Growth for good or good for growth?

By Tony Siesfeld, managing director (Deloitte LLP)

For many years, economic growth in emerging markets has outpaced the development of state and civil society institutions, giving rise to political, social and environmental challenges. But where companies once viewed these challenges as issues to ameliorate through corporate philanthropy, today many of these challenges pose immediate threats to companies' expansion and long-term success. This is now the case in both the emerging and mature markets that offer the most promising growth opportunities.

Consider the case of Yum! Brands. It derived about half of its revenues from China and faced a sharp decline in 2013 in the Chinese market because of an antibiotics scare in the local poultry supply chain. The company's ability to grow in additional markets also ran into barriers: for example, the growth of its KFC franchise in sub-Saharan Africa was capped by the lack of local modernized poultry farming practices.

Or, take the cases of Coca Cola and Nike. Both companies found that their global growth opportunities were at risk of being severely affected by environmental and climatic changes. Droughts, more unpredictable weather patterns, and more frequent major floods are threats to Coca Cola's supply of key ingredients – such as sugar cane, sugar beets, and citrus for its fruit juices – sourced from agricultural sectors highly dependent on natural water supplies. Similarly, Nike has had to contend with factory shutdowns due to floods in Asia.

These businesses cannot afford to wait for governments, grassroots enterprises, or civil society to fix the problem; nor can they rely on prevailing business-as-usual practices to automatically overcome or resolve them. Businesses must actively find ways to reinforce the contexts that support the very markets they need for sustaining their growth aspirations. With emerging markets accounting for two-thirds of global GDP growth over the past decade and about 40 percent of current global output, investing in "contextual strength" is becoming an essential business need.

That context has given rise to a new wave of growth in sustainable and inclusive business activities (SIBA). But as much as the adoption of SIBA has grown, it has a long ways to go. That was the motivation for Monitor Institute to partner with Citi Foundation and the Fletcher School at Tufts to do new primary research into what motivates companies to engage in SIBA, what challenges they face, and what philanthropy can do to help advance and spread these essential changes in how business is done.

Our research involved in-depth interviews with experts as well as managers and executives at 40 large companies, as well as a detailed long-form survey of 42 companies. The result of our analysis is now publicly available in the report Growth for good or good for growth? How sustainable and inclusive activities are changing business and why companies aren’t changing enough.

In brief, we found four top barriers to SIBA:

1. Absence of common strategic motivation and vocabulary
2. Absence of organizational home
3. Local constraints such as poor infrastructure or an unreliable supply chain
4. Difficulties in measuring impact

We arrived at four recommendations for managers and executives as they plan to build out their SIBA strategies:

1. Create the "space" for SIBA
2. Use public incentives and participate in multiple partnerships
3. Explore new pre-competitive paradigms to overcome market failures
4. Develop tailored performance measurement frameworks

And, we saw five roles that philanthropy can play in accelerating SIBA's spread:

1. Track the space, set expectations, and set guidelines for impact and performance
2. Articulate the business and social case, and develop actionable toolkits
3. Facilitate new competitive paradigms
4. Develop knowledge on structuring innovation
5. Foster the enabling environment