Addressing the Challenges of Socially Responsible Business (SRB) in

Asia Pacific RegionBy

Astad Pastakia

Theme Address

For

International Workshop on

Entrepreneurship in Socially Responsible Business for Development in Asia and the Pacific Region

At

EDI, Ahmedabad, India, 16-18 Oct.,2013

Structure of Presentation

1) Introduction

2) Challenge of Inclusive Development

3) Challenge of Ecologically Sustainable Development

4) Corporate Social Responsibility (CSR) as a Corporate Response

5) Socially Responsible Business Investments (SRI) as a Corporate Response

6) Socially Response Business (SRB) and Business Development Services (BDS)

7) Towards a Framework for SRB

8) Conclusion

INTRODUCTION

Challenges of Inclusive Sustainable Development

• History of capitalism has shown that the so called “invisible hand” of Adam Smith does not deliver social welfare to all – in fact it tends to exclude the poor and marginalised

• More imperfect the market, greater the exclusion of the poor

• Markets generate environmental externalities and contribute significantly to global warming

• Imperfect markets and weak laws tend to cause greater damage to the environment and natural capital

Capitalism Needs to Evolve

• The very nature of capitalism needs to evolve (Muhammad Yunus, 2006):– Not ‘market failure’ but ‘conceptualization failure’ – failure

to capture the essence of human being in our theory– We have created a one-dimensional human being to play

the role of entrepreneur – dedicated to one mission in life viz. to maximize profit

– In reality man is excitingly multi-dimensional with social, political, emotional and religious dimensions.

– Cannot afford to leave the market solely to ‘personal gain seekers’

– Time to broaden the concept of market by giving full recognition to ‘social business entrepreneurs’

UNESCAP’s Recent Initiatives• UNESCAP is the regional developmental arm of the United Nations

in the Asia-Pacific region• 2007: UNESCAP launched the Investors for Development (I4D)

Project with funding from governments of Sweden and the Netherlands– I4D aims at promoting implementation of the UN Global Compact

principles and CSR through the establishment of a regional Community of Practice

– Offers on-line platform, face-to-face meeting forums, training courses– Develops tools and resources, case studies for CSR implementation

• 2009: ESCAP published “Creating Business and Social Value: the Asian Way of Integrating CSR into Business Strategies”

• 2011: ESCAP published “Promoting Sustainable and Responsible Business in Asia and the Pacific: The Role of Government”

• 2012: UNESCAP established the Asia-Pacific Sustainable Business Network (SBN) within the ESCAP Business Advisory Council

• 2013: UNESCAP-SIDBI-EDI workshop You are Here!

THE CHALLENGE OF INCLUSIVE DEVELOPMENT

HUMAN RIGHTS AND LABOUR

Exclusion of Poor from Market Economy

Luxary market

Middle class market

Mass market

Under served market

By-passed Market

Subsistence economy;BOP markets

Poor

Ultra-poor

Market economy

§ Markets tend to gravitate upwards§ Poor lack capital and capacity to start their own enterprise§ Government delivery system fails due to corruption, red-tape, wrong orientation§ Nexus between industry and corrupt government officials, that favours the rich

Source: Self-compiled

Deprivation through Displacement• Loss of lives and livelihoods

– Constant battle between national development goals and local survival issues

– In India, an estimated 60 million people displaced and project affected since independence in 1947

– 15 lakh ha of forest land was diverted for mining since 1981, affecting tribal population most severely

– Poor track record of compensation and rehabilitation either by corporate houses or by government

– Several conflicts over land use policy (Tata Nano project in Singhur, W. Bengal, POSCO’s steel plant in Jagatsinghpur, Orissa)

• Violation of other human rights– Rights of indigenous people (BHP company in New Guiana – OK Tedi

Mine)

– Rights of information and expression (Google, Yahoo!, Microsoft and Chinese government’s collaboration that screens Internet content)

– Right to food

– Right to health

– Right to housing and habitat etc.

Deprivation through Unjust Labour Relations

• Labour standards:– Set as a result of government decisions or stakeholder negotiations

from time to time– E.g. working age, minimum wage, overtime payment, health and

safety etc.

• Labour rights:– Includes right to formation of a union, good faith collective bargaining

and ability to withhold ones’ labour (strike) etc.

• Corporations response:– Prefer to implement labour standards which are mostly mandated and

violation could cause loss of reputation– Less inclined to implement labour rights due to perception of reduced

managerial control

• Gaps in implementation of Labour standards:– Although suitable laws are in place, there is often a huge gap in

implementation e.g. in MGNREGA scheme of India, provision of crèche for working women with small children exists but is seldom provided

State of Poverty: Asia Pacific

Region

Source: Statistical Yearbook for Asia and Pacific , 2011. (Data source: UN MGD Indicators, World Bank)

Absolute terms: 900 million poor in AP region-About 450 in India

China pulled out 680 people from poverty between 1981 and 2010

THE CHALLENGE OF ENVIRONMENTALLY SUSTAINABLE DEVELOPMENT

SOCIALLY RESPONSIBLE ENVIRONMENT

Value of Nature

Ecosystem services and life support systems:• Provisioning services – goods obtained directly from

ecosystems e.g. food, medicine, timber• Regulating services – benefits from regulation of

natural processes e.g. waste decomposition, climate regulation, crop pollination

• Supporting services – Regulation of basic ecological processes e.g. nutrient cycling, photosynthesis, soil formation etc.

• Cultural services – psychological and emotional benefits from human relations with ecosystems e.g. aesthetic, spiritual, recreational experiences

(Millennium Ecosystem Assessment, 2005)

Gross Undervaluing of Nature

• Both markets and governments tend to grossly undervalue nature leading to its rapid destruction and subsequently our very life support systems

• When rate of consumption exceeds the rate at which natural systems can regenerate, natural capital is depleted

• The capacity of nature to sustain humans has declined to almost half over the last four decades or so (GFN & CII, 2008)

• At rates of development and consumption, human kind will need the ecological resources of 2.3 planets to sustain itself in 2050, or in the next four decades! (report in Indian Express, Nov 30th, 2011)

Carbon-footprint: Asia-Pacific Region

• Figure from ADB-WWF to be downloaded

75%

Struggle of Climate Refugees• Kiribati (population 1.03 L) is one of the lowest lying Pacific

nations – hence most vulnerable to climate change• It is one among a string of 33 coral atolls halfway between

Hawaii and Australia• A 37 year old refugee and family from Kiribati in New

Zealand refuses to return as rising sea levels make it too dangerous for his family to survive; would become inhabitable in 30-60 years

• Immigration denied on grounds that “refugee is someone who is being persecuted”

• His lawyer has argued that his client did suffer an indirect form of human persecution because of climate change caused by pollution humans generate.

• The case coming up today (16th October, 2013) in New Zealand‘s High court is being watched closely - implications for millions of potential ‘climate change refugees’

(Ahmedabad Mirror, 3rd Oct, 2013)

Carbon Footprint: Case of India• India has the world’s 3rd largest ecological footprint

after the USA and China (GFN and CII, 2008)– Per capita ecological footprint of the wealthiest Indians

(top 0.01%) is 330 times that of the poorest 40%– Water mining is taking place at twice the rate of natural

recharge in many parts of the country. Per capita water availability is expected to fall from 1820 cu m/annum in 2001 to 1140 cu m /annum in 2050

– As per Indian Council of Agricultural Research (ICAR) India looses 16 tons of topsoil/ha annually or about 5 billion tons across the country – it takes millennia to form topsoil so necessary for agricultural productivity.

– India has high bio-diversity of over 130,000 plant and animal species. According to MoEF, at least 10% are on the “threatened species” list. With a 2 degree C global warming India would lose anything from 15 to 40% of its species.

Depletion of Natural Capital: Impact on Poor

• 275 m people in India depend on non-timber forest products (NTFP) for their livelihood. Ecological destruction directly affects these people’s lives and livelihoods

• 250 m people live along the Indian coastline, many of them fishing villages. Release of an estimated 5.5 billion liters of waste water into the ocean per day is severely threatening marine ecosystems as well as the lives of coastal population

• Green business that conserves natural capital is ultimately good for inclusive society

Poor

Ultra-poor

Depletion of natural

capital

Environmental pollution and

climate change

Disproportionate impact on food & livelihood security

Disproportionate impact on health,

livelihoods and vulnerability to climate

change

Defining the limits to growth

Source: Self-compiled

‘CSR’ AS A CORPORATE RESPONSE

Evolution of CSR over the Decades• Corporate managers responsible to public as a whole and

not just to shareholders (Dodd, 1932)• CSR or ethical corporate behaviour rooted in the

stakeholder theory which views business as socio-economic entities– Stakeholder defined as “any group or individual who can affect

or be affected by the achievement of the organisation’s objectives” (Freeman, 1984)

• Context focused CSR – Organisations should find social needs that align with their particular expertise and should not simply throw money at good causes (Porter and Kramer, 2002)

• Strategic CSR – integrating CSR into core business can be a source of competitive advantage (Werther and Chandler, 2010)

• CER emerging from CSR as a distinct and equally important responsibility

CED, 1971

Typologies of CSR

Sethi, 1975 Carroll, 1979

Social obligation Economic, legal responsibility

Social responsibility

Ethical responsibility

Social responsiveness

Discretionary responsibility

Source: Committee for Economic Development (CED) , 1971

CSR Reporting: Triple Bottom Line

Profits

People(Social viability)

Planet(Ecological benign)

§ John Elkington (1980) coined the term TBL to highlight the importance of accounting for non-financial aspects of performance in corporations, including social performance.

§ Emphasizes Accountability and Transparency in terms of sustainability goals

§ Global Reporting Initiative (GRI) Sustainability Reporting Guidelines among others

Example of Australian Economy:

TBL accounting for 135 discrete sectorsFinancial aspects – e.g. $ of export earnings /$ of GDPSocial aspects – e.g. minutes of employment generated / $ investedClimate change aspects – e.g. kilograms of CO2 emitted / $ invested

CSR in Asia-Pacific

• CSR practices vary: depends on what is important to stakeholders in their own country and on local culture

• CSR Reporting: Japan (99%), China (60%), Singapore (43%), India (20%) (KPMG triennial report, 2011)

• CSR Performance:• Internal factors - e.g. fair wages, freedom of association and staff development.• External factors - e.g. code of ethics, corruption, inspection of suppliers, fair trade, • Performance of Asia in general was low compared to that of Europe – particularly

for internal factors• Singapore performed better than Hong Kong and Europe on external factors

– Japan has high performance of CSR with priority to environmental issues, community involvement and employee relations

– Korea emphasizes non-discrimination among employees and restriction on sue of child labour by suppliers

– Hong Kong though very well developed as an economy trails behind others in external aspects.

– Bhutan’s Gross Domestic Happiness concept is being operationalised through efforts of the government. CSR promoted actively under such a policy environment in a tiny country of 7 lakhs population is watched by the world with great interest

– (Source: Welford, 2004)

CSR and Human Rights

• International Labour Organisation’s (ILO) revised Declaration on Fundamental Principles and Rights at Work serves as a useful guide:– Core labour rights dealing with child labour

– Forced labour

– Non-discrimination

– Freedom of association and collective bargaining

• Need to go beyond Labour rights to protection of all basic human rights as well (as discussed earlier)

CSR Promoting Agencies in A-P Region

• CSR Asia– Founded in Hong Kong in 2004– Provides information and tools for CSR in AP region– Stakeholder dialogues, research, training

• Asian Corporate Governance Association– Founded in 1999, Hong Kong– Focus on effective corporate governance– Research, advocacy and education

• SAFoRB (South Asia Forum on Responsible Business)– Founded Dhaka in 2007– A civil society forum for NGOs to effectively engage with business– Focus on respect for human rights

• PiC (Partners in Change)– To promote CSR in India, 1995– Focus on building sustainable partnerships between corporate sector and

social development initiatives

‘SRI’ AS A CORPORATE RESPONSE

Socially Responsible Investment (SRI)

• SRI can be seen as a parallel initiative to CSR that leverages the power of the investor including FIs

• Defined as “an investment process that seeks to achieve social and environmental objectives alongside financial objectives”

• SRI should lead to inclusive sustainable development not just growth

• Impetus from global networks and bodies such as the United Nations– UN Principles for Responsible Investment (set of 6 principles)– International Finance Corporation ‘s (IFC) mission to promote

sustainable investment in developing countries– UNESCAP’s I4D initiative– UN Global Compact (set of 10 principles pertaining to human rights,

labour, environment and anticorruption)– OECD Guidelines for Multinational Enterprises (all 30 OECD and 9

others have pledged their allegiance to these)

SRI Activities

• Indexes– Stock market indexes to guide the investor on businesses

with social and environmental agenda– e.g. Dow Jones Sustainability Index, or FTSE$Good Index

• Ratings– Ratings serve similar functions – e.g. Green Leaf Ratings of companies in India by CSE, New

Delhi, in selected sectors which works on voluntary disclosure

• Funds– Investment Funds offering portfolios of socially

responsible financial products– e.g. Alternative Energy Mutual Funds in USA, have

outperformed all other MFs this year (Roen, 2013)

SRI in Asia-Pacific region

• About 150 SRI related funds in Asia worth 20-30 billion US$

• Japan in the forefront but SRI funds still account for negligible part of Japanese market (2-3%) as compared to USA (15%) and UK (12%).

• Limited interest so far of Asian companies to be listed on socially responsible financial market indices

• Druk Holdings and investment (DHI) in Bhutan, 2007, is the investment arm of the royal government. – Policy to encourage and pursue CSR in each investee company

– Help corporate sector to conform to wider Gross National Happiness policy of the government

• Equator Principle members – Commit to not provide loans to borrowers unwilling to comply with social and

environment policies of EP

– Industrial Bank of China, Australian Export Finance and Insurance Corporation are examples of members in AP region

SRI Agencies in A-P Region

• ASrIA (Association for Sustainable and Responsible Investment in Asia)– Founded in 2001, Hong Kong

– A non-profit, member based organisation of FIs

– Provides training, capacity building, information

– Organises conferences

• AIGCC (Asia Investor Group on Climate Change)– Established in 2011 by ASrIA

– Offers Asia-specific tools, resources, research

– Platform for FIs to share best practices and collaborate on investment activity, risk management and policy advocacy

SRB AND BUSINESS DEVELOPMENT SERVICES

Typology of Socially Responsible Business

Yes

InclusiveNeutral

No

Eco-friendly

Yes Neutral No

+ + +Most socially responsible

+ +Social Business

entrepreneurship

+ +Ecological

Entrepreneurship

+Socially,

environmentally benign

Business as Usual

Business

as

1 2

3 4

Source: Self-compiled

Box 1: Aakar

• The Problem– > 300 million women in India do not use sanitary pads – forced to use dirty rags, ash

and other materials– Suffer from diseases like toxic shock syndrome, cervical cancer, reproductive tract

diseases– 23% school dropouts during menstruation

• Aakar’s Solution– Produces high quality (BIS standard) biodegradable sanitary pads at affordable cost

(Rs 2/pad)– Community awareness – Promotes local entrepreneurship by providing machines to produce the pads locally– Manages the supply chain for raw materials

• Progress so far– First processing unit set up in Khatima, Uttarakhand, 2010– Partnered with the Gujarat Livelihood Promotion Ltd. To set up 606 units within the

state in the next 5 years– By 2018, goal is to generate 11,000 jobs and have 6 m women beneficiaries

• Founder– Sombodhi Ghosh

People Planet

Source: Personal comm and company website

Box 2: EmbracePeople

Source: Company website

Box 2: Embrace• Problem

– > 20 m low-birth-weight and premature babies born every year around the world

– > 4 m die within their first month of life – temperature regulation being the main issue

– Mortality particularly high in developing countries where incubators are extremely rare and expensive; also difficult to repair and maintain

• Embrace’s Solution– Innovative low cost infant warmer for vulnerable babies– Costs a fraction of the regular incubator ($25 versus $20,000/-)– Works without continuous supply of electricity– Uses innovative wax incorporated in a sleeping bag and is portable– Stays at constant temp up to 6 hours

• Progress so far– First version launched in 2011– 35 employees, based in Bangalore– Currently being distributed in clinics in South India– Partnerships with several multinationals to distribute the product

• Founders– Jane Chen and Razmig Hovaghimian, alumunus of Stanford Graduate School

of Business

People

Box 2: BioSensePeople

Source: Company website

Box 2: BioSense

• Problem– 1.6 billion people worldwide are anemic– Reluctance to get blood tested through invasive techniques– Problems associated with non-disposable syringes

• Embrace’s Solution– Developed TouchHb a non-invasive instrument to test blood for

anemia– Runs on AA batteries– Price advantage of over 15 times compared to conventional equip that

costs Rs 5 lakhs (7700 US $)– Rs 5/ test as compared to Rs 18-20/ test in conventional method

• Progress so far– Sold >200 units to > 130 clinics– Further research to improve reliability from present level of 90%– Plans to tie up with National Rural Health Mission – direct access to 12

m pregnant women

• Founders– Abhishek Sen and Yogesh Patil, two young doctors in India

People

Source: personal communication

Box 3: Roof-top Gardening

Planet

Chicago Botanic Garden's 20,000-square-foot vegetable garden atop McCormick Place West in Chicago.

Source: Company website

Box 3: Rooftop Gardening

• In Chicago, 359 roofs are now partially or fully covered with vegetation, – provides all kinds of environmental benefits — from

reducing the buildings' energy costs to cleaning the air to mitigating the urban heat island effect

– The farm atop McCormic Place, the largest convention center in North America produces 8000-12000 lbs of food per year

• In Bangladesh, Youth Against Hunger started it in Dhakka in 2011

• In India, lot of interest in experimenting, Bangalore, Chennai, and Guwhati

Planet

Heuristics of Ecopreneurship

• An ecopreneur is an entrepreneur with a passion to address environmental issues and work towards greening of the economy

• Reduce, Reuse, Recycle (3Rs) most popular heuristics of ecopreneurship

• Lesser known heuristics need to be popularised:– Relocate, Reincarnate, Remanufacture,

Redesign, Recover, Retire, Revive…(Pastakia and Joshi, 2013)

Outlook database: Funding pattern

Sample of 65 social businesses documented by Outlook Business (2010-2013)

Source: self-compiled

Business Development Services for SRB (India)

• Incubators / Accelerators:– Aarohan Ventures, New Ventures India, Villgro, Dasara,

Deshpande Foundation, Khosla Labs, RTBI – IITM’s Rural Technology and Business Incubator, UnLtd India.

• SIDBI– Received international recognition from the Association of

Development Financing Institutions in Asia and the Pacific (ADFIAP) for its work in SRI and BDS

– Company to facilitate transfer of technologies under Clean Development Mechanism

– Credit guarantee fund for MSME– Independent SME Rating Agency– Asset reconstruction company

• Educational and training institutions like EDI, IIMs, IITs etc.– Training and capacity building, – Courses on new product development and social business being

offered

TOWARDS A FRAMEWORK FOR SOCIALLY RESPONSIBLE BUSINESS (SRB)

Towards a Framework for SRB

People’Institutions

CSOs

Collective Enterprise

Grassroots Entrepreneurs

FIs

SRI

SRBSocial Issues

Environmental issues

CSR CER

Government CSOs

Continuous Improvement on Internal issues

Government CSOs

Continuous Improvement on Internal Issues

Source: Self-compiled

Two Approaches to SRB

• Approach for Brownfield companies– SRB can be achieved through CSR – In case of group of companies, can gradually

transform its portfolio towards more responsible business

• Approach for Greenfield companies (start-ups)– SRB can be achieved through SRI and– Innovation in all departments of the game –product

design, service delivery, processes and technology, business model, supply chain,

– Strategic partnerships with institutions of the poor and excluded

CONCLUSIONS

Conclusions• The state of poverty as well as the trends in global warming

and depletion of natural capital in the Asia-Pacific region warrants urgent attention of governments as well as private and public sector corporations.

• However, the response from the corporate world particularly the MSME sector is both slow and inadequate.

• The impetus for change is coming through international agencies such as UNESCAP on the one hand and young social business and green entrepreneurs on the other.

• Governments need to be sensitized to create more conducive policy environments for SRB and to create eco-systems for providing support to these young entrepreneurs.

• Large corporate houses need to be sensitized to gradually shift their portfolios to more SRBs.

Conclusions

• CSR has evolved from the traditional practice of philanthropy to more context-specific and strategic CSR that can generate competitive advantage to those corporations that adopt it.

• However, most private companies in countries like India continue to follow the traditional practice and a large number are yet to embrace CSR in its true spirit.

• CER should be promoted as a distinct field of operation from CSR in order to facilitate better accountability and disclosure and put pressure on corporate houses to improve their performance on the environmental front.

• Adoption of triple bottom line approach for corporate reporting is a step in the right direction.

Conclusions

• There is an increasing trend to legislate and make CSR/CER mandatory; however, mere legislation may not serve the purpose for many types of CSR/CER initiatives that can only come from a change of heart.

• Need to create greater awareness and urgency for action amongst all stakeholders including investors, producers, consumers, supply chains and citizens.

• Governments may have to strike the right balance between mandatory and voluntary approaches keeping in view their specific socio-ecological contexts.

Some Issues for Deliberation• To what extent can CSR/CER be made mandatory?

What are the likely benefits and possible downsides to this approach? Should ‘triple bottom line’ reporting be made mandatory in Asia-Pacific region?

• How can the power of consumers and investors be leveraged to make the business community more responsible in the Asia-Pacific region?

• How can the power of judiciary be leveraged to bring to book those companies that violate human rights principles or pollute the environment contributing to global warming? What should be the disincentives for industrial units whose net social and environmental impacts are negative?

Some Issues for Deliberation

• How can Asia-Pacific nations collaborate to deal with environmental issues that transcend national boundaries? How can CER interventions be designed to tackle the issue of ‘climate change refugees’?

• How can governments be sensitized to create a level playing field in all sectors for SRB? Should financial and tax incentives be used to promote SRB in selected sub-sectors and if so what should be the nature of these incentives?

• How can governments promote/strengthen SRI and BDS for social and eco-friendly start-ups?

• How can the youth be encouraged to take up such entrepreneurship?

THANK YOU!