Public Disclosure Authorized Report No. 37379-GLB March 2007 68666 Public Disclosure Authorized Beyond Corporate Social Responsibility: The Scope for Corporate Investment in Community Driven Development The last decade has witnessed expanded development have been mixed, with few private- awareness among companies, especially sector initiated projects achieving the promise of a multinational corporations, of their comprehensive CDD approach. Shortcomings responsibilities toward the communities they include companies’ lack of development expertise, impact, elaborated in the concept of Corporate reluctance to cede control of initiatives, imbalances in Social Responsibility (CSR) and allied notions the power and level of organization between Public Disclosure Authorized such as a Social License to Operate (SLTO). CSR is companies and communities, unsustainability of the realization of business contributions to funding, and lack of capacity on the part of local sustainable development goals. It refers to how actors, ranging from ineffective community based business takes account of its economic, social and organizations to weak local government. environmental impacts in the way it operates – maximizing the benefits and minimizing the There are two principal types of development downsides. CSR undertakings are the voluntary partnerships between the private sector and actions that business can take, over and above communities: a Social Investment model wherein compliance with minimum legal requirements, to company funding is applied to investments or address both its own competitive interests and programs that seek to improve the general welfare of the interests of wider society. The business case the community and an Economic Linkages model for investing in development, with mutual which associates development initiatives more benefits accruing when communities become closely with the business drivers of the private sector development partners rather than passive and includes job training, direct employment, recipients of philanthropy, has become ever more technical skills training, microfinance, capital Public Disclosure Authorized persuasive. Factors that have motivated increased formation, or developing new supply bases and interest in private sector partnerships include a creating supply chain linkages. An economic linkages growing concern with the effectiveness of approach implies integration of community traditional development approaches, recognition engagement strategies into the core business activity of the impact of globalization and the increase of of the company and development of consolidated private capital flows into the developing world, markets so that communities become embedded in and appreciation of the unique potential corporate supply chains. This approach may provide contribution of the private sector. the most promising outlook for CDD practitioners working to build sustainable and effective links The contribution from the private sector can be much between communities and the private sector. broader than financial support, and include technical and managerial expertise, skill transfers and jobs, Integrating communities in an economic linkages access to markets and business linkages. However, framework requires capacity and institution building. the results of private sector association in community Institutions of the poor are the vehicles Potential Private Sector - CDD Partnership Models Model Private Private Private Economic Sector Social Sector Social Sector Social Linkages Investment: Investment: Investment: Indirect Direct Investment Community Investment Foundation Example Contribution to Implementing Corporate Supply chain Social Fund projects directly engagement integration, job with communities through creation Community Foundations Benefits Financial; allows Can provide Supports Sustainability; companies to immediate community-driven empowerment of contribute without development ethos; self- the poor; involvement; benefits sustaining through transformation of access to endowment society additional funds Risks Limited financial Short-term; may Difficulty Subject to market contribution; create parallel transferring to risk; requires long short-term; governance communities; long timeframe; precludes structure timeframe; requires building contribution of difficulty sourcing of community non-financial funding capacity assets required to give the poor access to markets and, • Rethinking value chains and importantly, to enable communities to interact incorporating poor individuals and with the marketplace on more equal terms. collectives as employees, suppliers or distributors. There is a growing recognition among the business community that “doing business with the poor� cann develop into a viable business Matching Corporate model. Debates have flourished under various Drivers and Development Goals guises, including work on investing in the Bottom The motivations for companies to develop CSR of the Pyramid, Sustainable Livelihood Business policies and invest in local communities vary or pro-poor business strategies. These approaches from company to company, and industry to reflect a changing mindset around business- industry. Some companies are motivated more by poverty linkages that encompass: reputation assurance needs or concerns around social licenses to operate, while others may be • Treating poor people as consumers and motivated by production and supply chain business partners, rather than linkages, marketing and distribution issues. economically irrelevant beneficiaries; Extractive companies, because of their large • Reassessment of corporate price social, physical, and environmental footprint, performance and functionality of have an obvious powerful incentive to invest in products in order to meet the needs and their host communities. Company motivations to means of new consumer groups, invest in communities can include, inter alia, including the poor, and; philanthropy, legal compliance, mitigation of negative impacts, creating positive impacts, acquiring and maintaining a SLTO, guaranteeing Community-driven development: companies are sustainable supply bases, creating new market investing in local capacity-building activities, and opportunities, and building good will/managing contributing to social and economic solutions to reputational risk. Often, poor communities are problems identified and defined by the marginalized from larger-scale economic activity communities themselves. In some cases, and markets due to lack of access to capital and companies are working with local NGOs to build infrastructure, lack of bargaining power, lack of their skills to meaningfully engage, as company negotiation and basic business and accounting stakeholders, with the companies themselves. skills. These communities may have a variety of reasons to partner with private sector, for Creating partnerships: Partnerships with non-profit example: funds for development, community organizations, government agencies, suppliers, infrastructure development, mitigation of other companies, and their stakeholders are negative impacts of corporate operations, other established to fulfill a wide variety of community development activities such as health, education, and business needs. access to jobs and job skills training, training in/transfer of management skills, creation of new Creating a global focus: As companies derive an ever- markets, and assistance with small business larger share of revenue and profits from international creation and access to microfinance. operations, multinational companies are redefining "community," looking beyond local, domestic Implementation and Impact of geographic communities to include those in regions Corporate Community Investment where they own factories, or contract with factories operated by key suppliers. Potential outcomes of corporate community investment include: Measuring and reporting the benefits of corporate citizenship: Traditionally, corporate community Enhanced brand image and reputation: community investment was seen as goodwill and rarely investment can open up new markets, reduce tracked or measured. Increasingly, companies are local regulatory obstacles, provide access to the measuring and reporting on the impact of their local political process, generate positive media community investment. coverage and increase company or brand awareness within the community. Partnership Examples Community investment as a strategic activity: CSR strategies have become increasingly more companies increasingly look at community responsive to local stakeholders and to national investment activities from a strategic perspective, policy and development agendas. Localization of defining themes that are aligned with core CSR strategies implies shifts on several axes, business objectives and taking advantage of core including from supply chain to value chain models. competencies. Prevailing models of codes of conducts and certification schemes are top down and often Combining philanthropic and commercial-community maladjusted to weak governance structures and activities: more companies are applying a broader limited capacities in developing economies. Frontier range of their business assets, along with companies are increasingly seeking to assess their philanthropic assets, to support community “footprint on society� across their entire value chain development. These might include cash in a more systematic fashion, enabling a deeper contributions, non-cash assets (such as product appreciation of where the company has relatively donations and employee volunteer time), more positive and negative impacts on social and business relationships with local vendors and poverty concerns. An example of this type of suppliers, local hiring and training programs, the initiative is the joint research of Unilever and Oxfam siting of infrastructure and facilities, financial on the poverty impact of Unilever Indonesia1. investments that benefit communities, and positive contributions to public policy issues that 1 “Exploring the Links between International Business and Poverty support community and economic development. Reduction: A Case Study of Unilever in Indonesia�, Oxfam GB, Novib, Unilever and Unilever Indonesia joint research project, 2005. Other examples of progressive efforts around They make it possible for a wide range of donors corporate-community partnerships include the to create permanent, named component funds to Andhra Pradesh District Poverty Initiatives meet critical community needs and engage in a Project (APDPIP), a World Bank investment broad range of community leadership and assisting the poorest of the poor in India’s partnership activities, serving as catalysts, northeastern state of Andhra Pradesh, covering 8 convenors, collaborators and facilitators. There million rural poor families in 29,000 villages. The are now several hundred CFs active in grant project supports mobilization and development of making outside of the USA and UK. CF corporate membership organizations of the rural poor and partnerships include those with the aluminum their capacity development to better save, access producer SUAL in Russia, the cell phone credit and undertake a range of livelihood company Orange in Slovakia, Merchant Bank in enhancement activities in agriculture, livestock, Ghana and the platinum producer Impala the non-farm sector and services. Economically Platinum in South Africa. empowered communities of the poor have influenced banks, private corporations and the Future Work public sector to invest and work in their interests Further work is proposed in the following areas: and have become immensely active in capturing opportunities at the ‘bottom of the pyramid’ • Community impact in the value chain through franchising, retailing and product and understanding of metrics of development and by developing community community impact along the value chain capacity and scale through federating in major industry sectors; community-based organizations at higher levels or associative tiers. • Understanding the institutional capacity Community Foundations (CFs) provide a further of CDD programs to integrate in program example of public-private partnerships. CFs design private sector production, represent one of the fastest growing areas of distribution, retail and market issues. philanthropy. They bring into alliance public and This may require a new skills set for private sector, civil society and local communities community development practitioners, and are proving to be a mechanism that directly and; addresses issues of importance to CDD, including financial sustainability of local initiatives, • Facilitation of cross-sectoral and cross- participatory planning, strengthening of local regional learning of successful CDD- capacities and fostering of multi-stakeholder private sector initiatives and evaluation partnerships. CFs are grant making organizations of the potential of local and national governed by a board reflecting the communities private sector companies to embrace they serve, that continuously mobilize CDD. contributions from a broad spectrum of predominantly local donors (individuals, This summary is excerpted from World Bank Report No. 37379- GLB, written by Daniel P. Owen. Additional copies can be businesses, local government, diasporas, etc.). requested via e-mail: socialdevelopment@worldbank.org