The business benefits of doing good

A few years ago,

all the developed countries in the world --

the wealthier ones --

and all of the charities

together donated about 200 billion dollars

to developing countries in the world --

the ones that bear most of the burden,

the heaviest burden
of the world's biggest problems:

poverty, hunger, climate change
and inequality.

That same year,

businesses invested in those same
countries 3.7 trillion dollars.

Now, I get to travel a lot in my work,

and I'm privileged to see
the amazing things

that NGOs and some governments
are doing with some of that $200 billion.

Helping malnourished children,

or families who don't
have access to clean water,

children who wouldn't
be educated otherwise.

But it's not enough

because the biggest problems
in our world need trillions

not just billions.

So if we're going to make lasting
and significant progress

in the big challenges in our world,

we need businesses,

both the companies and the investors

to drive the solutions.

So let's talk about
what business should do.

And when I say that,

you probably think that I'm going
to talk about corporate philanthropy

or corporate social responsibilty,

CSR is the norm today,

and it's very useful.

It provides a root
for corporate generosity,

and that generosity is important
to many corporations' employees

and customers.

But you know what?

It's just not big enough,

or strong enough

or durable enough

to drive solutions to the biggest
problems in our world today.

Because it's incremental cost.

Even when business is booming,

CSR just isn't designed to scale.

And then of course in a downturn,

it's one of the first programs to be cut.

So no,

CSR --

corporate social responsibility --

isn't the answer,

but TSI --

total societal impact, is.

TSI is the sum of all of the ways
business can effect society.

By doing the real work:

thinking about their supply chains,

working on the their product design
and manufacturing processes

and their distribution.

The real work of business,

when done with innovation,

can actually create core business
benefits for the company,

and it can solve the meaningful
problems in our world today.

So what does TSI look like?

Focusing on TSI

means incorporating social
and environmental considerations.

And you know what?

It's something that isn't completely new.

It's been thought about for a while.

But the hard part

is that corporations almost exclusively
still think about something called TSR:

total shareholder returns.

But TSI --

total societal impact --

needs to stand alongside TSR

as an important and valid driver
of corporate strategy

and corporate decision making.

And we've got the data
to show you why and how.

Some companies are already
making this happen.

They're beginning to make it happen.

So let me tell you the story about Mars.

Mars is the sixth largest private company
in the United States.

If you're like me,

they make some important products

like coffee and chocalte.

So not surprisingly,

one of their most important
ingredients is cocoa.

And some of their competitors
are actually really worried

about the sustainability
and the availability of cocoa supplies.

But not Mars.

They're confident in the stable supply
of that crop for the long term.

And why is that?

It's because they partner with NGOs
around the world

that are working with small
shareholder farmers.

And those certification agency's NGOs

are working to help farmers
improve crop yields,

they're making sure that they get
a fair, premium, liveable wage,

and they're helping them address
any human rights potential issues

in supply chains

and they're helping minimize
the effects on the environment,

like deforestation.

Mars is on a path
to 100 percent certified cocoa,

so this is a good program
for farming communities,

it's a good program for the environment

and it's a good program for Mars,

who has solved a significant risk
in their supply chain.

But now let's get to the data

because it's actually really awesome.

And let me explain exactly what the data
points I'm going to talk about are.

When analysts and financial people
look at companies,

they think about
a lot of different statistics.

I want to talk about
two of the most important ones.

I'm going to talk about
the overall value of a company --

it's valuation,

and I'm going to talk about it's margin.

Basically the difference between
all of its earnings

and all of its costs.

So in our study,

we looked at oil and gas companies,

and the oil and gas companies
that are performing most strongly on TSI,

total societal impact,

see a 19 percent premium
on their valuation.

19 percent.

When they do really well on things

like minimizing the impact
of their company on the environment

and water,

and when they have very stong
occupational health and safety programs.

And when they also add in strong
employee training programs,

they get a 3.4 percentage point
premium on their margins.

But what about other industries?

Biopharmaceutical companies that are
the strongest performers on TSI

see a 12 percent premium
on their valuation.

And then if they're best at expanded
access to medicines,

making medicines available
for the people who need them,

they see a 6.7 percentage point premium
on their growth margins.

For the retail banks
that are strongest on TSI,

they see a three percentage point
premium on their valuation,

and then for those that differentially
provide financial inclusion --

access to financial products
for people who need it --

they see a 4.5 percentage point premium
in their net income margin.

Now, these numbers for banks
may not seem very big,

but in highly competitive industries,

even really small differences
in margin matter a lot.

Now what about those consumer
goods companies --

the ones who make those products
we love like coffee and chocolate?

Consumer goods companies that perform
best on total societal impact

see an 11 percent valuation premium.

And then if they do those smart
things with their supply chain,

inclusive and responsibly
sourcing their product,

they see a 4.8 percentage point premium
on their growth margins.

These numbers are significant.

We've long known that things
like fundamental financials,

growth rates and financial risks
are key drivers of valuation,

but this rigorous analysis shows
that social and environmental factors,

total societal impact measures,

are also linked to valuations and margins.

Wow.

All else equal.

We didn't confuse
the analysis with anything.

All else being equal,

companies that perform strongly
on social and environmental areas

achieve higher margins

and higher valuations.

Now, I do understand

that companies are under a lot
of short-term earning pressures.

But fortunately,

the investors who create
some of this pressure,

are actually more and more themselves
starting to think longer term,

and starting to think with this TSI lens.

In our conversations
and surveys with investors,

75 percent of them say they expect
to see improved revenues,

and improved operating efficiency

for companies that are thinking
with a TSI lens.

And they're actually starting
to incorporate this

in their own investing behavior.

Last year,

23 trillion in global assets

were in the category
of socially responsible investing.

Now, that's five billion of just
the last two years.

And it represents a quarter of the total
global assets managed in the world.

I know that some of you
may be cringing a little bit right now.

Because in my decades
of strategy consulting

with businesses and NGOs
and governments around the world,

I find that many business people
are hesitant to talk

or even sometimes think about

the business benefits of doing good.

They somehow think it's going
to negate the value

of the benefits
they're creating for society.

Or that they'll be perceived
as heartless or even mercenary.

But we really do need
to think differently.

We need to think differently

because the only way we're going
to make substantial progress

on the challenging problems of our time

is for business to drive the solutions.

The job of business
is to meet customer needs

and to do so profitably.

They need to to survive.

So one of the best ways for businesses
to help insure their own growth,

their own longevity,

is to meet some of the hardest
challenges in our society

and to do so profitably.

And when they do that innovatively,

when they do that ethically,
responsibly, incredibly,

they should be proud.

But if you still aren't sure about this,

let's talk about a few more examples.

What if you're a technology company

and you're trying to grow your platform

and you're trying to grow your customers?

Like, Airbnb.

Airbnb has a portfolio
of total societal impact activities.

They're all spot-on they're core business.

In one initiative,

they're helping enable their community

to provide housing for free
to those in disaster:

crisis survivors and relief workers.

In another effort on their part,

they're actually helping
and working with NGOs

to insure that people can provide
housing for free for refugees.

Now, what I love about this program

is that I don't think most people
would've figured out

how to express their generosity

and open their homes
for those in such dire need --

certainly not so quickly
or so easily or efficiently --

without this innovation by Airbnb.

But at the same time,

this is core to their corporate stategy

and core to their growth

because they grow by increasing
the number of hosts and guests

using their platform.

But if they'd only
been thinking exclusively

about the return side of things,

I'm not sure they would have ever
figured out this route to growth,

because they're not
charging transaction fees.

So it's a pretty exciting way,

when they were thinking about how
to bring their capabilities

to a need in society,

and at the same time
drive their own growth.

But what if you're trying to find
new customer segments?

Let's move to South Africa,

and let's talk about Standard Bank.

In South Africa,

the government has a regulation

that requires all banks to donate
0.2 percent of their profits

to small and medium
black-owned enterprises.

And many banks just donate
this to the entrepreneurs,

but Standard Bank thought creatively.

And what they did is they took those funds

and they invested them
in an independent trust,

and they used that trust to fund loans
to these black entrepreneurs.

This is a highly leveraged model.

They can support a lot more
entrepreneurs with capital,

and because their success is completely
entertwined with the success

of the the entrepreneurs,

they're actually also using the fund
to provide technical assistance.

More entreprenuers supported,

more people and communities
being lifted out of poverty.

And it's successful for Standard Bank.

So successful that they're actually
working on expanding this program

to other areas in their portfolio.

It's not like we haven't been trying
to solve the problems in our world

for a long time.

We have,

and they're still here.

We're making progress,

but it's not far enough

or fast enough

or universal enough.

We need to flip our thinking.

We need to have business,

both companies and investors,

bring creative, innovative, corporate
strategy and capital

to solving the biggest
problems in our world.

And when they do that,

innovatively,

and when they do that
with all of their thinking

and all of their strategy

and all of their capital,

and they're creating both total
shareholder returns

and total societal impact,

we know that we will solve those problems,

both profitably and generously.

Thank you.

(Applause)