CNBC European Business | Social Workers

Social Workers

Social responsibility is the new name of the international business game and for those firms embracing the concept it could be the making of them and the communities in which they operate. Flemmich Webb reports

For 15 years, Miyakhan Beeni, a weaver in the small village of Viravanallur in southern India, has been struggling to make ends meet, making grass sleeping mats for bus drivers, or rolling bidis – locally produced cigarettes. Now things are looking up. Thanks to collaboration between international flooring company InterfaceFlor and local partner Industree, Miyakhan and 150 families in six villages are now employed to use their weaving skills to make a new flooring product – called Just – for the Western market. Not only do the women have input into the designs, they are paid more for their work and it is more regular. “Before I was earning 35 rupees [€0.50] a day, now I earn nearly three times that,” says Miyakhan. “It means I can afford groceries, clothes, medical supplies and save some money.”

InterfaceFlor’s approach – what it calls Fairworks – is its response to the neglected third strand of sustainability: social responsibility. Many companies are only just getting to grips with climate change and don’t have the time, resources or inclination to tackle their social impacts as well. Being green often makes financial sense – using less energy means lower electricity bills – but it’s not as clear how addressing social impacts affects company finances.

Increasingly, investors are making the link between a company's attitude to social responsibility and its share price. Latest figures from the European Social Investment Forum show there has been a 102% rise in social responsible investments between December 2005 and December 2007, now totalling €2.7 trillion. “There is a growing awareness among institutional investors that issues such as human rights, working conditions and climate change are becoming a matter of risk and they now look at how companies manage them as a key indicator of good management and best practice,” says Mark Robertson at EIRIS, the global responsible investment research consultancy.

When companies get it wrong, their reputations suffer. In 2006, Spanish clothing retailer Zara was forced on the defensive after allegations that a subcontractor of the company was using Portuguese children to make its shoes; in London earlier this year, shoppers protested against UK clothing retailer Primark after accusations in a BBC documentary that one of its suppliers used child labour in India. Since brand reputation, financial performance and share price are connected there is a financial imperative for companies to take social responsibility seriously.

There is also a growing belief that companies have a moral responsibility to be fair to the workforces and communities where they operate. This is a challenge in the global economy, where businesses increasingly find themselves working in places with a huge informal sector, poorly enforced laws, high corruption levels and non-existent property rights. Companies can’t tackle these on their own – it’s governments’ responsibility to invest in stronger regulatory and legal frameworks, build the capabilities of local enterprises and provide core infrastructure – but they can play their part. “It takes a functioning market economy for development to take root. Business is the real poverty killer,” said Jeroen van der Veer, chief executive of Royal Dutch Shell at the Delft University of Technology Symposium on Sustainable Solutions for Africa in The Netherlands last year.

Some companies are taking up the challenge. A 2005 World Business Council for Sustainable Development (WBCSD) report, Business for Development: Business solutions in support of the Millennium Development Goals, found that a growing number of companies are investing in new business ideas that have clear development benefits, especially in terms of creating opportunities for people. In 2007, net private capital flows to developing countries totaled more than $1 trillion – much more than development aid for that year.

An initiative by Vodafone demonstrates the impact that a socially responsible business approach can have. In 2004, Vodafone and its affiliate Safaricom, with initial investment and input from local microfinance organisation Faulu, rolled out a scheme in Kenya called M-Pesa that allows customers to borrow, make payments and transfer cash via their mobile phones. Because there are few banks in Kenya, people traditionally have to move money manually around the country, which is both time-consuming and risky. What started as a pilot programme with 500 participants now has more than two million people registered, with 200,000 signing up each month. As well as benefitting local people and adding value to the Vodafone brand, it is also a sound business proposition, says Nick Hughes, Vodafone’s head of international mobile payment solutions and architect of the scheme. “It’s about creating a product that is worthwhile for our customers and at the same time we can see the value of that for our business: it’s about company loyalty, about keeping our position in emerging markets and it generates its own revenue stream for us,” he says.

The first rule is to ensure that sustainable development is integrated into the core business activity. The second is to make sure that the proposition is commercially viable – if it’s not it won’t endure and certainly won’t impress the shareholders. “There is an opportunity in the telecoms sector to use the core products and services for the social good but to be economically sustainable these products have to be able to stand on their own two feet as business opportunities,” says Hughes.

With these two principles in place companies must be prepared to be patient, overcome the many challenges along the way and back the strategy with adequate resources. InterfaceFlor’s Fairworks floor product took about four years from conception to market, during which time research had to be carried out on issues such as the performance of natural materials, design, local workforce capability and supply chains. It was hard work but it has been worth it, says Nigel Stansfield, innovations director at InterfaceFlor Europe. “Approximately 60% of the purchase price of tile materials sourced from India is spread across the rural Indian economy, which helps make rural livelihoods more viable,” he says. “Also, sourcing the material locally has benefits for both agricultural and artisan livelihoods; this includes a whole host of people – the farmers and harvesters, splicers, dyers, weavers in the villages, and finally the checkers and master tailors who assemble the top cloth and backing and hand-finish each piece.”

Crucial to the credibility of socially responsible business is the quantifying of impacts – a business can’t just claim social benefits, it should report and measure against progress. WBCSD’s Measuring Impact Framework, designed to help companies understand their contribution to society and use this knowledge to channel investment and have better-informed conversations with stakeholders about their needs, is a useful starting point. “More and more companies are realising that sustainable development is good for their business,” says WBCSD president, Björn Stigson. “Many of our member companies are already changing the way they do business to reduce their negative impacts on nature's resources and enhance their overall contribution to society, but it is only by measuring and assessing the impact of their actions that they can begin to understand what works and what doesn’t.”

For workers all over the world like Miyakhan Beeni, the more companies that adopt this approach, the more sustainable their future is likely to be.

How businesses can help

Offer employment to and create suppliers from low-income communities in the countries where they operate, which will build capacity and jobs, and bring small businesses into the formal economy.

Develop innovative and affordable products and services that help to improve quality of life.

Help provide basic needs such as water, sanitation, energy, housing, healthcare, education and communications.

Work with governments to improve the investment climate and get rid of corruption.

Partners on the ground

Both Vodafone and InterfaceFlor received vital assistance from partners on the ground, who already knew the law, local conditions and culture and provided the critical link between large foreign companies and the local workforce. InterfaceFlor’s partner Industree is a social business enterprise, an organisation run along business lines, whose profits are reinvested into the community or service developments. It negotiates salaries, organises the delivery of raw materials, acts as quality control and distributes the work on behalf of InterfaceFlor. Identifying partners on the ground to work with is a key stage in the development of a socially responsible business initiative.