Saturday, April 20, 2024
CommentaryDoing Well by Doing Good

Doing Well by Doing Good

In the years ahead, successful companies will take the lead in tackling the most urgent development challenges of our time – everything from poverty and disease to climate change. The trick is to identify solutions that address such challenges in ways that are profitable and sustainable in the long run – and then scale them up, writes Ethiopis Tafara.

Two years ago, Tesla CEO Elon Musk decided to open access to his company’s patents to anyone – a move that ran completely counter to traditional competitive behavior. Why would a company give away its hard-earned designs and technology to its rivals?

Whatever one may think of Musk, his courage must be appreciated. He is rewriting the rules of business, based on the belief that Tesla’s success depends on that of the entire market for electric cars, and that his company’s commercial interests are inseparable from the interests of society.

Musk’s unconventional strategy could upend entire industries – for the benefit of all. If Tesla’s open patents succeed in bringing other players into the sector, it could transform what is now a niche product into a mass-market phenomenon – a transformation that would significantly advance the fight against climate change.

There is no sense in asking whether Musk is trying to fight climate change or just trying to make a buck. He is doing both. And, furthermore, it is exactly this type of public-minded capitalism that will be required of successful companies in the future.

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We live in an age of enormous transformation – an era in which focusing solely on near-term financial results is a prescription for extinction, and addressing societal needs is entirely compatible with long-term profitability. While this view may seem unconventional at the moment, time will prove the pioneers right. In the years ahead, successful companies will take the lead in tackling the most urgent development challenges of our time – everything from poverty and disease to climate change.

Consider Kenya’s M-KOPA, a company that installs solar power kits and collects payments via mobile phones. By delivering electricity at lower prices than their customers would otherwise have to pay for kerosene lighting, M-KOPA has delivered solar power to more than 330,000 low-income households in Kenya, Uganda, and Tanzania. New connections are being added at a rate of 500 homes per day.

Phasing out kerosene has an immense impact on the lives of M-KOPA’s customers, their children’s health, and the environment. But the company cannot be considered a charity: its revenues are projected to reach USD 60 million in 2016, having increased by 400 percent in just two years.

Another example is to be found in Peru, where more than 30 financial institutions chose a similarly unconventional path to profitability, working together to establish Modelo Perú – a platform that provides digital financial services.

In Peru, cash transactions had been the norm. The participating companies decided that it was in their collective interest to create a single national platform for mobile payments, and they worked with the government and four telecommunications companies to construct one. Today, the number of Peruvians with access to affordable financial services has expanded significantly. And the institutions behind the project have gained access to a much deeper pool of consumers than they would have if each had developed a separate digital platform.

My own organization, the International Finance Corporation, also knows the value of rewriting the rules. In 2006, we introduced performance standards to help our client companies mitigate risks by applying environmental and social (E&S) principles and advancing the private sector’s leadership in responsible development.

Initially, other financial institutions were skeptical of our approach; they saw the application of strict standards as a sure way to lose business and profits. Within a few years, however, major banks and development institutions came together to establish the Equator Principles based on our E&S standards.

Today, our standards are applied to project finance around the world. They have helped level the playing field within the banking industry. In addition, through the Sustainable Banking Network – an association of central banks, regulators, and financial trade associations – we are helping countries develop national policies to boost green finance. And we are seeing a growing appetite for this kind of expertise, from within governments and the private sector.

The world has the momentum – and the means – to create a mass market for sustainable finance, one in which investment decisions are driven as much by E&S and good governance criteria as by creditworthiness. Companies that have signed the UN Principles for Responsible Investment have combined assets under management totaling USD 60 trillion.

A growing number of businesses recognize that today’s formula for success includes a focus on pressing societal needs. As Musk has found out, the trick is to address those needs in ways that are profitable and sustainable in the long run, and then, when a beneficial business solution is identified, to work together to facilitate its large-scale deployment. With a willingness to challenge assumptions and change conventional perceptions, we can change the world for the better.

Ed.’s Note: Ethiopis Tafara is Vice President for Corporate Risk and Sustainability and General Counsel at the International Finance Corporation. The article was provided to The Reporter by Project Syndicate: the world’s pre-eminent source of original op-ed commentaries. Project Syndicate provides incisive perspectives on our changing world by those who are shaping its politics, economics, science, and culture. The views expressed in this article do not necessarily reflect the views of The Reporter.


Contributed by Ethiopis Tafara



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