Sustainable Solutions to Poverty

In this entry I have two recent experiences to write about. This weekend I attended the Net Impact Conference in Philadelphia, PA. I had the opportunity to attend a variety of panels on topics ranging from microfinance to “greenwashing.” In addition, last week at Haas the Net Impact club hosted the second in our Capitalism Next Speaker series. The topic of the session was how private enterprise can sustainably fight poverty in emerging economies.

During these two events, I started thinking about sustainability in a new way. We hear a lot about how companies can make their products more sustainable by reducing packaging or using recycled materials. We also frequently hear about how homes and business can become more sustainable by using better insulation, adding more natural light, and using environmentally friendly materials. But we don’t often think about how aside from products and buildings, the structure of the organizations we create must be sustainable for them to truly succeed. Obviously with respect to the core operations of for-profit businesses this is intuitive. If a business consistently spends more money than it takes in, has trouble paying its suppliers, and treats its employees miserably, the business is likely on a fast road to failure. However, many organizations whose mission is to address poverty, whether the philanthropy arm of a large company or an independent non-profit, are recently realizing that creating a sustainable organizational model can drive extremely successful results. It’s the mentality of teaching a man to fish rather than giving him the fish to eat, so that he can feed himself after you row your boat off into the sunset. This week I have seen evidence that more and more organizations are developing innovative, creative, and sustainable models to address social problems.

On Saturday at Net Impact, I attended a session about measuring the business value of social impact led by Jason Saul, the founder of Mission Measurement. Mr. Saul consults with large companies that want to drive better results from their corporate philanthropy and social responsibility programs. The old way companies looked at these efforts was to do less bad (i.e. pollute less) and use their foundation to do good deeds that were generally unrelated to their profit making endeavors. The budget for these traditional corporate foundations could find themselves at the chopping block during challenging business environments. Such philanthropic efforts were not sustainable because at the end of the day they did not add business value. The emerging trend in CSR is to solve social problems by generating business value. Mr. Saul gave the example of Kraft Foods, which began issuing microloans to Latin American entrepreneurs to open small stores. These store owners then have the option of stocking Kraft products. The communities in Latin America win because new jobs are created. The entrepreneur and his family win because they achieve a higher standard of living. Finally, Kraft wins because they have created a new distribution channel in a region where they had not previously sold product. Responsibility programs that drive shareholder value will be more sustainable and less likely to face budget cuts. Why would Kraft cut their microloan program when it increases their revenues by opening a new market?

At Capitalism Next, I learned about how for-profit social ventures are creatively addressing poverty for the 72% of the world’s population with a total family income under $3,000 per year, also called the “bottom of the pyramid.” Katie Schmitz of water health international, a profit based organization that provides clean water for communities lacking access, made an interesting comment during the session. She said that the challenge with communities relying on the generosity of donations to meet basic needs is that funding levels are subject to fluctuations caused on philanthropic trends. As Africa has become the “it” region for philanthropists, developing nations in other regions of the world have seen money for their communities dry up. Profit based organizations that address poverty are more sustainable and can continue to meet the needs of the community when the non-profits shift their funds elsewhere. Families at the BOP are willing to buy clean water, and WHI has found a way to provide that water cheaply and profitably. With access to clean water, families then experience less illness. Since physical labor is the primary source of income for these families, good health increases earning capacity. Families win because they experience less illness and earn more money. WHI wins because it earns a small profit off the water it sells.

My last example strays a bit from the two above but was a trend I found very interesting. At Net Impact I attended a panel on the role for for-profit businesses in conflict regions. I learned that multi-national organizations operating in conflict regions are finding ways to make their business operations in those regions more sustainable. Generally companies building operations in conflict regions don’t intend to make the region more unstable. It is common for multi-nationals support programs to reduce poverty in those communities. However, as NI panelist, Melissa Powell from the UN Global Contract mentioned, “the road to hell is paved with good intentions.” To address this, the UN has developed a resources guide to teach multi-nationals how to improve their daily business operations in these countries. For example, the UN encourages the companies to create sustainable relationships with local communities and governments by partnering with them. In the past, some multi-nationals with good intentions built infrastructure for the community. But without government participation these institutions were susceptible to collapse, especially if the multi-national were to leave the region. It is far more sustainable to partner with the government so that the government will build schools, hospitals, and other infrastructure. Obviously most businesses operating in conflict zones are doing so for self-serving, rather than philanthropic reasons. Multinationals would not be operating in these regions if they did not have a powerful reason to do so, such as needing access to valuable natural resources. But bringing business operations to former conflict zones can be an effective way to grow the economies of those areas and promote stability if multinationals operate in a sustainable way.

I think it is wonderful that organizations are finding new, sustainable ways of addressing poverty. The creativity of the social entrepreneurs driving this change by founding their own organizations or by influencing the actions of existing organizations is truly inspirational to me. While I don’t believe that all poverty initiatives should be self-serving or generate a profit, and I definitely believe there is still an enormous role to be played by non-profit organizations helping our world’s poor, I find the growth of innovative approaches to addressing poverty to be an exciting phenomenon.