The groundswell of businesses that want to be more purposeful and work alongside government and civil society organisations means we should dream bigger about how to solve some of the toughest challenges the world faces. And maybe money is not an excuse anymore, given a report by the New York Times in the US and research by Grant Thornton in the UK, showing that the balance sheets of companies in these two countries alone have $2.2 trillion in cash waiting to be used.
Imagine what problems could be solved with $2.2 trillion. According to a recent article in the Huffington Post, $26bn a year would enable every child in the world to access basic education. With $109bn, the number of people without access to clean water and basic sanitation could be cut in half. With $44bn, world hunger could be wiped out. With $6bn, 4 million malaria deaths could be prevented. With $2.2 trillion, all this could be done and there would still be money left over to contribute to the investment of $13 trillion needed to stabilise increases in greenhouse-gas emissions.
What is preventing businesses from spending money on their balance sheets to enable sustainable growth worldwide? One opinion is that corporate structures limit companies from innovating and investing. Internal bureaucracy, short investment horizons, high return expectations and risk aversion all hinder companies from investing cash to meet pressing social needs. Evidence of this short-term vision is seen in the rapid increase in the percentage of a company’s net income that is spent on shareholder buybacks and dividends – up from 63% in 2009 to a 116% in 2015.
Some also see this hoard of cash as modern-day war chests. Corporations are sensing that change is in the air, but are not sure of its direction, and therefore want to be prepared to respond and react when change occurs. Yet investment leaders are calling for greater consideration of options for future-proofing organisations. Larry Fink, chief executive of investment management corporation BlackRock, sent a letter earlier this year to chief executives of S&P 500 companies calling for longer-term strategy and management with serious calls to action. “We are asking that every CEO lay out for shareholders each year a strategic framework for long-term value creation. Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need.”
It is time to connect Fink’s call for longer-term business strategy with a global system hungry for new solutions. Health, employment, education and climates are all under pressure. .
We know there is growing appetite for this new role of business. We need to reject a traditional binary approach to thinking about the role of business – on one side maximising profit, and on the other side allocating some of its excess to the pursuit of positive impact. A business can generate profit while simultaneously solving problems.
The most straightforward way is for businesses to unlock their cash on balance sheets and focus it on corporate venturing for impact, which has a clear strategy of creating positive outcomes for both business and society. According to James Mawson, founder of trade paper Global Corporate Venturing, more than 1,600 corporations already do this, about half of the top 100 companies in the Fortune 500. He said: “Companies that have yet to start are already at a competitive disadvantage.”
One approach to a corporate venturing for impact strategy is to build partnerships in the wider market. For example, a company could work with another company that has complementary expertise and networks. DRX Capital is a perfect example. Two companies, Qualcomm and Novartis, came together with their respective experience in technology and health to create a $100m fund focused on improving the lives of patients and clinicians and ushering in the era of digital medicine.
For companies that want to support inclusive businesses, we are seeing an increase in market models that integrate low-income people into supply chains as consumers, employees, producers or retailers. This provides big businesses with a way to understand new trends, consumer habits, and disruptive innovation and technology.
Another way to engage in corporate venturing and support inclusive businesses is through third-party impact investing funds. Impact investors fund inclusive businesses and offer some of the best hope for addressing pressing social and environmental challenges. Through a strategic alliance with an impact investing fund, a company would be able to support inclusive businesses, benefit from insights and know-how when entering new markets, and sharpen its lens on the future. Impact investing funds are a good way to learn the ropes of corporate venturing for impact, and there are many funds to choose from in emerging markets.
The market place for impact investing is growing, and can be navigated by using the Global Impact Investing Network’s ImpactBase, an online global directory of impact investment products.
So what problem is your business solving?
This is an edited version of an article first published in the Multilateral Investment Fund Trends blog