinion. If you take a look at the video I’ve posted below, I think you might see where my frustration is coming from.

There are two arguments on the side of the “sustainable" plastic water bottle:

1. A proportion of the plastic is recyclable
In the United States, 65 million water bottles are used per day. That means almost 24 billion water bottles are wasted per year. This number is unfathomable. Can we really excuse this number by arguing that a portion of the plastic is recyclable, when we could decrease the level to zero if everyone purchased a stainless steel bottle?

There is no justification for piling up 24 billion water bottles per year in one country alone. 

2. Tap water is a different business than packaged water. 
Packaged water competes with other packaged beverages, and the water and its bottle have a much better environmental impact than those other beverages, like pop and juice, for example. So, because plastic water bottles are less harmful to the environment than the competitor products in its market, we can justify that waste?

I think this is a poor argument. We are talking about one earth, with one climate, that is directly affected by human behaviour. I don’t care about different businesses and which has a smaller carbon footprint – the bottom line is the water bottles are tossed as waste by the millions each day, and by using stainless steel bottles, we can easily change that. 

I know it will take a mindset shift to begin using a re-usable bottle, but I believe this is a small habit change that can have a huge impact.

Dianna Cohen: Tough Truths About Plastic Pollution

Tuesday, November 9, 2010

A Personal Reflection: Is Doing Good Really Bad?

I recently read an article exploring the negative effects of "Voluntourism";  that is, traveling to a developing country to volunteer for a short time period. This article struck a personal chord, as I returned home after volunteering in Tanzania with similar feelings to Anders Kelto, the author of the article.

I felt selfish.  There I was, an idealistic and passionate girl, thinking I could make a difference in the kindergarten class I taught with Miss Betty.  I spent my nights making lesson plans for the next day, creating visuals for the kids to learn from...there is no question I tried very hard.  

But I didn't make the difference I had envisioned.

I had fun with the kids, I attempted to teach them discipline, and I bonded with them on a deeply emotional level.  I realized closer to the end of my time in Bagamoyo that while I can use creative ways to teach them English, these methods were not sustainable because I was leaving.  And this happens with every volunteer who enters that classroom.  I began to question whether my attempts to help were actually having an impact, or if the inconsistency in teaching styles and dependency on the volunteers was instead harmful.  I vividly remember sitting in a jeep one weekend on a safari, not having seeing any animals for a while, and thinking guiltily about this very issue.

By the end of my trip, I arrived at a two-pillared conclusion:

1. While I am unsure if my work in the classroom with these vibrant and intelligent children made a direct and immediate impact, my hands-on experience helped me understand the norms, challenges, and successes in the community I was trying to help.  I realized that you actually need to understand these pieces of a society before returning home and attempting to make a systematic change overseas.  It would be ignorant not to.

Before I left Tanzania, I set up a meeting with the District Education Officer.  I wanted to make sure I went home with a solid understanding of the education system in the country before working to make positive change.  I asked about mandatory attendance, funding, the porridge system, discipline, curriculum, and about children with disabilities.  I asked about everything  I saw as a gap that needed to be filled in the education system.  I know I would not have been able to ask those questions without my hands-on experience, and I know those questions are necessary to drive solutions.

2.  Yes, this was a selfish trip.  I changed and grew dramatically from the environment, from the wonderful people with whom I built relationships, from the not-so-wonderful people, and from the relaxed and colourful culture I am not exposed to in Western society.  And I think it's okay that I grew from this trip.  I think in the end, by continuing my path in the field of social innovation, my personal gains from my volunteer work in Bagamoyo will ultimately recycle back to benefit this community.  
This, at the very least, is my personal vision.

Friday, November 5, 2010

MFI's: Where do we draw the bottom line?

Recently, I have been reading a lot about the issues that for-profit MFI’s have caused in the developing world, mainly in India. I am left with so many questions that involve both moral and commercial intuition:

If an MFI is built on a for-profit structure, how much is too much profit? Does the government have the right to draw the line on interest rates, or are free markets a better solution to allow for massive scaling of micro-credit? How can we find that balance between reasonable profit for the MFI’s and reasonable interest rates for the individuals they are trying to help? Can that balance even exist for for-profit MFI’s?

 My last question is the real lingering one for me. It pushes me to think really hard about the good versus the greed of humankind. SKS Microfinance is an Indian MFI that made the switch from a non-profit to a for-profit business model in 2005. They have achieved a scale that took Dr. Muhammad Yunus’s Grameen Bank over thirty years to build. How?

Put simply, a for-profit model requires that investors in the company receive, well of course, profit. This means that there is pressure on the MFI to maintain high interest rates at a level that keeps investors happy. Happy investors lead to the attraction of more investors, which in turn allows the company to give out more loans at a faster rate. Whereas the non-profit MFI model seeks internal growth by investing the borrowers’ payments back into the organization, the for-profit model must fulfill its obligation to its shareholders.

Now here’s the kicker. There have been a growing number of suicides amongst the borrowers of micro-loans from companies like SKS. There is so much pressure on these people that the company has made a reverse impact on so many lives. So while the loans are reaching more than 6 million people living under $1.00 per day, and while SKS’s loan disbursements have grown by 170% in the last year, I cannot help but think about the greed that Muhammad Yunus dreamed of diminishing when he built the Grameen model.

Today, after a meeting with financial services secretary in New Delhi, micro-finance companies agreed to decrease interest from as high as 34% down to 24%. While I hope and believe this change will reduce some of the negative impact already caused to borrowers, I can’t help but feel sad that social businesses require government intervention to improve the social outcome of their stakeholders.

Returning to my lingering question, I do think it’s possible to find that balance between satisfying profit and reasonable interest rate levels. It’s not the business model I am concerned with, but the people who are managing it. A social business has every right to be for-profit on the condition that the triple bottom -line is met in a balanced way. These for-profit MFI’s have a great opportunity to spur growth in the impact investment field. If investors are looking for high returns, the MFI’s have the responsibility to set the appropriate rates that tell these investors to look to the googles and the oil companies of the world. Profit is the driver behind making these MFI’s strategies work, but standards need to be set that identify the difference between reasonable and excessive returns.