Impact Sourcing: A Critical Path for Social Change

A great deal of discussion surrounds "impact investing" at the moment—even if a clear definition is wanting. At its core, however, impact investing aims to provide financial fuel for enterprises that solve a pressing social problem or an industry gap, and that generate prosperity for investors while doing so.

"Impact sourcing," a term that is even more embryonic in its development, aims to achieve the same results but via socially responsible sourcing of products and services.

While most any international company deals with the logistics of supply chain, impact sourcing recognizes the dynamics of what I call its "values chain." Trace the process that lies upstream the making of any product—the where, who, and how of the production. At each stage of that process, an economic value is assigned to extraction of commodities and the labor of producers. That distribution of economic value represents its values chain.

Consider cosmetics products that make use of natural oils, for example. Brazil nuts are one of the important natural resources from which those oils are extracted. I recently traveled deep up a tributary of the Madre del Dios River in the Peruvian Amazon to trace the financial value assigned to Brazil nuts. I learned that a large burlap sack filled with Brazil nuts yields $2 for the indigenous community that gathers them. That same sack fetches a value of approximately $8 at a shipping port that lies no more than 12 miles upstream. Since the indigenous tribes that I visited did not own a boat (the region is extremely impoverished), they must sell their harvest for the price that the intermediary, who does own a boat, sets: $2 a sack. Once that same quantity of Brazil nuts reaches the capital of Lima, the value of that sack ascends to nearly $12. And once it reaches New York or London, the value rises to $20 to $25. The indigenous tribe that relies heavily on the harvesting of Brazil nuts for their sustenance will never rise out of their poverty as long as the social economy that shapes the values chain of Brazil nuts remains unchanged.

Impact sourcing aims to shift the embedded values chain of a product or service, and it does not depend on the launch of a new enterprise or even a venture investment to do so. Arguably the most efficient and effective path for impact occurs when a company with an established supply chain alters its sourcing or manufacturing to create opportunities for excluded or exploited communities.

Over the past several years, Not For Sale has engaged major apparel and food retailers on their supply chains and offered viable options on impact sourcing. Frankly, up to this point our achievements have been dismal. Even though we can demonstrate to these companies the social benefits of sourcing differently, enterprises consistently make supply chain decisions based solely on the financial costs of production, even when those costs differentials are relatively insubstantial.

I would argue that the hard costs of production are not the only criterion that should determine a supply chain. Companies ought to consider the costs of switching suppliers, due to the instability that may come with choosing the "cheap" price on extracting commodities or manufacturing. Quality control, reputation risk, and the marketing value of telling "the story behind the barcode" should be considered as well. Admittedly, sufficient data to build a strong case for the foregoing is lacking.

REBBL, a health beverage enterprise, is a start-up designed around impact sourcing. (Full disclosure: Just Business Fund, my investment company, made a seed round investment in REBBL, and I serve today as chair of the company's board of directors.) REBBL stands for "roots, extracts, berries, bark, leaves," and its tonics emanate from traditional healing herbs sourced from around the globe. REBBL has a determined mission to elevate your health with life-giving botanicals. Yet REBBL also aims to create jobs and grow social economies in regions of the world where labor exploitation thrives.

The first REBBL tonic offering, Hibiscus Mint, contains sixteen herbs that include maté, guayusa, cat's claw, and the maca root, all sourced from the Amazonia region. Ideally, REBBL would work directly with indigenous communities to cultivate and harvest the required herbs. But its leadership team quickly discovered that the infrastructure, expertise, and technical capacity did not exist that would enable indigenous communities to supply these botanicals with consistency.

So the REBBL team developed a three-prong strategy. First, it selected a key ingredient that local indigenous could harvest and deliver—that turned out to be the cat's claw herb. Second, it partnered with a natural products lab situated in Lima that already had in place advanced techniques for producing herbal extracts from Amazonia. The lab consented to collaborate with REBBL to source progressively from economically deprived communities where the nonprofit agency Not For Sale had developed local partnerships. Finally, REBBL partnered with Not For Sale—2.5 percent of REBBL's gross revenue is directed as a donation to Not For Sale—to invest in the economic and social infrastructure that would develop the region's sourcing potential. Not For Sale purchased a boat, for example, that enables sourcing communities to move botanicals from remote communities to a regional shipping port. Not For Sale also is investing in community herbal gardens, often in collaboration with local shamans who understand the tradition of healing botanicals.

This kind of experiment in impact sourcing—and the cross-sector partnerships that enhance their efficacy—has the potential to revolutionize the deployment of international development aid and social investment funds. If our goal is to strengthen and transform deprived social economies, the values chain embedded within global production lie along the critical path.

Read more stories by David Batstone.