Business as usual – or business with purpose?

As we launch our new strategy, Laura Kelly, director of IIED’s Shaping Sustainable Markets research group, considers how the private sector can respond to development and environmental challenges – and how IIED can support business to deliver positive change.

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Insight by 
Laura Kelly
Laura Kelly is director of IIED's Shaping Sustainable Markets research group
17 April 2019
Seedlings. Impact investing directs investment capital to enterprises delivering positive environmental and social impacts, and could play an important role in financing sustainable development (Photo: Geoff Maddock, Creative Commons via Flickr)

Impact investing for positive environmental and social impacts could play an important role in financing sustainable development (Photo: Geoff Maddock, CC BY-NC 2.0)

While the debate on business’ social and environmental impacts (both positive and negative) is not new, when the CEO of Blackrock, one of the world’s largest investors, and the head of Oxfam International are both talking about the potential for business to help achieve inclusive and sustainable development, it feels like we’re at a tipping point.  

When Blackrock's CEO Laurence Fink used the phrase "business having social purpose" in his annual letter to investee companies, he didn’t go on to define the phrase, or explain how it went beyond traditional environmental, social and governance (ESG) criteria. But there are already many ways businesses are seeking to demonstrate ‘purpose’. 

Many big international corporates, from Unilever to TATA, are embracing the Sustainable Development Goals (SDGs) and producing plans (PDF) and frameworks to show how their core business will contribute. Many small and medium enterprises are going down the route of B Corporation certification, which commits them to balancing profit and social impact. 

And even community-led and micro-businesses are assessing where their businesses are in delivering ‘triple‐bottom line’ benefits (PDF). Investors are also getting in on the act, with the Global Impact Investing Network (GIIN), which promotes investments made with the intention of generating positive, measurable social and environmental impacts alongside a financial return, recently assessing the value of impact investing to be US$502 billion.

Fact or fiction?

But how do we know if all this activity will have real, positive impacts on the lives of the poorest people, make women and men more equal, support the environment and liveable cities, and help combat climate change? Or if it’s just green, blue or purpose (claiming idealistic aims) ‘wash’: little more than PR? 

One option is for companies to hold their frameworks and commitments up to external scrutiny and assessment and look beyond traditional ESG metrics and to the ends of their supply chains. IIED’s new five-year strategy, Make Change Happen, recognises that addressing the major global development and environment challenges requires new and innovative alliances and ways of working. We’ve identified five major challenges that link to achieving the SDGs: unsustainable markets; increasing inequality; the climate crisis; the assault on the natural world and increasing urban risk. 

Measuring what matters

As part of our new strategy we’re scaling up our work with businesses (of all sizes) and communities to identify how to incorporate social and environmental concerns into operations and investments in ways that can really lead to development impact.

Partnership is central to IIED’s DNA and we want to build more and deeper partnerships with business to learn what works (and what doesn’t), draw lessons for other businesses and investors, provide advice for local communities and help identify the policies required at local, national and international level to drive transformational change.

For example, our work on financing for off-grid energy for the poorest in Bangladesh and Nepal is trying to identify the policies and financial incentives that are most likely to get the private sector to engage. 

We’re also looking to capture and share learning on how to attract private investment into environmental conservation measures such as marine protected areas, which underpin economic activity and poor people’s livelihoods such as small-scale fisheries and tourism. 

Building on our evidence-based approach, we’re looking at the potential of the growing range of principles and accountability mechanisms designed to assess businesses' contribution to the SDGs. The Climate Disclosure Project has been successful in driving companies to assess and report on their carbon footprint and apply a similar approach to water and forest use. 

We’re working with the newly created World Benchmarking Alliance (WBA) as they refine their methodology and approach to developing transformative benchmarks to chart progress. The WBA is targeted at large companies with major reach but we’re also interested in how the principles behind benchmarks could be used by smaller companies and entrepreneurs who want to demonstrate their contribution to sustainable development. 

We recognise that these approaches are only part of the solution to getting business changing their operations to broaden and increase their focus on their ‘purpose’, but we think it’s an important role we can play.

During the next five years, IIED will engage with business, investors and policymakers to promote transitions to practices that are fit for the future and help to make change happen. Download our new strategy to read more.