Latin American businesses are demonstrating a hybrid approach to sustainability, with a genuinely distinctive “Latin” model increasingly likely
B Corporation is creating something of a storm in North America. That’s no great surprise. The holistic “good business” certification scheme taps into the zeitgeist. Customers and employees are increasingly looking for companies with a “purpose” that lies beyond mere profit. And, in the US especially, there’s an ever-expanding coterie of dynamic, mostly young social entrepreneurs to give them what they want.
So why the success, and what does it reveal about the field of sustainable business practices in Latin America?
First and foremost, sustainable business is not new. It may not have been branded as “sustainability” until recently, but the notion of businesses having a broader social mandate has a long heritage. Even without consumer or labour market pressure, therefore, ideas of business ethics and philanthropy chime with regional business leaders.
So the shift to the more formalised management practice of corporate responsibility (“RSE” in Spanish and Portuguese), or sustainability, isn’t so great. Today, most large companies will at least have a position statement and the bones of a strategy on the issue. The region’s largest firms may well have a team of dedicated professionals too, although the norm for most remains shoestring budgets and limited internal resources.
Second, Sistema B points to the influence of the region’s neighbours to the north. The stamp of US management practices is strong across the region, particularly in Central America. US corporations such as Coca-Cola, IBM and Microsoft have, through their subsidiaries, done much to set the agenda in terms of corporate responsibility best practice.
While these parent companies may be cutting edge, practice on the ground tends to be catching up. Hence, a plethora of worthy initiatives around core socio-economic themes such as health, education, community development and environmental conservation: all of them solid enough, but not especially strategic or systematic.
“It’s still a corporate driven movement like [it was] 10 years ago and it’s driven by the competition between corporations, and what is required by headquarters in terms of policy,” says Fabian Echegaray, a corporate responsibility expert at Brazil-based consumer monitoring firm Market Analysis.
Things are changing, though. A third factor highlighted by the emergence of Sistema B is the role of homegrown enterprises in the sustainability space. Each of the certified firms is Latin American in origin – though many rely on export trade to the US and other overseas markets. Unlike the corporate responsibility field, which is dominated by big players, all those carrying the Sistema B accreditation are small and medium-sized businesses.
The region’s social enterprises still operate very much on the margins, but there is evidence that their business models and practices are gaining traction in the corporate mainstream.
A good example is Chile’s Comparte, a fair trade cooperative that supports indigenous communities through the marketing and sale of artisanal handicrafts. The Sistema B firm recently signed pilot deals with national retailer Sodimac Home Centre to promote its fairly traded products. A second pilot followed with retail group Mall Plaza. In the case of Sodimac, the retailer was looking to support small producers but was unsure how best to do so, explains Comparte spokesman Gerardo Wijnant. “Consumers are gradually understanding the impacts of their purchasing, especially among the young,” he says. “That wasn’t the case 10 years ago.”
Another example is Brazil’s Ouru Verde, a Sao Paulo-based wholefoods distributor that works with about 500 indigenous families in the Amazon. Set up more than a decade ago, the company has invested heavily in training its suppliers in the gathering, storage and sale of native fruits, such as the Brazil nut and Açai berry. Its end products are natural oils and other healthcare products created from these raw materials, which it then sells in the domestic market. In 2009, Brazilian pulp and paper corporation Grupo Orsa bought a 51% controlling share in the fair trade firm
Multilatinas: making waves
In the case of Comparte and Ouro Verde, market growth has depended on an intervention by a large domestic investor – or a “multilatina”, as Latin America’s largest regional companies are termed.
While forging alliances with the growing network of sustainable enterprises is one popular strategy, multilatinas have a growing reputation for generating their own sustainability programmes. Among the most oft-cited leaders in this local pack are the likes of Brazilian cosmetics firm Natura, Mexican cement company Cemex and Argentina’s food manufacturer Arcor. They have adopted advanced management practices, from sustainable procurement through to non-financial reporting.
Fabrice Hansé, executive director of the business-led network Forum Empresa, admits that the responsibly minded multilatinas are still a relatively rare breed. Yet the field as a whole is “bridging the gap very quickly” with foreign multinationals, he insists, saying: “The multilatinas now have all the kinds of international practices that you can imagine. They’re really global players because most of them are operating in Europe and Asia, so they have to [adopt] global standards.”
A recent study by Forum Empresa finds that 68% of sustainability reports follow the benchmark GRI standards. Meanwhile, the number of GRI-formatted reports soared up by about 150% between 2009 and 2012. The Forum Empresa study, which is based on opinions of more than 3,400 business executives and consumers, finds that the perceived performance of those companies with dedicated internal resources (81%) far outstrips those that have none (54%).
Leonardo Cardenas, director-general for Mexico, Central America and the Caribbean at quality management firm TÜV SÜD, agrees that the region’s corporations are maturing fast. “CEOs are starting to ask the corporate responsibility manager or director, where is my money?” he says, noting the emerging demand for measurable business benefits from corporate responsibility investments. “Run more like a business” is the refrain he now hears repeatedly from his corporate clients. The growth towards independently audited non-financial reports is symptomatic of this trend, he argues.
Latin America’s sustainability leaders, be they large firms or small, are not working in a vacuum. One of the distinguishing aspects of business life in the region is the active role of the state. The corporate responsibility field is not exempt. Far from it. Governments are increasingly realising the social value that sustainable business solutions can bring. Both Comparte and Ouro Verde received state support, for example: the former in terms of product development and market growth from Fosis, a state development agency in Chile; and the latter in terms of supplier training via the UN Development Programme.
Government intervention can represent a force for good. The Inter-American Development Bank, for instance, has played a particularly active role in promoting best practice in the private sector.
Take its Opportunities for the Majority programme (OMJ). The initiative was set up to facilitate the development of market-led solutions by the private sector and others to address the needs of low income populations. OMJ has so far funded 45 projects to the tune of $250m, which leveraged an additional $1bn in investments. At the level of management principles, meanwhile, the UN Global Compact is having a substantial impact on formalising sustainable business within corporate policy structures.
There are downsides too. Ever-present government can easily politicise the sustainability agenda and skew corporate practices away from rational strategic goals. A recent study by Mexico-based advisory firm ES Global Consulting demonstrates just such a trend. Undertaken on behalf of Oxfam International, the study of about 500 companies in six countries identifies “basic services” – ie provision of essential utilities, constructing core infrastructure, sorting out the drains, whatever the immediate issue is that the state needs fixing – as a priority area for many corporate responsibility programmes.
Marc de Sousa, the firm’s managing partner, says such activities constitute “stuff the government should be doing”. Ancillary to a business’s core activities though these may be, “sucking up” to the government by consenting to contribute towards the delivering of basic services is – regrettably – what still oils the wheels in much of the region. Providing services that should be the state’s responsibility is, in other words, sometimes the price of doing business. In states such as Venezuela and Argentina, where the government is particularly interventionist, the request to contribute is sometimes explicit. Elsewhere, it’s merely ‘advised’. “It gives corporate responsibility a bad name,” de Sousa admits.
Another, more positive characteristic that distinguishes corporate practices among Latin American firms is their commitment to poverty reduction. “Inclusive business really started in Latin America originally and the market is getting larger,” says Forum Empresa’s Hansé, who describes the region as a “live laboratory of innovation”.
A recent report by the World Business Council for Sustainable Development identifies 11 case studies of inclusive business from across the region. Agribusiness dominates the list, with examples from foreign investors such as Nestlé and Dole in Peru, through to local operations such as Delizia in Bolivia and Pronaca in Ecuador. Many are working to integrate small farmers into the mainstream market. Dole, for instance, is helping train 1,600 Peruvian banana farmers in organic farming techniques with an eye to the export market (see case study).
Another prevalent industry is energy. Colombian gas distributor Promigas, for instance, provides consumers with a microcredit facility to enable households to access natural-gas-related services. Similarly, consumer goods companies are working with small retailers to improve their business skills and thereby strengthen their distributions chains. Two good examples are Industrias La Constancia’s Progresando Juntos project in El Salvador (see case study) and Mi Tienda’s affiliate training programme in Mexico.
On the fringes
For all the evidence of recent progress, sustainability remains a fringe activity for the vast majority of businesses in Latin America. Involving SMEs, which make up the vast majority of businesses, remains a major challenge for the future. A healthier, more interactive relationship between companies and the governmental and non-governmental sectors would also do much to improve the incentives for, and effectiveness of, corporate sustainability programmes.
That said, there are promising signs that sustainability is spreading out from its niche among large foreign corporations, and percolating up from small home grown innovators. The ideal would be that more companies gravitate towards global practice, without losing the best aspects of local innovation. It may be too confusing for certifiers to quantify, but a distinctively Latin-flavoured form of corporate sustainability would enrich business practices not only on the continent but around the world as well.
Top 10 “multilatina” companies
Source: America Economia
Case study: Dole and inclusive business in Peru
US fruit trader Dole is working with 2,500 small farmers in Peru’s Chira Valley to integrate them into its value chain. Traditionally, farmers’ lack of access to technical and financial resources has led to low productivity and high crop rejection rates.
In collaboration with SNV, a Netherlands-based non-profit group that provides technical expertise and assistance, Dole has facilitated the small farmers involved in the pilot to obtain organic certification. This has helped open up new revenue streams for them via the premium export market.
The programme, which was jointly funded by Dole and the multilateral investment fund of the Inter-American Development Bank, saw the farmers form 10 separate producer associations. These farmers’ associations subsequently took on responsibility for processing and packaging. Dole eventually transferred ownership of its packaging centres and related infrastructure (worth close to $1m in total) to the associations.
During the first three years of the programme, productivity levels increased by 75%, with profits growing accordingly. The individual associations have since combined under a joint federation and have developed new business streams in the production and commercialisation of organic manure and organic fertiliser.
In turn, Dole, which now deals directly with the farmers rather than through a subcontract arrangement as before, is benefiting from increased efficiency, decreased losses during harvest and, ultimately, larger export volumes of organic bananas.
“In general, the company sources products from large producers or from its own plantations,” a summary report by SNV concludes. “For organic and fair trade markets however, small producers offer attractive potential.”
Case Study: SABMiller – Progresando Juntos
El Salvadorian brewer Industrias La Constancia (ILC), a subsidiary of SABMiller, is running a successful business development project that is resulting in big wins for its product distribution.
In the absence of major supermarket chains in much of El Salvador, the company depends heavily on small stores and local restaurants for the sale of its beer. Typically, these family-run businesses have limited management capacity. To help strengthen the business skills of these small retailers, ILC developed a training and mentoring programme.
Entitled Progresando Juntos (Progressing Together), the initiative offers a free, eight-month course in critical areas such as inventory management, promotion and marketing, basic accountancy and customer service. Instruction on promoting responsible drinking is also provided. The classroom learning phase is followed up by individual support from an external mentor on specific issues, ranging from product costing to administrative control.
The course is open to all small business owners who have been clients of ILC for at least one year and who have a good payment record. Many of the participants are women, single mothers, and even senior citizens, who have set up small retail outlets to boost their family incomes.
“For Industrias La Constancia, this programme represents our commitment to an entrepreneurial vision which involves growing hand in hand with El Salvador … We seek to promote corporate development for our business partners which definitely constitutes an invaluable link within our value chain,” says Aldo Vallejo, ILC’s vice-president for corporate affairs.
The programme has the support of the Salvadoran Chamber of Commerce and Industry’s Supplier Development Programme, in alliance with the UN Development Programme and the Inter-American Development Bank. As well as retail owners, the programme has expanded to include supplier firms. SABMiller is considering opportunities to develop similar initiatives in other markets in the region.Latin America Oliver Balch South America corporate responsibility sustainability sustainable business