Four ways corporate activity might pivot en route to the SDGs

Beer produced by brewer SABMiller at a bar in Cape Town. SABMiller is being acquired by AB InBev. How might the acquisition affect the combined company’s efforts in sustainable development? Photograph: Mike Hutchings/Reuters

By Bhaskar Chakravorti

Business involvement in sustainable development is intimately linked to the strategic context in which it operates. Here are four ways to consider this context

It has been almost a year since the launch of the UN sustainable development goals (SDGs). Given that one of the distinctive aspects of these goals relative to their predecessors is that business is a key participant, some natural questions arise: what can we expect business contributions to be ? Which businesses are involved already and what are they doing to advance the goals? How much of this activity will be sustained through 2030?

Business involvement in sustainable development cannot be de-coupled from the larger strategic context in which a company competes. In today’s hyper-competitive world, this context changes rapidly. We launched our Inclusion Inc. research initiativeto get, in part, a better sense of how business investments in sustainable development fit within the strategic contexts of companies. A key implication of our analysis is that because of the pace of competitive environments, there is much that will change over 15 years. What businesses are doing today in connection with the SDGs will evolve. In some cases, the changes can be quite dramatic. If, as a policymaker for the SDGs, you are relying on businesses to play a part, it is prudent to understand the impact of business imperatives and build resiliency into your plans.

To get a sense of the 2016 snapshot of what companies are doing currently, there are many places to go. Some companies are making their own declarations and have webpages on the topic, for example, SAP. There are multiple organisations documenting such activity; consider Business for 2030, the UN Global Compact, and the Global Business Alliance for 2030. There is even an SDG Compass to guide businesses and manage their contributions to the goals. A plethora of case studies can be found on Business Fights Poverty and Business Call to Action. 

As for how this snapshot might evolve, unlike traditional development programs – run by governments or international agencies and often operating over long time frames, corporate activity in sustainable development can pivot because of changes in the competitive environment or in the company’s strategy.

Here are four of the most likely pivots that we should expect en route to 2030.

Strategic shifts

Many companies will follow a path whereby budgets and decision-making on sustainable development graduate from marketing departments to business units with profit and loss responsibilities.

Consider a classic example, Coca-Cola. Prior to 2005, Coca-Cola invested peripherally in various activities deemed “sustainable” and produced a neatly packaged sustainability report. This approach to investments in sustainable development, made primarily for marketing purposes, changed when – according to Muhtar Kent, the CEO, “We said we’re going to actually do it a little differently, because we came to the conclusion that if you want to be a business that’s going to be around for the next hundred years, you’ve got to make sure you not only create value for stakeholders, but also for the people that work for you, your partners, your consumers, your customers, [and] governments.”

It had become clear that the majority of Coca-Cola’s growth was going to be from the developing world. This also meant that the company had a strategic stake in rising incomes and wellbeing of its future consumers. Given the power of the public sector and regulators in many emerging markets, these are regions where one cannot afford to antagonise different stakeholders. Moreover, these regions are among those most affected by environmental degradation and clean water shortages, in particular. Investments in these areas were deemed essential to the company’s long-term survival. Most significantly, decreasing demand for carbonated soft drinks also made it critical for Coca-Cola to re-balance its revenue streams with brands considered to be healthier.

Coca-Cola’s closest competitor, Pepsi had been affected by the same forces and had undergone a similar transformation. Coca-Cola’s investments, particularly in water and wellbeing, are essential to its strategy and in keeping with the tit-for-tat competitive dynamic with Pepsi for which the two companies are famous.

Leadership changes

Many significant changes in priorities happen when new CEOs come on board. At Microsoft, Satya Nadella took over from Steve Ballmer in February 2014 and has sought to re-define the company that, while still enormous, had lost its competitive edge. Nadella chose to re-position Microsoft as a “productivity” company, rather than one tied to a suite of devices and services – an idea firmly tied to his predecessor. Consider this quote from Nadella’s tone-setting memo to the company:

“At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.”

A shift towards productivity-centric positioning was also associated with technology markets changing, causing Microsoft to interact in a new way with customers. Microsoft relies on ongoing relationships with customers rather than shipping software on discs or bundling the software with hardware. At the heart of these developments is Microsoft’s ability to grow and maintain these relationships digitally, which, in turn, crucially depends on expanding reliable internet connectivity.

Microsoft’s competitive context and Nadella’s new vision for the company are key to understanding their push for digital inclusion. Ensuring connectivity in emerging markets is essential to expanding its potential customer base and to ensuring productivity of its consumers. Microsoft has now increased investments in providing internet connectivity as part of its inclusive business initiatives. 

Mergers, acquisitions and other significant transactions

When companies are merged, acquired or make other changes in their corporate structure, one can expect a ripple effect on every significant investment activity, including those in sustainable development. One of the companies we studied, SABMiller, is being acquired by its larger rival AB InBev and provides an interesting example.

How might the acquisition affect the combined company’s efforts in sustainable development? The outcomes could be mixed. On one hand, while SABMiller has a strong track record, AB InBev has its own strengths; it had declared itself to be the industry leader in efficient water use. Clearly, the economies of scale between the merge can produce further efficiencies and knowledge transfers.

On the other hand, a larger company can exercise greater buyer power and this could affect the smallholder farmers and local entrepreneurs who have benefited from SABMiller’s inclusive business programs. In 2015, its Prosper programme simplified SABMiller’s sustainable development objectives to five shared imperatives, the first of which, “a thriving world,” aims “to accelerate growth and social development through value chains,” and directly support half a million small enterprises by 2020. SABMiller’s partnerships with local enterprises are crucial for its success in developing countries, since they are the suppliers and consumers of its products. How will these relationships be affected when SABMiller is part of a larger company, especially one with a need to show cost savings and increased efficiencies?

The history of other M&A situations suggests that such transactions can, on average, be quite disruptive and cost-cutting measures disproportionately affect investments with long and unclear payback times. For added context, AB InBev is known for aggressive cost-cutting as it consolidates activities after an acquisition. It is reportedthat it expects annual cost savings of about $1.4bn (£1bn) in four years from the SABMillier acquisition. 

Macro events and trends

Broad global trends and even one-off events can have an impact on a company’s sustainable development activities, sometimes quite dramatically.

Few companies illustrate this pivot – and its complex turns – better than BP. Of course, BP’s decisions regarding sustainable development were profoundly affected by a single catastrophic event, the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. BP had to re-double its efforts to reassure a skeptical public, shareholders and government regulators that it was taking extraordinary measures in safety and environmental responsibility across all its facilities, even while spending on recovery and compensation efforts. In parallel, BP has scaled back its role as a pioneer in the industry in its sustainability efforts.

The Deepwater Horizon event aside, several over-riding macro factors made a difference to BP’s decisions over time. For one, the collapse of global prices for oil, made the business case for renewable energy more challenging, while causing a decline in core revenues for the industry. The 2008 recession and its aftermath along with continuing geopolitical instability in key oil-producing regions was another set of factors weighing down the company. In an earlier phase, BP had chosen a first-mover position on alternative energy investments. With a branding of the company as “Beyond Petroleum”, BP was spending $450m (£340m) a year on research alone, with 4,400 research scientists and R&D support staff and $8bn (£6.1bn) directly invested over five years in alternative energy projects.

By 2009, BP Alternative Energy was closed, with BP Solar to follow in 2011. A four-year old project to spend $300m (£229m) on a cellulosic ethanol refinery was aborted in 2012 and its wind farms put up for sale in 2013. Now, BP’s current strategy is to achieve sustainability goals more through collective effort. It’s working with key stakeholders, including governments and other energy companies, to ensure they adhere to their sustainability commitments.

The larger lesson is a simple one. Business investments in sustainable development do not happen in a vacuum. After all, business priorities are constantly being buffeted by changes in the competitive environment and changes within the organisation. This can create uncertainty and challenges for the sustainable development agenda. The key is to anticipate such pivots where possible and find alternatives. It is important to track the strategic contexts of key companies and not simply go by what is on their websites or on the many sites that collect information on business and the SDGs. There will be plenty of bottlenecks, exits and accelerations on the road to 2030. And yet, we must have a robust plan to get there.

Bhaskar Chakravorti is senior associate dean of international business and finance at The Fletcher School, Tufts University. He is also the founding executive director of Fletcher’s Institute for Business in the Global Context and author of The Slow Pace of Fast Change. The research reported here was supported by Citi Foundation.

Content on this page is provided by Business Call to Action, and originally appeared on the The Guardian Business and the Sustainable Development Goals Hub