Naked Lunch
Sustainability stripped bare
(posted 27-4-01)


Stimulators:

Dr Diane Osgood - independent environmental economist working for companies such as DuPont

Sophia Tickell - senior policy adviser at Oxfam GB

Guests included:

Sam Benoy - Group Public Relations, ICI

Edward Bickham - Executive Vice President, External Affairs, Anglo American

Tom Delfgaauw - Vice President, Sustainable Development, PXR, Shell

Christine Drury - NGO and Consumer Affairs Manager, Unilever

Vicki Ehrich - Head of External Relations, GlaxoSmithKline

Emmett Hobbs - Executive Director, Brambles UK

The ethics of making profits from poverty was discussed at a lunch hosted by Jonathan Shopley (AD Little) and Peter Knight (Environmental Context) in March. The issue is climbing up the international agenda, encouraged by a range of drivers, including:

- An ever-growing gap between rich and poor

- Disquiet at the role of the World Trade Organisation (WTO)

- The perception that multinational companies have undue influence
   in the global economy

- A call by Kofi Annan, the UN Secretary General, to include
  the 60% of the world who do not participate in the
  global economic system.

- Pioneering efforts by some companies to reformulate
   and repackage goods and services for the poor.

This is a quick summary.

Diane Osgood put the topic in context. She outlined business thinking on environmental and social issues, which has progressed from the denial of pollution for much of the last century, to the greening of industry with companies using pollution prevention strategies, product stewardship and setting targets of zero emissions. Some of the leading businesses are now going "beyond" greening and business activity is beginning to be seen as part of the solution in the drive to sustainable development.

She identified some "new century drivers", imperatives that are redefining the modern reality and creating opportunities for business to participate more fully in social development. These include:

· Rapid technological innovation
· Population growth
· Poverty
· Dramatic increases in global communications
· Increased importance of non-governmental organisations that
  make up the so-called "civil society"
· The receding importance of government
· Globalisation and the importance of world-wide agreements on trade
· Continuing consequences of urbanisation (ie pollution and poverty).

Defining the world's poor, Diane referred to those "at the bottom of the pyramid", who are the approximately four billion people living on less than $1,000 a year and who make up the "survival economy". Directly above them are about 1.5 billion people of the "emerging economy" who live on up to $10,000 a year. On the top of the pyramid are about 500 million people who earn over $10,000 a year. The gap between the top and the bottom is becoming ever wider.

Many in the civil society are urging business to shift their view of potential markets away from the top of the pyramid to those in the emerging and survival economy. The argument is that unless the excluded are brought into the economy, the divide between rich and poor will only increase, creating more social tensions and further undermining development.

She listed four categories where business was becoming involved, if only on a limited scale.

Consumer goods: Some companies, such as Unilever, were reformulating products such as detergents to make them less polluting in countries with no sewage treatment. Personal care products were also being sold in much smaller packages - such as sachets - to make them more affordable.

Companies see this as providing value-added in social and environmental terms by delivering consumer goods in new ways to new markets. She said that there was some scepticism by observers - not shared by the companies - about the social value of these goods.

Unilever companies in Asia and Africa were also working on more appropriate distribution systems to cut the cost of transactions. This included combining old technologies, such as bicycles for delivery, with mobile telephones for ordering.

Diane referred to other examples, such as jeans sold in "ready to assemble" packs in India at a fraction of the cost of fashion jeans.

Technology-based innovation: Some companies, said Diane, were working on adapting technologies to make high quality products and services more affordable and socially beneficial and in this way are addressing developmental issues, such as housing, roads, energy, health and water. Examples include reformulated asphalt that could reduce road accidents, new roofing materials and the use of solar cells to generate electricity. Companies involved here could be seen to be adding social and environmental value, as well as shareholder value.

Micro-finance: The provision of very small loans to encourage entrepreneurial activity in the developing world had proved highly successful, with the poor proving to be better credit risks than the rich. Such credit had not only encouraged business activity, such as market trading, but also provided access to high technology items, such as mobile phones used communally to facilitate trade.

Moral Imperative: This can apply when either civil society claims that certain products are needed for development or by its society (ie HIV drugs), or companies claim the imperative to convince civil society that new products are legitimate (i.e biotech crops).

Diane argued that business had an ideal opportunity to re-evaluate its business model and to look for the opportunities that the poor provided. They could do this by looking for new alliances and partnerships, building local bases and support, combining local and global research and development, and looking for ways to further reduce their cost structures.

Responding, Sophia Tickell said Oxfam was looking with interest at the role being played by multinational businesses in developing countries, but urged those present to look at whether taking advantage of new market opportunities was likely to decrease poverty and environmental degradation.

While she agreed that the global economy needs to be rule-based, she was concerned that current rules, and in particular WTO rules such as the Trade-Related Aspects of Intellectual Property, were loaded against poor people and poor nations. In the past two decades during which world trade flows had trebled inequality within and between countries has also grown, leading to increased poverty in some places. Trade flows among the poorest nations had actually declined in this period.

WTO rules also establish trade barriers that prevent developing nations from exporting. Oxfam estimates that because of these hurdles, poor nations lose up to $700 billion in potential earnings each year. Furthermore, developing nations face unfair competition from subsidised farmed goods from the developed world, damaging the livelihoods of subsistence farmers and reducing the capacity of local people to afford education and health care. She expressed particular concern that local companies would be displaced by more powerful subsidiaries of multinationals when they entered local markets.

Oxfam is concerned that WTO intellectual property rules place the interest and profits of multinationals above the interest of public health because the rules will delay the appearance onto the market of cheaper, generic copies of patented drugs. Poor people and poor nations who cannot afford the high price of patented drugs have relied heavily on this low cost option.

Guests expressed a general scepticism about how much business could do - and could be expected to do - in eradicating poverty, applying new technologies in the developing world or devising a wide range of products and services for the poor.

The discussion ranged across a broad spectrum of issues, from the pricing policies of pharmaceutical companies to the genuine feeling expressed by many employees of multinationals who want to to be seen to be doing good. Guests also:

· Examined the difference between serving the poor versus the eradication of poverty

· Discussed the possible role of small and medium sized businesses who have less resources than large multinationals, and less need to defend and maintain reputations

· Explored the impact of national and international rule-based trading and economic systems and whether these are helping alleviate poverty or not

· Talked about ways to make goods affordable even when the capital costs of manufacture are.