According to the United Nations, the pandemic has reversed decades of progress on the Sustainable Development Goals, particularly on poverty, health care, and education. With such growing societal challenges, companies must take bigger and faster action to create societal impact and shift their focus away from profit-maximization.
One important path is for companies to embed societal impact further into their core business models. Initiatives like Business for Inclusive Growth or B Corp are paving the way, and some companies are also starting to pursue another complementary strategy.
For example, Schneider Electric, a French energy company recently named the most sustainable company in the world, acknowledges the valuable role of its corporate foundation and three impact funds in helping it achieve its ambition of “providing energy access for all.”
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Other companies are also starting to integrate strategic collaboration with their corporate social investors — impact-driven, corporate entities such as corporate foundations, impact funds, or social businesses — as a means to address societal challenges. IKEA, for instance, set up IKEA Social Entrepreneurship alongside The IKEA Foundation; and Repsol has a foundation, an accelerator program, and an impact fund.
Unlike companies, corporate social investors do not — or not primarily — seek financial returns and can therefore experiment more freely with radical, high-risk, even non-commercial solutions to address societal challenges. For companies looking for opportunities to elevate their contributions toward a just and sustainable recovery, such collaborations with corporate social investors can help develop more holistic impact strategies.
There are three novel opportunities: scaling the impact of societal solutions, deepening their impact on particular communities, or broadening their impact on society.
Collective strategies to scale promising societal solutions
A common challenge social enterprises face is that they often struggle to find appropriate funding during the so-called “valley of death.” This is when they are no longer eligible for philanthropic support but are still too risky for most companies or traditional investors to invest in.
As a result, many social enterprises cease to exist before they can demonstrate proof of concept. Some companies are therefore working collectively with their corporate foundation and impact fund to provide long-term support to social enterprises, helping them grow from incubation to maturity until they are advanced enough to be scaled by the company.
"Although these collective strategies are no alternative to a purpose-led business model, companies should adopt them as a stepping stone toward a just and sustainable recovery."
For instance, Rabo Rural Fund was established by the Rabo Foundation with a capital investment from Rabobank — a global food and agriculture bank. It offers farmer cooperatives in low- and middle-income countries follow-on capital, such as loans, throughout their pre-commercial stage once they have outgrow the foundation’s philanthropic (credit) support. Then, when the cooperatives are mature enough for commercial banks, either Rabobank, or other local partner banks, can provide funding.
This approach is a great opportunity for companies to learn more about business-relevant innovations and business models emerging in the social sector. Social enterprises that develop a robust and scalable business model over time can serve as inspiration to companies, demonstrating how societal impact and financial results can converge.
Collective strategies to deepen impact in communities
The second opportunity that companies have by collaborating with their foundation, impact fund, or other corporate social investors is to provide deeper and more holistic support to particular communities. If companies want to catalyze long-lasting change for people living in deprived areas, they cannot focus on tackling a single challenge in isolation but need to identify its root causes.
A company can address some causes through private sector solutions, while a corporate foundation and an impact fund can simultaneously solve challenges that cannot — yet — be addressed through market-based mechanisms.
Schneider Electric, for instance, aims to provide energy access to all. It does this by making affordable and green energy products available for low-income populations in remote rural areas. Yet the company acknowledges that in energy-deprived regions like Southeast Asia or sub-Saharan Africa, reaching universal energy access cannot be solely achieved by providing energy technologies.
To build a well-functioning energy sector, trained electricians are needed, but formal education programs are scarce. The company therefore has a foundation that trains people to install and maintain energy technologies. It also has impact funds, such as the Schneider Electric Energy Access fund, to invest capital into early and growth-stage ventures developing novel energy access solutions, such as off-grid solar home systems.
This approach also accelerates the development of pre-commercial markets in the long-term, building local infrastructures and creating more favorable market conditions for companies. The deep knowledge of the foundation and impact funds about the needs of the local population can further help companies understand how to develop products and services that can best serve the communities’ needs.
Collective strategies to broaden the scope of the impact
While a company can positively impact many stakeholders through its direct supply-chain, looking at its larger ecosystem will most likely reveal additional societal challenges, geographical areas, or stakeholders where their financial or non-financial resources can be of significant help, even if it may not be directly related to their business interest. In those cases, a company can broaden the scope of their impact by setting up additional corporate social investors with a new, but complementary focus area.
Vodafone, for example, strives to build a digital society that enhances sustainable socioeconomic progress for everyone. While the company pursues this vision through the development of new technologies, it also recognizes that its expertise and resources could help address societal challenges beyond this. It therefore supports the Vodafone Germany Foundation to develop new educational programs that teach young students the skills and competencies for an increasingly digital society and workforce.
At the same time, Vodafone set up the Vodafone Institute to address emerging societal challenges beyond the scope of the foundation and the company, such as the responsible use of digital technologies. It conducts research and runs the F-Lane Accelerator to support female tech-entrepreneurs worldwide.
As companies are looking to serve all stakeholders, they will have to be able to accommodate diverging needs and challenges. Working together with corporate social investors that can specialize in a different issue, stakeholder group, or area can be an effective tool.
What we’ve learned
The strategic collaboration between for-profit companies and their related impact-driven foundations, impact funds, or social businesses can provide companies with a unique opportunity to take their societal impact and contributions toward a just and sustainable recovery to the next level.
Corporate social investors can also serve as a learning lab for companies by raising awareness about disruptive innovations and business models that combine profit with purpose and are relevant for the business in the long-term. Although these collective strategies are no alternative to a purpose-led business model, companies should adopt them as a stepping stone toward a just and sustainable recovery.
This article was originally published on Devex.