In 1953, Howard Bowen laid the foundation for the modern era of corporate social responsibility (CSR) by asking what responsibility—if any—businessmen had to society. In the 60-plus years since, the social contract between business and society has grown increasingly long and more inclusive.
Between the 1950s and 1970s, CSR took shape in the form of pre-corporate philanthropy, a largely disparate approach involving support for domestic nonprofits at the discretion of CEOs with little transparency or oversight. In the 1980s, intense foreign competition and a greater focus on shareholders led many publicly traded corporations to adopt more stringent quality and cost controls. This created greater demands to tie corporate philanthropy to financial performance through efforts like cause-related marketing and practices more aligned with a company’s business. Throughout the 1990s, CSR became more international in scope, but was typically reactive in nature and often a response to negative publicity. During this time, a holistic, triple-bottom-line accounting framework of sustainability also began to emerge. Since the 2000s, CSR has grown increasingly strategic, and a broader concept of sustainability has gained ground.
Public pressure to address negative corporate externalities, and pressing social, economic, and environmental issues drove the evolution of these practices. Over time, they have blurred the lines between the public, private, and civil sectors, and redefined traditional roles and structures in the process.
Meanwhile, we’ve seen governments struggle to respond to the scale of global development challenges, complicated by the rise of nationalistic rhetoric and populist backlash against globalization. Multilateral institutions like the United Nations have been crippled by member states’ unfulfilled financial commitments and the reallocation of aid to deal with domestic impacts of international crises like Europe’s refugee crisis. International nongovernmental organizations (NGOs) try to fill the gaps amid calls for greater efficiency and more demonstrable impact, but with fewer resources, more constraints, and increased competition for donor dollars.
The public sector and civil society are increasingly looking to the private sector to play a larger role. This is particularly true of multinational corporations (MNCs), whose influence can rival entire nations; Apple, for example, has more cash on hand than the gross domestic product of two-thirds of the world’s countries. The proliferation of communications technology, which has democratized information and increased scrutiny on corporations and their executives, has heightened this expectation.
The question is no longer if companies have a responsibility to society, but how best to execute it.
Many companies are stepping up to the call, navigating the competing demands of shareholders to deliver maximum profits in the short-term, and the demands of employees, consumers, and other stakeholders to respond to long-term social issues. Yet others still struggle to deliver cohesive and authentic programs. Instead, they frame their efforts as an obligation, a form of a compliance, or an exercise in public relations or marketing. A more integrated approach has the potential to transform such initiatives into programs that benefit business and society.
Traditional corporate engagement vs. sustainability
CSR, philanthropy, and cause-marketing programs often benefit certain communities, but they typically neither address the root causes of social injustice, nor deliver direct and easily measurable impact on a company’s business. Industry leaders like Unilever, Patagonia, and Starbucks are therefore changing the way they give to NGOs and multilateral partners. They want to maximize their investments by supporting local communities and grassroots efforts with fewer intermediaries who add little value but take a percentage share for overhead. Companies want to see measurable and sustainable impact, and they want to “own” an issue space and be able to put a face and a name to the efforts they are supporting so that they can tell their own story. They are also seeking out opportunities to engage their employees and external stakeholders.
In short, companies need their partnerships to reflect their values, and advance their business and social objectives. A sustainability framework has the potential to do this at a deeper and more strategic level than other forms of CSR.
The term “sustainability” is often used interchangeably with CSR or viewed exclusively through an environmental lens. Thought leaders, however, generally describe it as a business strategy that creates long-term stakeholder value by addressing social, economic, and environmental opportunities and risks material to a company. It is integral to a company’s business and culture, rather than on the periphery. Optimizing waste reduction, or water or energy consumption, for example, can help a company reduce operational costs. Sustainability can drive innovation by reconceiving products and services for low-income consumers, opening new lines of business and boosting revenue in the process. Finally, being socially responsible can help a company earn license to operate in new markets, and attract and retain talent.
There is much more room for innovation and growth under this umbrella. As one Boston-based sustainability executive who works in biotech recently told me, it is “still an emerging field and profession, and everyone is figuring it out.” With the right tools and skill sets, development practitioners and NGOs can monetize upon their expertise and play a key role in helping MNCs in this process. Together, they can expand their knowledge bases, achieve their respective goals, and stand out in a crowded competitive landscape.
Leveraging the value of NGOs
Over the course of my cross-sector career working within Fortune 500 companies, NGOs, and the United Nations, I have frequently heard about the value the private sector brings to the social sector. Often overlooked or underestimated, however, is the value NGOs bring to the private sector—particularly development practitioners and service delivery organizations. Unfortunately, mutual mistrust, knowledge and skill gaps, and unspoken power dynamics can inhibit NGOs from communicating openly with companies they perceive more as funders than as partners, while preventing corporations from understanding how they might benefit from the nonprofit sector beyond a halo effect.
There is tremendous opportunity for NGOs to bridge this divide by engaging corporations around their sustainability initiatives. Well-paid consulting firms often serve this role without, in many cases, hands-on development experience. If NGOs, particularly service delivery organizations, built their own capacity to provide such services, they would be uniquely positioned to monetize their own knowledge and expertise. This could help MNCs harness the power of sustainability while also advancing NGO missions in five important ways:
1. Developing more cost-effective and impactful corporate sustainability programs
In my experience, those who work in corporate sustainability often come from other functional areas within the company and lack extensive development experience. Service delivery NGOs like Oxfam, Human Rights Watch, and Pro Mujer, on the other hand, have deep knowledge of issues like environmental conservation, human rights, and economic development. They can help ensure that sustainability initiatives are rooted in sound development theory and practice, without reinventing the wheel or exacerbating social issues. They also have technical expertise in practical solutions such as project planning and implementation, monitoring and evaluation, and social marketing. And they know how to operationalize this knowledge in complex environments and with limited resources.
Such partnerships might also have important financial benefits, giving companies greater flexibility in applying tax-deductions to business units like operations, engineering, and R&D, which could lower production or overhead costs. They would also allow NGOs to diversify their revenue streams beyond corporate foundations or CSR departments.
2. Reconceiving goods and services for the $5 trillion base of the pyramid
The top tier of the world economic pyramid consists of 75-100 million people with per-capita income of more than $20,000. The base consists of four billion people who have income of less than $2,500 but $5 trillion in collective purchasing power. This tier is largely found in emerging markets, in communities long served by NGOs but overlooked by MNCs. Thus, NGOs have prime market research, and an in-depth understanding of people’s needs, wants, and aspirations. By working together, they can expand access to goods and services to underserved people.
3. Entering new markets, particularly frontier markets, and developing communities
In recent years, the BRIC countries (Brazil, Russia, India, and China) have experienced economic slowdowns, and have become more expensive as bases of operations and more difficult in terms of import/export. MNCs, in search of double-digit growth, are now considering low-income, high-risk countries both as new markets for selling goods, and as services and hubs from which to export. Health, education, and infrastructure challenges in these countries may hinder company operations, and the development of talent and potential customers. Companies entering these new “frontiers” will discover that there are invariably NGOs already on the ground working with local communities. Mutual synergies can help develop systems and markets more quickly, and at a greater scale than if each tried to go it alone.
4. Addressing supply chain vulnerability and development challenges
Climate change, energy, and mass migration from political or economic instability will make already long and complex supply chains more vulnerable and costlier to insure. A 2016 study by Accenture and MIT found that of 80 percent of companies surveyed expressed concerns about supply chain resilience, but only 10 percent are actively managing supply chain risk. Escalating population growth in the global south will push today’s population of seven billion people to nearly 10 billion by 2050, and with it, create increased demand on already-strained resources. NGOs that actively work in climate change adaptation programs, or peace and conflict resolution, can bring strategic support to MNCs to help mitigate these impacts on and risks to their supply chains, while also strengthening community capacity and resiliency.
5. Appealing to socially conscious values to attract consumers, employees, and donors
At two billion worldwide, millennials are the largest, most diverse, and most socially conscious generation in history. Eighty-six percent live in emerging markets, with a combined spending power of $2.5 trillion dollars. Millennials will comprise half of the global workforce by 2020, the same year a 2016 Deloitte study found that two-thirds of them plan on switching to jobs that align more with their social values. This has financial implications in terms of potential revenue, and costs related to attracting and retaining talent.
Aspirationals, meanwhile, are a cross-generational consumer segment of nearly three billion people. They value style, social status, and sustainability, and like millennials, most of them come from emerging markets in Africa, Asia, and Latin America. They use their purchasing power to support companies that share their values, yet 50 percent can’t name a single purposeful brand. This suggests either that companies are not effectively communicating their efforts or that consumers don’t see companies as trustworthy.
Companies that do social responsibility right can expect a 22 percent boost in employee productivity and 25 percent less turnover. A compelling MNC-NGO partnership story can help activate consumers, employees, and donors.
The Way Forward
It’s important not to enter sustainability partnerships naively. Given the knowledge gaps and the complex, deep-rooted, and interconnected nature of the opportunities and risks they seek to address, partners will undoubtedly face a learning curve. Partnerships are also not a panacea, or meant to exclude other sectors or institutions.
Nevertheless, I see tremendous opportunity. To seize upon it, MNCs and NGOs will need to make investments both independently and together. A clear strategy, alignment around values, full engagement from a cross-section of stakeholders, and open dialogues between teams can help ensure their success. At the end of the day, everyone is still “figuring it out,” but if NGOs and MNC can unite their values and resources, the possibilities to drive business innovation and social impact are limitless.