Scaling-up Sustainability Solutions

This blog-post is built around my talk at the WBCSD Annual Meeting held in Chennai last month.

The Background:

2015 was a year of ambition that saw the adoption of the historic Paris Agreement and the Sustainable Development Goals (SDGs). World leaders committed to building an inclusive and thriving low carbon economy, and the SDGs provide us with an all-encompassing agenda for developing our societies while addressing the critical issues of poverty, inequality and environmental degradation. This unprecedented framework for action calls upon each of us to contribute, and forward-looking companies are translating ambition to implementation at scale.

Among other things, the event showcased how companies can capitalize on the new opportunities and economic incentives while contributing to the SDGs, thanks to WBCSD business solutions that align to their strategy and operations. The session in which I spoke zoomed in on how corporate leadership has scaled up solutions in India, and how this can be applied around the world. I shared ITC’s experiences in this regard.

Scale at which ITC operates:

Over the years, ITC has designed and implemented several large-scale programmes to create sustainable livelihoods, enrich the environment and address the challenges of climate change. I illustrate the scale using a couple of examples…

ITC’s soil & moisture conservation programme promotes local management of water resources by facilitating community-based participation in planning and executing watershed projects. Nearly 8,000 water harvesting structures have been constructed under this initiative, covering a total area of about 650,000 acres. It’s difficult to visualise that scale, and for a lay-person anything beyond the sight of a naked eye is big! It may be easier, if I use the analogy of Geneva Lake, a large water body most of the audience present must’ve seen; then imagine the whole city of Geneva of which this large lake is a small part. The area covered by ITC through the soil & moisture conservation intervention is 160 times the size of Geneva city! Yes, a hundred and sixty times.

ITC’s Farm & Social Forestry programmes have greened more than 560,000 acres through tree plantations by enabling financial, technical and marketing support to small and marginal farmers. Again, this acreage by itself may not make sense, other than appearing as some large number. Let me add, that those trees have sequestered more than 5,000 kilo tonnes of CO2, which is equivalent to keeping as many as one million diesel cars off the road, based on specific emission factors! Yes, a million cars.

The ITC e-Choupal initiative is a powerful example of a development model that delivers large-scale societal value by co-creating rural markets with local communities. With a judicious blend of click & mortar capabilities, ITC e-Choupal has triggered a virtuous cycle of higher productivity, higher incomes, and enhanced capacity of farmer risk management, larger investments and higher quality and productivity. These services reach out to some four million farmers. Again, just to visualise the scale, may I say that every Indian farmer could be brought into such a network, with not more than thirty companies operating at this scale.

All these, while ITC’s revenue has grown tenfold over the last twenty years! Profits grew 33 times and the Total Shareholder Returns grew at a CAGR of over 23%

For more details do read the GRI - G4 compliant, comprehensive, Sustainability Report of ITC.

The How of This Scale:

Essentially a three-dimensional approach. Focus. Outcome Orientation. Innovation.

Focus:

Imagine a Venn Diagram. The focus of our efforts is on those areas that converge from three angles. First, the development challenges that matter to the nation. Second, those interventions that create enduring value for our stakeholder communities. As many as 250,000 people participated directly in a “Needs & Priorities Assessment” exercise in the PRA format, earlier this year. Third, those initiatives where our interventions can multiply the impact significantly by virtue of their touch-points with our value chains or their geographical vicinities.

The resultant key focus areas, viz. livelihoods for the poor, sanitation, gender equality, vocational skills, education, and climate action mirror the important global SDGs too.

For a deeper understanding, you can browse through ITC’s CSR Policy and Sustainability Policies.

Outcome Orientation:

Often, sustainability interventions are designed as point solutions. They do make a difference, but not at scale. For example, provision of information or knowledge to small holder farmers. This is certainly one component of the services provided by ITC e-Choupal. While this is a necessary condition, this won’t, by itself, raise their incomes. The information and knowledge need to be often translated to investments on the farm. But, given the inherent risk associated with farming, farmers hesitate to make those investments. This is where our livestock and such other interventions that bring supplementary incomes come into play, which enhance the risk bearing ability of the farmers. Once the intent to invest is there, the next challenge is gaining access to the recommended inputs, credit, crop insurance, farm machinery etc. The intensity of agriculture has a bearing on natural resources like water and top soil. Without a community effort, individual farmers get trapped in the tragedy of commons and exhaust these resources, and face an unsustainable future. This is where our soil & moisture conservation interventions come into play. And so on…

Thus, commitment to the eventual outcomes - and doing whatever is necessary as well as sufficient - only can demonstrate the impact and involve the communities on larger scale.

This integrated approach of ITC and the impact is well documented in a report published by APAARI.

Outcome is not a static target but a dynamic goal as the communities evolve. New goals get set on an ongoing basis to make the programmes contemporary and strengthen their enduring relevance. For example, in the sixteen years since the first e-Choupal was rolled out, the model is in its fourth version now!

Innovation:

Investment in sustainability initiatives at this scale cannot be sustained by merely keeping a portion of the profits aside. With our Chairman, Mr Deveshwar articulating the paradigm of “responsible competitiveness” for growth, the entrepreneurial energies of the whole organisation are harnessed to innovate business models that improve business competitiveness while creating sustainable livelihoods and enriching environment.

“Making Markets Work for Green GDP and Sustainable Livelihoods” is the theme of one of his speeches at ITC’s Annual Shareholders Meeting.

More importantly, co-creating solutions together with the participating communities makes the innovations relevant. This approach also synergises the complementary strengths of the multiple stakeholders, and helps execute the programmes at scale. Call it a PPPP – Public Private People Partnership – approach, if you will…

Agricultural & Environmental Concerns: Role of Education

Yesterday, I spoke at a seminar on the subject theme organised by Knowledge Xchange in Chennai. This is a summary of what I said...

You must've heard several speakers on the subject since morning, and now you must be wondering what a corporate has to do with this topic. Let me deal with that first.

Purpose of education = Know How. Know How has two components. Firstly, Know What. Training typically focuses on Know What, while education is expected to build the other component of the capacity i.e. Know Why.

Purpose of Know How = Do How.

And, purpose of Do How is to actually "do" things that "deliver" the intended outcomes.

What are those outcomes, in relation to the Seminar theme?

1. Raise incomes for the farmers (Per Capita GDP of Indian farmers is just about a third of the rest of Indians)
2. Achieve Food & Nutrition Security for our all our people (a third of all our children are malnourished)
3. Do this in an environmentally sensitive manner (so that we leave a habitable world behind for our children and their children)

The theme of my talk is "What can Corporates do, to enable these outcomes?"

Basically, I have three messages to share:

1. For the Know How to be effective, the medium (of education) must be tailored to the context.
2. For the Know How to be translated to Do How, the education must be an integral part of a "meta-process"
3. To execute the idea of a meta-process in the real world on a large scale, you must leverage the power of innovative business models

To substantiate these arguments, I will walk you through the nature of challenges in Indian agriculture and the corresponding solution themes. And then illustrate those through the creative solutions successfully deployed by ITC on the ground.

1. The context of Indian agriculture and the farmer is quite complex, with multiple dimensions and each dimension with multiple degrees of challenges. The "media strategy" of "education", if I may call that, must be tailored to this context. Let me outline four of those dimensions, relevant to our theme today.

a. Any context must first be seen from the perspective of "outcome for the consumer", in our case the "farmer". Each of our famer is so very different from the other. Starting with variations in farm size, to the heterogeneity in agro-climatic conditions, to the far more individualised resource availability and risk taking ability. In other words, one message is not relevant to all farmers. That means, many messages need to be personalised, some can be mass-customised, while a few can be generic.

b. The second dimension of the context, is the "nature of message" itself. That varies according to the action that the message should trigger to achieve the objective. In some cases, it could be simple awareness about a market or a weather condition; while in another case, it may need to alter an existing farm practice such as seed rate or row spacing; in yet another case, it could create a conflict between short term effort or cost with long term benefit (such as investment in micro irrigation for soil conservation). Again, obviously, one tool doesn't trigger action in all cases. In one case it could be SMS on mobile phone, in the other it is an on-farm demo, and may be an audio-visual in another case.

c. The third dimension is "time" that enables action. In agriculture, as you will all know, most activities are very time sensitive. Therefore, a piece of information or a knowledge component has to be delivered absolutely on time. Especially when some of the actions are linked to random events like rain fall or pest attack.

d. The last dimension is "cost". Notwithstanding different levels of message and types of tools, obviously the cost can't be out of whack with the benefit being delivered or the risk being managed.

In ITC eChoupal, multiple media are used in a 360⁰ approach tailored to the need. For example, improved practice or a new input through the eChoupal website, followed by an on-farm demonstration through Choupal Pradarshan Khet for better conviction; then the adoption is facilitated through SMS reminders & telecalling to clarify suitability for specific farm condition, and obtaining feedback on practice / product performance through tele-helpline.

2. The second message is about translating all this Know How to Do How. The farmer may know what to do, but many times timely & affordable access to other inputs is a problem. Be it, credit or seed or some crop protection chemical. In the mind of the farmer, all of these elements are part of one process. Call it the "meta-process", because it is in the mind of the farmer. Deciding which crop to grow, managing it through the crop season, and then realising cash from the crop. But, these needs are served by different industry verticals such as agri extension, banks, seed companies and so on... Unlike in evolved markets, the delivery of these inputs is not synchronised with knowledge. Therefore, the action doesn't happen often. Consider an evolved market like buying a car in Chennai. You can acquire the knowledge about a car suitable to your needs through several magazines, a loan through a bank, actual vehicle from a dealer, insurance from an agent, and the service arrangement through a dealer seamlessly. But, for many farmers in rural India, such seamless process is still a dream. Fragmented farm sizes, dispersed villages, heterogeneous conditions compounded by weak infrastructure make synchronised delivery a challenge.

ITC eChoupal factors these challenges while orchestrating an ecosystem that delivers the desired end-to-end solution to farmers. It is achieved through a new digital, physical and human infrastructure organised in a hub & spoke configuration. Today some four million farmers access services through the ITC eChoupal network, offered by 160 organisations cutting across Government, Private and Social Sectors.

3. To roll out an infrastructure like eChoupal on ground, it costs a lot of money. How ITC designed a business model so that the cost of such a system is not a burden on the farmer, but recovered through innovative revenue models, is the third message.

For example, by eliminating non value adding costs of a village to mandi to our warehouse chain through a village to our warehouse chain by discovering price in the village is one such model.

In another model, we embed traceability along the chain (having sourced directly from the farmers) into our products, we deliver greater value to consumers and capture some of that value for ourselves and the farmers.

Yet another model is charging a toll on these 160 organisations for bringing them cost-effective access to the rural markets.

Allow me to repeat my three messages, before I close:

1. For the Know How to be effective, the medium (of education) must be tailored to the context.
2. For the Know How to be translated to Do How, the education must be an integral part of a "meta-process"
3. To execute the idea of a meta-process in the real world on a large scale, you must leverage the power of innovative business models

Thank you.

Corporate Social Responsibility (CSR) - A socially responsible investment?

Yesterday, the Net Impact Club of ISB hosted a Panel discussion on "Corporate Social Responsibility (CSR) - A socially responsible investment?" PS Narayan (Wipro), Janet Geddes (KPMG), Unmesh Brahme (formerly with HSBC), Mudit Kapoor (ISB) were my co-panelists.

I was the first speaker; this is what I said in my opening remarks. Highlights from what other panelists said in their remarks, as well as the questions & comments by the audience are mentioned in italics, integrated into the text of my remarks for the sake of seamless reading thematically...

Is CSR good, bad or ugly? Actually, it is not one CSR and therefore there can't be one view. I see four steps in the CSR ladder. Pick your step and stick your label :)

Step 1 in the CSR Ladder: Earn Profits. Pay Taxes. Leave the rest to Governments.

Traditionalists argue that the focus of business enterprises should be strictly on satisfying the shareholder desire for a return on their financial investment to the exclusion of other non-financial stakeholders.

Are Corporates economic citizens? Or socio-economic citizens?

Corporates as artificial entities should have no social responsibility, real individual people must have a social responsibility.

Generating profit by servicing consumers in a competitive environment is the most socially responsible act of a Corporate.

Is CSR a way circumvent the society's perception that profits are bad?

Step 2 in the CSR Ladder: Implementation of Core business activities with broader responsibility towards all the stakeholders.

Demonstrate positive economic, environmental and social performance over long term. Triple Bottom Line Reporting along these lines. Since these activities are cost / investment intensive in the short run, these are typically supported by the market mechanisms such as Green Taxes, Emission Trading etc. Many times there also conflicts in trading-off interests of one stakeholder vs another. At a threshold level, typically such responsibility is driven by statutes too. Many companies go beyond those threshold voluntarily and adopt higher standards.

Are the three bottom lines mutually exclusive or reinforcing?

Most ethical companies are also the most profitable, per a global survey...

Corporates must look at all their spheres of influence viz. workplace, local communities, environment and supply chain & marketplace

Step 3 in the CSR Ladder: Poverty and environment focused social investment and philanthropy programmes.

Approaches vary from a simple Write-a-Cheque, to Venture Philanthropy, to Strategic Philanthropy. While write-a-cheque simply brings financial resources from Corporates, Venture & Strategic Philanthropy approaches bring other corporate resources such as management & entrepreneurial skills multiplying the impact. Any which way, scale & sustainability of charity is limited. Most typically

How do you decide how much money you put into CSR programmes?

What are the metrics of success of a CSR programme?

CSR is a social license to operate in backward districts, especially if you are in industries that extract from community resources, such as mining.

Is CSR a license to kill? As in extractive industries harming the environment!

Corporates have an ability to do good. They should see this as a responsibility to do good, because society is in dire need of good deeds.

Trying to solve world's problems, just because we have capability is arrogance! Patronising!

Isn't the best way to deploy CSR funds through supporting Social Entrepreneurs?

How many CSR initiatives are really scaled? To make any meaningful impact?

Doesn't a lot of employee volunteer work end up as a picnic, without any real work on the ground?

Even a picnic is good; better than not doing any good at all...

CSR funds are no more than a "tax" by Corporates on the market - by raising consumer price, paying lower salaries to employees, lower dividends to the shareholders or lower prices to vendors. This is more true in non-competitive markets, where corporate have such pricing freedom.

Focus of my talk today is to share ITC's experiences in adding the Fourth Step to this CSR Ladder: I refer to ITC's innovative business models, wherein our need for creating shareholder value is enmeshed with that of local communities in a mutually supportive, interlocking and interdependent partnership… ITC's eChoupal, Farm Forestry are in this league. Agarbattis is another business on similar lines!

Emerging economies, in particular, offer a low hanging opportunities to create such enmeshed models. Typically small producers have constrained access to markets, whether for information or knowledge, for inputs or output. As a result issues like low productivity, low share of consumer price, high transaction costs limit the incomes of these producers. Demand signals also aren't transmitted to these producers effectively, for them to be able to respond to changing consumer needs. On the other hand, corporates who source from these small producers suffer too, from high transaction costs, poor quality and delivery schedules, lack of traceability to product source point and so on... Corporates can invest in R&D, appropriate infrastructure and integrate these producers into their value chains to improve coordination, cut transaction costs, enhance quality, increase productivity to create win more - win more relationships. Higher the Corporate efforts to increase incomes of the poor, more the profits for Corporates themselves from such relationships. As a result scalability ans sustainability of such models is never a strategic challenge. Value chain integration can effectively deal with several environmental aspects too.

In ITC's eChoupal and farm forestry examples, the social impact is through better livelihoods to small farmers and poor tribals. Conservation Agriculture and Carbon Sequestration deliver environmental benefits, while competitive sourcing of high quality farm / forest produce bring the economic benefits to ITC.

While executing such initiatives, it is very important that the communities themselves are fully co-opted into the design and execution of the business models. This ensures relevance of the solutions as well as lower costs. On the other hand, one has to work closely with Governments to ensure that subsidies do not unduly distort the markets.

Typical drivers of CSR: Enhanced Reputation, Employee Motivation, Economic Advantage, Risk Management, Innovation & Learning, Statutory Compliance

Consultants help in CSR strategy formulation, due diligence, monitoring & evaluation, organisational development

If companies are indeed genuine about CSR, they shouldn't be part of Corporate Communications or Corporate HR...

CSR strategy gets formulated by corporates based on their perspective of themselves; whether they are Pure Capitalists (markets will deal with all issues), Social Contractors (explicit & implicit expectations from society) or Ecologists (we are but one of the species on this planet living at a point of time)

Mobius strip can be seen as a metaphor for the complex global challenges

Push factors for CSR: Environmental Conflict & Climate Change; Pull factors for CSR: Opportunity for inclusive business growth

Is regulation the path go down in India? Or leave to the discretion of Corporates?

How do we rope SMEs in to CSR mindset? Even workplace fairness, to start with...

Is India ready to buy green products at higher prices?

How to bring CSR & sustainability thinking into B-schools?

Is bringing affordable consumer goods to BoP CSR?

Isn't dealing with Naxalism a business agenda? How many CEOs want to have a serious action plan for this?

General bias of the hall, as sensed by me, at the end of the panel discussion was " Corporate Philanthropy is bad CSR. Making profits is good CSR. Models that enmesh business & community interests is the best CSR! "

Investment Opportunities in Rural India

Here is a summary of my talk on "Investment Opportunities in Rural India" at the Credit Suisse Investors' Conference, Hong Kong in the session on "Emergence of Rural Asian Economy" (24 March 2010)

My talk had three parts.

1. What factors helped rural India grow phenomenally in the recent past?

2. Will the growth sustain?

3. What are the investment opportunities!

Six factors helped growth

1. Infrastructure investments (roads by Govt, telecom by private)

2. Higher farm incomes (high commodity prices, more crop diversification)

3. Government programs like Universal Education, Employment Guarantee, Waiver of loan repayment by small farmers

4. Remittances from youth employed in towns

5. Rural non-farm (live stock, new services)

6. Income from sale of land (urbanisation, industrialisation)

While there is no problem to this growth momentum in the short run, there are several (six again!) show-stoppers that need to be dealt with

1. Food Security, due to stagnating farm yields and land use diversification; malnourishment of women & children in particular

2. Climate Change will compound the yields problem. An IFPRI model says Indian wheat yields can decline by 50% by 2050; rice 17%, maize 6%. We need to build the small farmer capacity in yield improvements and in dealing with climate variability

3. Need to create more urban jobs, especially in small towns; ratio of agri workforce to arable land is rising to unsustainable levels

4. Investments in "energy" still woefully inadequate

5. Policy reforms to link farmers to markets have slowed down / reversed

6. Quality of delivery mechanisms for basic services still poor (education, health care, financial services)

These challenges present opportunities in four specific areas of investment!

1. Infrastructure businesses (energy solutions, logistics, micro irrigation). PPP opportunity

2. Provision of Basic Services (education, healthcare, financial services). PPP + innovative business models required

3. New Technologies (labour saving crops, chemicals, equipment; mobile phone apps, rapid testing equipment for crop quality & biometrics)

4. Delivery Channels (Govt Services, Agri Extension, Basic Services as in 2 above, Consumer goods)

Blending Innovation and Social Entrepreneurship, Changing lives

Here is a summary of my opening remarks during the panel discussion on “Blending Innovation and Social Entrepreneurship, Changing lives” at the Villgro Unconvention on 11th Dec 2009 (http://nxy.in/7rxhn)

1. What is “changing lives”?

To me, “changing lives” has two aspects and one outcome

(a) Align capacity of the people. Am saying “align” rather than the more commonly used term “build”, because I believe everyone has some sort of special capacity innately. Capacity could be social rights, economics knowledge, communication etc

(b) Enable unconstrained access to markets. Markets for information, knowledge, inputs (products and services) into production activity and access to output markets

so that

(c) everyone can fulfill their aspirations whatever they are, including a better quality of life!

2. Why do we still need to talk about “changing lives”, despite so many centuries of civilisation?

I will illustrate my arguments referring primarily to the context of rural Indian people (because that’s Villgro’s canvas, and that’s where my experience lies in any case), but many of these observations are relevant to all poor people.

Because of certain inherent and fundamental characteristics of rural people (especially farmers) and certain other challenges, their access to markets is constrained. Consequently all their hard work, innovation and risk are burnt in sheer survival rather than creation of wealth. Incidentally, in the same panel, Paul Polak described such people as “survival entrepreneurs”

I call some characteristics fundamental, because they are unlikely to change (to any significant effect) in the foreseeable future. They are:

(a) Fragmented Size: Each of the 120 million Indian farmers owns an average of just about a hectare-and-a-half of land. Consequently, they end up with weak bargaining power in any value chains they are part of. They end up buying any thing they buy at a very high retail price at the end of a long chain. CK Prahalad called this “Poverty Premium”. On the other hand, whatever they sell they sell at a whole sale price at the beginning of another long chain; receiving only a small share of the consumer Rupee as a result.

(b) Geographic Dispersion: These 120 million farmers live in some 600,000 villages spread across a large geography. As a result access to real-time information is difficult and cost of reaching goods becomes expensive.

(c) Heterogeneity: Besides the broader variations in soil types and climatic conditions across India, the individual farmers also differ from each other so much (eg. access to finance, cash flow needs, risk appetite, family labour and so on) that any generic solution is not going to be optimal for many. Personalisation of solutions is an imperative, but personalizing isn’t viable for any business when these people are fragmented and dispersed!

The challenges arising out of these fundamental characteristics are further compounded by inadequacies in the infrastructure. Infrastructure of three types. The more commonly known physical infrastructure viz. roads, power, telecom; also irrigation in case of farmers. Then the social infrastructure viz. education for competence building, health – a major reason for indebtedness in rural India. Finally, and most importantly, the still evolving institutional infrastructure viz. credit ratings, dispute resolution, commodity price risk management, farm yield risk management etc.

As a result of these fundamental characteristics and the infrastructure inadequacies, when the farmers access markets such as banks for loans, agri extension officers for farm management knowledge, mandis for selling agri produce etc their transaction costs are high; that is when they are actually able to access.
Otherwise they have to rely on middlemen in the villages who provide them all these services at one shop conveniently, but extract their pound of flesh by spinning a cycle of dependency and exploit it to their advantage!

In other words, these two options are like relying on the Devil or swimming through the Deep Sea to access the markets. What’s the outcome you then expect, except the world still looking for solutions to “change their lives”?

3. In this back drop, I propose that innovation along three vectors can make a difference and possibly hold a light at the end of the tunnel for these people:

(a) Technology: For relevant products (e.g. energy solutions – solar lights, communication solutions – mobile phones) at better value for money price points, and for remote access (information, knowledge, e-learning, health diagnosis & delivery) by side stepping or making up for infrastructure inadequacies

(b) Institutions: Fusing technology, social capital (making up the missing institutions and provide an alternative to the traditional middlemen e.g. Joint Liability Groups making up the missing credit appraisal mechanism; ITC eChoupal Sanchalak for facilitating value added access to Internet) and collaborative networks (that orchestrate an ecosystem to bring end-to-end solutions to the poor like middlemen, yet offer freedom of choice like the unbundled market institutions) to create more equitable markets

(c) New Business Models: Enmesh the interests of people and business (e.g. identity preserved supply chains in eChoupal system that raises the incomes of the farmers and increases ITC’s profits), and third party pays business models (leveraging the volume ala’ media business) for fiancial viability and scalability of the enterprises