UCT professor Ralph Hamann says complex social and environmental problems can only be addressed if business integrates an understanding of their socio-ecological context in strategy making and execution.
The Fairtrade movement, which is gaining momentum in South Africa, is part of a shift in the way business is being done in the country that bodes well for the future.
Speaking at a business breakfast at the UCT Graduate School of Business last week Hamann, an associate professor at the school, said that the growth of Fairtrade and other initiatives such as Woolworths’ Farming for the Future are indicative of a growing realisation that social and environmental threats to business won’t go away unless business itself does something about them.
Corporates for a better fulture
“This is a positive trend, which shows that South African businesses are thinking more innovatively about corporate social responsibility (CSR) and their role in building a better future,” said Hamann.
Fairtrade, which seeks to promote a more equitable and sustainable farming sector, is a leading ethical certification in the world and has more than 1.2 million beneficiaries (farmers and farm workers) in 66 countries. There are more than 30 Fairtrade brands in South Africa.
The country is the biggest producer of Fairtrade wine in the world and also the first where Fairtrade is active on the production and marketing side. Traditionally, Fairtrade has been about commodities exported from developing countries for sale in the developed world.
“There is a lot we can do with Fairtrade locally,” said Arianna Baldo, Business Manager at Fairtrade SA. “There is growing interest in developing ethical trade and CSR at the same time in this country.”
Learning from tragedy
Hamann said that recent painful events like Marikana have contributed to this shift in awareness locally, and a wider perspective on social and environmental issues is inescapable if business is to continue to prosper.
“Lonmin and other major mines for example are realising that the old ways of doing business and old manifestations of CSR are simply not working.”
Hamann said that historically a disconnect between core strategy and CSR outreach has prevented corporates from thinking more broadly about these issues. He cited, as an example, a micro financing organisation that focuses on paper recycling and sponsoring bursaries but is not engaging proactively with social issues around responsible lending.
“When I suggested that they were missing the key material issue in their business – responsible lending – they said they were complying with the National Credit Act,” he said. “But a narrow focus on compliance is not going to shift the problems that we see.”
Not seeing the forest for the trees
Hamann called this a form of myopia because many business leaders prefer to focus on their day-job and their shareholders, and don’t really take a longer term view. They also don’t look spatially beyond the boundaries of their operations.
“Not enough companies are carefully thinking about tipping points in the socio-ecological systems, which can lead to ecological collapse or social unrest. Lead indicators include the prices of oil and food, high inequality, and distrust in government.”
Hamann said that the complexity of social conditions in the country overwhelm many organisations and prevent them from thinking more innovatively about their context.
“But recent events and growing environmental constraints are making it harder for businesses to look the other way,” he said.
Integration of social & environmental issues
Some additional evidence of this shift includes more emphasis on the idea of shared value, or the notion that businesses can generate value for themselves by providing new products and services, or developing new business models, which also contribute to addressing social and environmental problems. These themes are also being discussed increasingly at executive and board level, in order to ensure the strategic integration of social and environmental issues into the core strategy of the business.
This is being advanced in part by the global move toward integrated reporting. South Africa is the first country in the world to make integrated reporting a requirement for listed companies.
However, Hamann said, there is still a fair way to go, specifically in the region of collaboration.
“While competition is a vital motivating force for business, it can also stifle much-needed collaboration to address complex social and environmental challenges.
“The informal settlements around mines, or the problem of hunger in low-income communities, for example, can’t be addressed by an Anglo American or by Unilever acting by itself. Competitors may need to work together to address the fundamental challenges our society faces, and we need a more sophisticated understanding of when and how competitors can and should collaborate.
“If we don’t integrate an understanding of companies’ socio-ecological context in strategy making and execution, and if we don’t recognise the need for improved collaborative action, these challenges have a nasty habit of turning around and biting us – as we have seen so clearly,” he said.