The business benefits of doing good | Wendy Woods

A few years ago,

all the developed countries in the world --

the wealthier ones --

and all of the charities

together donated about 200 billion dollars

to developing countries in the world --

the ones that bear most of the burden,

the heaviest burden of the world's biggest problems:

poverty, hunger, climate change and inequality.

That same year,

businesses invested in those same countries 3.7 trillion dollars.

Now, I get to travel a lot in my work

and I'm privileged to see the amazing things

that NGOs and some governments are doing

with some of that 200 billion dollars:

helping malnourished children

or families that don't have access to clean water,

children who wouldn't be educated otherwise.

But it's not enough

because the biggest problems in our world need trillions

not just billions.

So if we're going to make lasting and significant progress

in the big challenges in our world,

we need business,

both the companies and the investors,

to drive the solutions.

So let's talk about what business should do.

And when I say that,

you probably think that I'm going to talk about corporate philanthropy

or corporate social responsibility.

CSR is the norm today,

and it's very useful.

It provides a route for corporate generosity

and that generosity is important to many corporations' employees

and customers.

But you know what?

It's just not big enough,

or strong enough,

or durable enough

to drive solutions to the biggest problems in our world today

because it's incremental cost.

Even when business is booming,

CSR just isn't designed to scale.

And then of course in a downturn,

it's one of the first programs to be cut.

So no,

CSR --

corporate social responsibility --

isn't the answer,

but TSI --

total societal impact, is.

TSI is the sum of all of the ways

business can affect society

by doing the real work:

thinking about their supply chains,

working on their product design and manufacturing processes

and their distribution.

The real work of business,

when done with innovation,

can actually create core business benefits for the company

and it can solve the meaningful problems in our world today.

So what does TSI look like?

Focusing on TSI

means incorporating social and environmental considerations.

And you know what?

It's something that isn't completely new.

It's been thought about for a while.

But the hard part is that corporations almost exclusively still think

about something called TSR:

total shareholder returns.

But TSI --

total societal impact --

needs to stand alongside TSR

as an important and valid driver of corporate strategy

and corporate decision-making.

And we've got the data to show you why and how.

Some companies are already making this happen.

They're beginning to make it happen.

So let me tell you the story about Mars.

Mars is the sixth-largest private company in the United States.

If you're like me,

they make some important products,

like coffee and chocolate.

So not surprisingly,

one of their most important ingredients is cocoa.

And some of their competitors are actually really worried

about the sustainability and the availability of cocoa supplies.

But not Mars.

They're confident in the stable supply of that crop for the long term.

And why is that?

It's because they partner with NGOs around the world

that are working with small shareholder farmers.

And those certification agency's NGOs

are working to help farmers improve crop yields,

they're making sure that they get a fair, premium, livable wage

and they're helping them address any human rights potential issues

in supply chains,

and they're helping minimize the effects on the environment,

like deforestation.

Mars is on a path to 100 percent certified cocoa,

so this is a good program for farming communities,

it's a good program for the environment,

and it's a good program for Mars,

who has solved a significant risk in their supply chain.

But now let's get to the data,

because it's actually really awesome.

And let me explain exactly what the data points I'm going to talk about are.

When analysts and financial people look at companies,

they think about a lot of different statistics.

I want to talk about two of the most important ones.

I'm going to talk about the overall value of a company --

its valuation --

and I'm going to talk about its margin.

Basically the difference between all of its earnings

and all of its costs.

So in our study,

we looked at oil and gas companies,

and the oil and gas companies

that are performing most strongly on TSI --

total societal impact --

see a 19 percent premium on their valuation.

19 percent.

When they do really well

on things like minimizing the impact of their company

on the environment and water,

and when they have very strong occupational health and safety programs.

And when they also add in strong employee training programs,

they get a 3.4 percentage point premium on their margins.

But what about other industries?

Biopharmaceutical companies that are the strongest performers on TSI

see a 12 percent premium on their valuation.

And then if they're best at expanded access to medicines --

making medicines available for the people who need them --

they see a 6.7 percentage point premium on their gross margins.

For the retail banks that are strongest on TSI,

they see a three percentage point premium on their valuation,

and then for those that differentially provide financial inclusion --

access to financial products for people who need it --

they see a 0.5 percentage point premium in their net income margin.

Now, these numbers for banks may not seem very big,

but in highly competitive industries,

even really small differences in margin matter a lot.

Now, what about those consumer goods companies --

the ones who make those products we love like coffee and chocolate?

Consumer goods companies that perform best on total societal impact

see an 11 percent valuation premium.

And then if they do those smart things with their supply chain --

inclusive and responsibly sourcing their product --

they see a 4.8 percentage point premium on their gross margins.

These numbers are significant.

We've long known that things like fundamental financials,

growth rates and financial risks are key drivers of valuation,

but this rigorous analysis shows that social and environmental factors --

total societal impact measures --

are also linked to valuations and margins.

Wow.

All else equal --

we didn't confuse the analysis with anything.

All else being equal,

companies that perform strongly on social and environmental areas

achieve higher margins

and higher valuations.

Now, I do understand

that companies are under a lot of short-term earnings pressures.

But fortunately,

the investors who create some of this pressure

are actually more and more themselves starting to think longer-term

and starting to think with this TSI lens.

In our conversations and surveys with investors,

75 percent of them say they expect to see improved revenues

and improved operating efficiency

for companies that are thinking with a TSI lens.

And they're actually starting to incorporate this

in their own investing behavior.

Last year,

23 trillion in global assets

were in the category of socially responsible investing.

Now, that's five billion over just the last two years.

And it represents a quarter of the total global assets managed in the world.

I know that some of you may be cringing a little bit right now.

Because in my decades of strategy consulting

with businesses and NGOs and governments around the world,

I find that many businesspeople

are hesitant to talk or even sometimes think about

the business benefits of doing good.

They somehow think it's going to negate the value

of the benefits they're creating for society.

Or that they'll be perceived as heartless or even mercenary.

But we really do need to think differently.

We need to think differently

because the only way we're going to make substantial progress

on the challenging problems of our time

is for business to drive the solutions.

The job of business is to meet customer needs

and to do so profitably.

They need to to survive.

So one of the best ways for businesses to help ensure their own growth,

their own longevity,

is to meet some of the hardest challenges in our society

and to do so profitably.

And when they do that innovatively,

when they do that ethically, responsibly, incredibly,

they should be proud.

But if you still aren't sure about this,

let's talk about a few more examples.

What if you're a technology company

and you're trying to grow your platform

and you're trying to grow your customers?

Like, Airbnb.

Airbnb has a portfolio of total societal impact activities.

They're all spot-on their core business.

In one initiative,

they're helping enable their community

to provide housing for free to those in disaster:

crisis survivors and relief workers.

In another effort on their part,

they're actually helping and working with NGOs

to ensure that people can provide housing for free for refugees.

Now, what I love about this program

is that I don't think most people would've figured out

how to express their generosity

and open their homes for those in such dire need --

certainly not so quickly or so easily or efficiently --

without this innovation by Airbnb.

But at the same time,

this is core to their corporate strategy

and core to their growth

because they grow by increasing the number of hosts and guests

using their platform.

But if they'd only been thinking exclusively

about the return side of things,

I'm not sure they would have ever figured out this route to growth,

because they're not charging transaction fees.

So it's a pretty exciting way,

when they were thinking about how to bring their capabilities

to a need in society

and at the same time drive their own growth.

But what if you're trying to find new customer segments?

Let's move to South Africa,

and let's talk about Standard Bank.

In South Africa,

the government has a regulation

that requires all banks to donate 0.2 percent of their profits

to small and medium black-owned enterprises.

And many banks just donate this to the entrepreneurs,

but Standard Bank thought creatively.

And what they did is they took those funds

and they invested them in an independent trust,

and they used that trust to fund loans to these black entrepreneurs.

This is a highly leveraged model.

They can support a lot more entrepreneurs with capital,

and because their success is completely intertwined

with the success of the entrepreneurs,

they're actually also using the fund to provide technical assistance.

More entrepreneurs supported,

more people and communities being lifted out of poverty.

And it's successful for Standard Bank.

So successful that they're actually working on expanding this program

to other areas in their portfolio.

It's not like we haven't been trying to solve the problems in our world

for a long time.

We have, and they're still here.

We're making progress,

but it's not far enough,

or fast enough,

or universal enough.

We need to flip our thinking.

We need to have business --

both companies and investors --

bring creative, innovative corporate strategy and capital

to solving the biggest problems in our world.

And when they do that innovatively,

and when they do that

with all of their thinking and all of their strategy

and all of their capital,

and they're creating both total shareholder returns

and total societal impact,

we know that we will solve those problems,

both profitably and generously.

Thank you.

(Applause)