The Sustainable Development Goals (SDGs), often referred to as Global Goals, need business as much as business needs them. The trailblazing report of the Business & Sustainable Development Commission, founded by Lord Mark Malloch-Brown and Paul Polman, was launched during the World Economic Forum Conference this January in Davos and clearly illustrates this mutual opportunity. The report states that businesses need the Global Goals as they offer a compelling growth strategy for both business and the world economy. It equally states that the Global Goals need businesses to open up the market opportunities and advance and materialize progress.
All business large, midsized and small
By business I mean, as the Commissioners most probably also do: all business. The journey towards achieving the SDGs by 2030 needs all businesses – large, midsized and small – to join in. If not, we will not reach our destination in time, or we will not arrive at our destination at all. The key to businesses successfully accelerating towards these goals is positive synergy between all kinds and all sizes of business. This idea refers to two different dimensions. On the one hand, we need all kinds of businesses. This is clear, since the goals are intensely interrelated and impact on one goal touches several others. Climate action for instance, has a direct interaction with 13 of the 17 goals. On the other hand, and equally important in the drive towards success is the necessity for companies of all sizes to join in: to form synergy between different sized companies. This has to do with the value of scale being equally as important as the value of innovation.
Scale has impact
The 50 largest economies around the world are, in fact, companies. So imagine, if one of those companies reduces their waste, or creates a positive footprint, it has huge impact.
If such large multinationals adopt new solutions for the SDGs throughout their product lines, then the scale grows exponentially as does its impact. For example, the Swedish company IKEA has committed to investing €600 million in renewable energy. They are aiming for 100 percent renewable energy and producing the total amount of energy they consume by 2020. They are driving these objectives by investing in wind farms, solar panels and biomass generators. Nestlé is another large company striving towards achieving the SDGs. They count 167 examples of their efforts in the areas of nutrition, water, and rural development. This includes Nestlé’s ‘Positive Cup’, launched in 2014, which creates a sustainability strategy to improve farmer welfare and drive environmental sustainability in coffee sourcing and consumption over the next six years. It is backed by an investment of CHF 500 million, part of which will be used to establish a new Sustainable Development Fund.
Unilever is another multinational inspired by the SDG timeline. They are aiming to be CO2 positive by 2030. Large purpose driven companies like these and others, such as DSM, have the SDG gate in place for all business and product development. At DSM, it means that new innovation must show a positive impact on either the planet or the people, or preferably both of course, in order to be developed for the global market. For instance, DSM uses its Nutrition Improvement Program to develop innovative solutions to help fight hunger and malnutrition. The company is committed to improving the nutrition of the two billion people at the bottom of the economic pyramid who are suffering. Their program leads to innovative products such as high-quality micronutrients tailored to the needs of pregnant women as well as all other segments of developing societies.
Start-ups aim at the heart of the SDGs and their market potential
We have great examples from multinationals effectively addressing the SDGs. But, at the same time, large companies often need disruptive start-ups and scale-ups to be able to reorient from established sectors into SDG growth markets. A tanker simply doesn’t shift course as easily as a speedboat does. There are currently many highly innovative, very creative start-ups with high growth potential arising around the globe. These start-ups are born from the orientation towards these new markets and the solutions to the problems facing our world. In other words, their products and services focus on these issues and opportunities. A lot of these products, services, and business models use big data, digitalization and machine learning. A good example is the Intercontinental Hotels Group’s Green Engage™ system which is an online sustainability tool to help minimize their hotels’ impact on the local environment. Among other benefits, the IT tool measures energy, carbon, water and waste and recommends over 200 Green Solutions to reduce the impact on the environment.
There are many examples of innovative start-ups that have the potential to make a real difference. For instance, in Uganda, pneumonia kills 27,000 children under the age of five every year. Most of these cases are due to pneumonia being misdiagnosed as malaria. Therefore, Ugandan engineer Brian Turyabagye designed a biomedical “smart jacket” to quickly and accurately diagnose pneumonia. The smart jacket can diagnose pneumonia three to four times faster than a doctor and eliminates most possibility for human error. This example and many others like it focus on the pressing issues faced in developing countries. The need for impact on the goals is the highest there. At the same time, for business, it is in these countries that the biggest opportunities are at hand. The Commission’s report mentions that half of the value of the Global Goals business opportunities arise in developing countries. And equally important, it states that the majority of jobs, almost 90 percent, will be created in developing countries. This includes 85 million jobs in Africa and 220 million jobs in developing Asia.
When small meets big
The best things happen when small meets big. But this must be done in a good way since optimal synergy is not as obvious as it might seem. It needs guidance and persistence since culture, structures and procedures can differ tremendously between the large company and the start-up. But there is reason for both to be smart and to endeavor to work together. The large, ‘mother’ company can benefit from the innovation and purpose driven culture from the start-up, and the start-up cannot scale up as fast as it can without the large company taking the proposition to all of their clients around the globe. Also, the large companies can combine an incremental, ‘less bad’ scenario, by reducing its footprint in current markets with current products, with a shift towards a radical, innovative approach by redirecting from the current to SDG growth markets.
BMW for instance, is producing more energy efficient and electric cars, and at the same time it is getting into the car sharing arena with their ReachNow enterprise. During the first weeks of operation, over 13,000 people signed up. It has proven successful and BMW is currently expanding to more cities in the United States. Mercedes-Benz owner Daimler has been tremendously successful with their car-sharing subsidiary, car2go, which serves eight countries. Mercedes has also recently launched a new car sharing service which approaches the market from a different angle – facilitating peer-to-peer sharing. The project is embedded into Mercedes-Benz Cars’ CASE strategy, which focuses on the topics of Connectivity, Autonomous driving, Sharing and Electrification, which are important issues for the future.
An effective way for large and small companies to connect is through investment such as Corporate Venture Capital Funds. John Elkington describes Corporate Venture Capital (CVC) as “a discrete investment activity into an independent company or a portfolio of companies with the objective of achieving both financial and strategic return to the parent company.” The strategic return is particularly essential. The companies receiving CVC investment are often innovative start-ups or scale-ups, and the investment also serves to give them access to new knowledge and core competencies. Therefore, the strength of the CVC model is twofold.
Slightly comparable synergy arises when start-ups are strengthened by Foundations from large corporations. For example, a small company in the United States called Revolution Foods provides healthy school meals with locally produced foods. With the help from the Kellogg Foundation and other investors, they have gone from a start-up founded in 2006 to a growing company currently serving 1600 schools. And there is still much potential to scale up for more impact as there are 100,000 public schools alone in the US.
The mass of the SMEs
The category that is often left undescribed is the midsized company. Sometimes a midsized company is actually a growing enterprise which is going through its development stage of scaling up. But, in fact, according to the World Trade report 2016 by the World Trade Organization, very many small and midsized companies remain and make up 93-95 percent of the total enterprises in countries all over the world, and account for approximately two-thirds of all employment. Consequently, small and midsized companies count for the largest part of both business and the economy, as seen in Mexico for example, where they account for 99.8 percent of Mexico’s total economy. In Britain, medium sized companies are outperforming both smaller and larger businesses, according to the Financial Times. The business advisory group Grant Thornton conducted a study and calculated that the UK mid-market comprises 34,000 companies, making up more than a fifth of private sector turnover.
With the large share that midsized companies represent, it is vital that they too take aim at achieving the SDGs. These midsized companies are also showing – as I interpret it – a new orientation towards their business development processes and recognizing that a lot of product innovation exists in developing countries. This makes absolute sense: in those countries, it is so very obvious what problems need to be solved. The situation is often poignant in term of child illnesses and death, labour conditions, illness due to lack of hygiene and clean water, and lack of education opportunities. There are currently 385 million children living in poverty and in developing countries, 20 percent of the children live in poverty stricken conditions. Solutions are being found by midsized companies such as Toilets for People (TfP) who design and manufacture waterless composting toilets and train NGO partners in developing countries how to build, install and maintain them. TfP is currently piloting their Waterless Toilet in Haiti, Mexico, Nicaragua, Peru and Senegal, and selling their products in other parts of the world as well.
We need all business
We can clearly conclude that we need all business. Being large, midsized or small, they all bring unique assets to the table and create the necessary scale together. We should realize this in the debate about reaching our goals. Pay more attention to the vitally important medium sized companies and bring them into the debate more. We should embed start-ups cautiously and investors should be aware that short term profit is not the most crucial aspect here, but getting them strong and scalable is what will result in even more attractive profit rates. But, it takes a bit more patience. Large companies should realize their value to midsized and start-up companies and should make partnering with them a cornerstone of their strategy. We need them all: they all count, they all will profit, and our world will too.