Companies overlook risks and miss opportunities when they don’t assess human rights impacts.
This post originally appeared on NextBillion. It is co-authored with Mara Bolis, a senior advisor on market systems in Oxfam America’s Private Sector Department.
Erik Simanis is a leading academic and corporate base of the pyramid consultant and researcher. He has been widely interviewed and published in The Harvard Business Review, The Wall Street Journal, The Stanford Social Innovation Review and, of course, on NextBillion, among others. So when we read his latest article in The Guardian UK in which Simanis argues impact assessments are good for nonprofits but bad for business, we had a number of reactions – the main one being:
Simanis makes the baffling and wrong-headed argument that impact assessments “serve as a report card back to the funders of nonprofits” that their grant dollars are being spent wisely. But such assessments “impede progress more than enable it” when in the hands of private enterprise looking to serve the base of the pyramid profitably.
“Insisting that BoP ventures focus on broad social impacts sets projects up to be viewed internally as corporate social responsibility (CSR) programs rather than business opportunities,” Simanis writes. “When that happens, attracting resources and securing the support of country managers – the people responsible for commercial activity in a territory – will be an arduous uphill battle.”
He later adds: “And there’s reason to doubt that BoP consumers get any added value from the added cost of impact assessments. BoP consumers, much like other consumers, rarely buy products because they are ‘good for them’.”
We believe this line of thinking sends the business community an irresponsible message.
More and more companies are realizing the importance of measuring social, economic, and human rights impacts (not just environmental impacts) since the 2011 UN Guiding Principles on Business and Human Rights, which requires companies to look at the entire value chain of a commercial product, not just the consumer end. Also, Oxfam’s experience in supporting human rights impact assessments at the community level proves otherwise.
Here are five reasons why Simanis got it wrong, and why companies overlook risks and miss opportunities when they don’t assess human rights impacts:
- Base of the pyramid (BoP) ventures can have unintended negative consequences.
The assumption in the article is that BOP projects are somehow inherently good is naïve. Yes, let’s say (as in one of his examples) that increased use of anti-bacterial soap could have the positive effect of lessening diarrhea rates. But what if that same soap contains chemicals that contaminate the water supply? How would a company know this potential liability expose for the company and major risk to communities if it doesn’t conduct an impact assessment? Innovative ventures have the potential to help, but also can do more harm than good through unintended negative consequences.
- BoP products have a value chain too.
Simanis assumes that BoP Ventures only touch people living in poverty as consumers. But in fact the world’s most vulnerable people are already part of supply chains or employed by large-scale industries. People living in poverty may be purchasing the anti-bacterial soap, but they may also be the ones making the soap in unsafe factories or growing the ingredients like palm oil for the soap, which is a commodity notorious for forced labor, land grabs, and deforestation. Oxfam’s Behind the Brands campaign, for example, highlighted land grabs in the supply chains of Coca-Cola and PepsiCo, of which they were completely unaware until our investigation. This was precisely because they had not assessed for such impacts in the past.
- Why should profit get all the attention?
By definition, BoP ventures are hybrid efforts. To quote another BoP expert, Ted London,
“BoP perspective relies on the hypothesis of mutual value creation…Indeed BoP ventures are expected to generate acceptable economic and societal returns to the organization investing in the venture, and the local community in which they operate.”
One would never argue against the need to monitor the profit potential of a BoP venture, yet somehow gauging a venture’s social impact is portrayed as, at best, a distraction, and at worst, putting these engagements at jeopardy. Regular project monitoring (of both financial and social returns) should be seen as a management tool that allows companies to determine whether the opportunity cost of investing in a particular BoP venture is paying off, where it’s failing, and where corrections need to be made in the interventions in order to meet the goals.
- The customer is always right.
Impact assessments provide communities with information that enables them to more fully participate in a BoP project’s implementation. As with any consumer product testing, feedback from the communities via impact assessments provides input into program improvements to better serve their needs. Would communities use their anti-bacterial soap more as a bar or as a liquid? Simanis seems to think that by asking “uneducated consumers” questions about the product, they will not understand the difference between an NGO handout and for-profit company’s product. He provides no evidence for this in the article and frankly, this is condescending.
- Money for impact assessments is well-spent.
Simanis is right that the costs of research and assessment are high and can weigh heavily on the very profit margin that makes BoP ventures sustainable. But rather than arguing for an abandonment of impact assessment, wouldn’t it be better to argue for increased resources for companies, research organizations, and NGOs alike to undertake such important assessments? What about a donor-pooled BoP venture impact fund? This is a problem worth solving.
At the end of the day, forward-looking companies will not dismiss, nor fear impact assessments. As more major corporations gain experience and benefits, they will continue to view them as indispensable to managing risk, building good faith with stakeholders, and sourcing new opportunities.