Multinational corporations can deliver impact at scale, but how?
Rather than simply piloting another project, Novozymes is building on past experience to think bigger. Photograph: Charlie Neibergall/ASSOCIATED PRESS
By Stefan Maard, head of sustainability innovation, Novozymes, and Morten Møller Holst, co-founder, DIVA
Novozymes has co-founded a not-for-profit incubator that will co-invest in for-profit impact ventures in partnership with large corporations
What is the best way for multinational corporations to contribute to the achievement of the new sustainable development goals (SDGs)? Novozymes has been grappling with this sort of question since 2007 when the company’s management decided to explore new opportunities for impact-oriented business, guided by the question: “How can we use our technology to support the global development agenda?”
At the time, Novozymes’ business units were reluctant to engage in what were perceived to be high-risk activities with uncertain outcomes. But after a couple of concepts, and a lot of passionate pitching, an idea finally gained traction: to develop a full value-chain business that would provide a clean cooking solution using locally produced ethanol from sustainably grown cassava. This fuel source would replace charcoal use among urban consumers at the base of the economic pyramid (BoP).
The initiative launched in Mozambique in 2010, with the objective of improving urban lives with clean and affordable energy, reducing charcoal-based deforestation, and improving rural livelihoods through increased incomes and improved agricultural productivity.
For Novozymes, this required creating a new business model whereby smallholder farmers would transition to agroforestry cultivation and sell their surplus production to a local biorefinery. The biorefinery would produce food, feed and cooking fuel using enzyme technology provided by Novozymes which, along with clean-burning ethanol cook stoves, would be sold in urban markets.
The model called for Novozymes to limit its role to venture sponsor and technology provider to the local biorefinery, thereby having only an indirect association with the value chain. The biorefinery would only be active in one segment of the value chain and it would be necessary to create a new market for ethanol-based cooking fuel. Further, there was a need for partners with expertise in BoP market creation to fill gaps in the value chain. All of this was quite distant from Novozymes’ core business.
To realise its vision, Novozymes set up a joint venture with a for-profit impact venture developer. The venture, in turn, established a range of relationships with local and international partners. As they achieved proof-of-concept, the partners raised capital through an innovative (and later award-winning) carbon-finance deal with Bank of America Merrill Lynch. Impact investments from the Soros Economic Development Fund and the Danish Investment Fund for Developing Countries soon followed. At its peak, the venture raised millions of dollars and involved thousands of suppliers and customers.
Unfortunately, a combination of insufficient venture incubation coupled with inadequate partnerships led to the venture’s decline, and to Novozymes’ exit in 2014.
Looking back, a number of lessons stand out:
Multinational corporations, while uniquely positioned to scale up solutions that work, are often reluctant to reach too far from their comfort zones when faced with high opportunity costs and significant capability gaps.
While there is a growing desire among donors to be “catalytic”, early-stage support to budding corporate impact ventures is often fragmented and poorly designed.
The space for impact investing has grown significantly. At the same time, there are a marked lack of quality deals out there, so deals co-sponsored by corporations are particularly attractive.
These insights, combined with the lessons from the Mozambique venture, gave rise to a new idea: a not-for-profit incubator that would co-invest in for-profit impact ventures in partnership with large corporations, with a focus on early-stage business development requiring innovative models and partnerships. Such an incubator would enable multinationals to reach further and become more ambitious in creating impact and scaling inclusive businesses. Together with the World Business Council for Sustainable Development and Novozymes, and with pro bono assistance from Pillsbury Law, the authors have started building this incubator. We call it DIVA.
The purpose of DIVA is to:
Lower the hurdle. Utilise blended finance – the right mix of philanthropic, concessional, and commercial capital to change the incentive structures for multinational corporations to engage in corporate impact ventures;
Design for scalability. Incubate impact ventures championed by multinationals, developing coalitions and venture structures to attract capital at all stages of their maturity - and scale with the partners’ collective strength;
Establish a blueprint. Work with partners to remove barriers to impact ventures and build a conducive ecosystem.
We are doing this because we believe in multinational corporations’ potential to deliver impact at scale, and that something is missing to realise that potential. We believe that something is DIVA.
Our approach is to develop a systemic solution to a systemic challenge. This is why Novozymes is involved. Rather than simply piloting another project, the company is building on past experience to think bigger. As part of its new strategy of “partnering for impact”, Novozymes wants to help achieve the SDGs by co-founding DIVA, enabling the development of many high-impact ventures, collaborating with existing actors and building the right coalitions around opportunities.
As Claus Stig Pedersen, Novozymes’ head of corporate sustainability, puts it: “We started this journey with a bold venture in Mozambique, but this latest step with DIVA takes the company to a new level in the pursuit of business-driven impact. Hopefully many others will join this path and we will see many more corporate impact ventures delivering on the SDGs.”
For Novozymes, DIVA is an expansion of business development capability and a new channel for developing opportunities. It will enable the company to reach further, build new expertise and explore ambitious new ventures with the potential for greater development impact.
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