The business benefits of doing good | Wendy Woods

The Need for Total Societal Impact

In this section, the speaker highlights the inadequacy of corporate social responsibility (CSR) in addressing the world's biggest problems and introduces total societal impact (TSI) as a more effective solution.

TSI vs CSR

• Businesses invested 3.7 trillion dollars in developing countries while developed countries and charities donated only 200 billion dollars.

• CSR is not enough to solve the world's biggest problems because it is incremental cost and not designed to scale.

• TSI is the sum of all ways business can affect society by incorporating social and environmental considerations into core business benefits.

• TSI needs to stand alongside total shareholder returns (TSR) as an important driver of corporate strategy and decision-making.

Example: Mars' Sustainable Cocoa Program

• Mars partners with NGOs around the world that work with small shareholder farmers to improve crop yields, ensure fair wages, address human rights issues, and minimize environmental effects like deforestation.

• Mars' sustainable cocoa program is good for farming communities, environment, and Mars itself as it solves a significant risk in their supply chain.

The Business Benefits of Doing Good

In this section, the speaker explains the two most important statistics that analysts and financial people look at when evaluating companies. She then discusses how oil and gas, biopharmaceutical, retail banks, and consumer goods companies that perform strongly on social and environmental factors achieve higher margins and valuations.

Key Statistics for Evaluating Companies

• Analysts and financial people evaluate companies based on their overall value (valuation) and margin.

• Oil and gas companies that perform strongly on total societal impact (TSI), including minimizing environmental impact, strong occupational health and safety programs, and employee training programs see a 19% premium on their valuation.

• Biopharmaceutical companies that are the strongest performers on TSI see a 12% premium on their valuation. If they also excel in expanded access to medicines, they see a 6.7% premium on their gross margins.

• Retail banks that are strongest on TSI see a three percentage point premium on their valuation. Those that provide financial inclusion see a 0.5 percentage point premium in their net income margin.

• Consumer goods companies that perform best on TSI see an 11% valuation premium. If they responsibly source products through inclusive supply chains, they get a 4.8% premium on their gross margins.

Social & Environmental Factors Linked to Valuations & Margins

• Rigorous analysis shows that social and environmental factors are linked to valuations and margins.

• Companies performing strongly in these areas achieve higher margins and valuations all else being equal.

Investors' Perspective

• Investors who create short-term earnings pressure are starting to think longer-term and with a TSI lens.

• 75% of investors expect to see improved revenues and operating efficiency for companies that prioritize TSI.

• Socially responsible investing has grown significantly, with 23 trillion in global assets in this category last year, representing a quarter of the total global assets managed.

Businesspeople's Hesitation

• Many businesspeople are hesitant to talk or even think about the business benefits of doing good because they fear it will negate the value of the benefits they're creating for society or be perceived as heartless or mercenary.

Business Driving Solutions

In this section, the speaker discusses how businesses can drive solutions to societal problems while also ensuring their own growth and longevity.

The Role of Business

• The job of business is to meet customer needs and do so profitably.

• Businesses can ensure their own growth and longevity by meeting some of the hardest challenges in society.

• When businesses innovate ethically and responsibly, they should be proud.

Examples

Airbnb

• Airbnb helps enable its community to provide housing for free to those in disaster crisis survivors and relief workers.

• Airbnb works with NGOs to ensure that people can provide housing for free for refugees.

• This program is core to Airbnb's corporate strategy and growth because they grow by increasing the number of hosts and guests using their platform.

Standard Bank

• Standard Bank invests funds mandated by South African government regulations into an independent trust that funds loans for black entrepreneurs.

• They use the fund to provide technical assistance, which supports more entrepreneurs with capital.

• This program has been successful for Standard Bank, who are working on expanding it to other areas in their portfolio.

Conclusion

• Businesses need to bring creative, innovative corporate strategy and capital to solving the biggest problems in our world.

• When businesses create both total shareholder returns and total societal impact, we know that we will solve those problems both profitably and generously.