5th International Disaster and Risk Conference IDRC 2014 Integrative Risk Management - The role of science, technology & practice 24-28 August 2014 in Davos, Switzerland
A Holistic Approach Towards International Disaster Resilient Architecture by ...
Davos Shared Value Deck August 2014
1. Inter-American Development Bank
New approaches to sustainability –
A Shared Value Approach
Dr. Bettina Boekle
Social Sustainability Specialist
Davos, August 26, 2014
2. Structure of presentation
2
1 IDB context
2 Shifting from Business as Usual: Shared Value
3 Shared Value Examples
4 Cost-Benefit Analysis in Jamaica’s Hospitality
5 Key lessons learned and what is next
6 Reactions from our clients
3. Leading regional development bank in LAC
3
Our Clients
Corporations, private utilities,
infrastructure operators, financial
institutions, and PPPs
[Public Sector IDB: Governments]
Our Products and Services
Loans and guarantees
Senior and subordinated
Corporate and Project Finance
Ticket size: US$10-400 million
Concessional climate finance
Value creation services
7. What is Shared Value?
Driving business growth through solutions
that also drive social value creation
8. 8
Shared Value in the Spotlight
First Multilateral Development Bank to
join global Shared Value Initiative.
At IDB-Nestle Shared Value Conference
in Cartagena, three case studies were
presented: Nestle, Harvard, and SCF.
Donor funded TC for Shared Value
Appraisals
9. 9
• Addressing challenges to
more competitive business
• Addressing social needs for
more sustainable impact
• Achieving sustainable
change for the company
and community
If the investment doesn’t produce
higher financial returns for the
company, it’s not Shared Value
Shared Value Appraisal
Identify investments that create business + social value
10. Building a methodology for success
10
The Shared Value Appraisal methodology surfaces tangible investments to enhance returns:
• Strategic priorities
• Concrete outcomes
• Criteria for success
• Stakeholder definition
Definition/
Scope
Data
Collection
Lessons
Learned
Investment Analysis
• Literature review
• Stakeholder
engagement
• Shared Value Process
Worksheet
• Quantitative and
qualitative review and
analysis
• Menu of optimal
investments
• Stakeholder interviews
• Cost-benefit analysis
• Action Plan and
Roadmap
• Lessons learned for on-going
shared value
approach at enterprise
level
• Concrete Roadmap for
subsequent
implementation
1
2
4 3
5
11. Social, Environmental AND
Financial Sustainability as Goal
We see investments in sustainability as a business opportunity, moving
beyond a pure risk mitigation or compliance strategy (separate ESG
process)
Our shared value appraisals have to pass the test of:
Addressing a current and/or future business challenge of our client
Business and profitability (We are the Private Sector Department of a Bank!)
Developmental Impact (Social and/or environmental)
What else is needed to make it happen?
Innovative leadership with long-term vision and a willingness to commit time and
resources for design AND implementation (sustainability vision)
The ability to collect the relevant data and establish benchmarks to demonstrate and
measure impact over time (ex-ante and ex-post)
Motivation of internal clients (investment officers) and change management
12. Project example 1: Subsole Agribusiness Chile
12
VVaalluuee PPrrooppoossiittiioonn//NNeeeedd
Need to increase sustainability and competitiveness of
current labor force due to high seasonal volatility of
exporting Chilean fruit industry
Gender/Diversity improvement in supply chain
Supply chain management with contractors and SME
farmers: Improve contracting mechanisms/relationships to
improve quantity, quality and reliability of supplied fruits
Capacity building/training: Identification of needs for
differentiated capacity building adequate to increase
workers’ productivity, their loyalty and company’s
competitiveness in short-, medium- and long-run
OOppppoorrttuunniittyy ffoorr ssccaallee--uupp//rreepplliiccaattiioonn
Demonstration effect for fruit exporting industry leading to
scale-up and replication in Chile
Potential model for other countries in the region struggling
with same problem (work force retention)
13. Project Example 2: Inclusion Programs in Tourism in Jamaica
14
VVaalluuee PPrrooppoossiittiioonn//NNeeeedd
Opportunity to increase financial and business
sustainability of IDB client (Caribe), Jamaican
construction company and hotel operator (Marriott)
Component 1: Higher Inclusion of local (women-)
led SMEs in Marriott’s supply chain to reduce its
procurement and operating costs, increase
freshness and uniqueness of products, and provide
Caribe with increased profit-rate
Component 2: Hire Youth-At-Risk during hotel’s
construction and operation; increase hotel’s
reputation and trust building with local community
OOppppoorrttuunniittyy ffoorr ssccaallee--uupp//rreepplliiccaattiioonn
Social and environmental demonstration effect for tourism
industry in the Caribbean (first LEED building in Jamaica)
Potential model to be scaled up/replicated in 3 other
hotels of the IDB Client in LAC
14. Shared Value Methodology for Jamaica
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Shared value is understood to be a composite of financial costs and benefits (monetary returns
on investment) and social costs and benefits.
Direct and indirect economic costs
and benefits for each organization
(E.g.: cost for training, benefit from lower
procurement cost, etc.)
Direct and indirect social costs and
benefits for each organization
(E.g.: licence to operate, etc.)
Direct and indirect social/economic
costs and benefits for stakeholders
(E.g.: improvement of well-being of
workers, increase of real estate value,
etc.)
Quantification of economic costs/benefits
List of potential costs/benefits
CBA for each
organization:
-Hotel owner & manager
-Contractor (construction)
-Training organizations
Monetization of social costs/benefits
Costs and benefits listed
but not quantified
15. CBA results summary
16
The Net Present Value has been calculated for each category of stakeholders:
Training of youth-at-
risk and inclusion
in the workforce as
laborers
Technical
training of
youth-at-risk
Inclusion of
local SMEs in
the hotel’s
supply chain
Training of youth-at-
risk and
inclusion in the
hospitality
workforce
Positive NPVs
for business
partners
16. Costs & Benefits for youth-at-risk, SMEs and the
community
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Benefits to the community: poverty reduction, reduced criminality, increased public revenues from sales and
revenues tax, reduced public expenditure (security, social benefits)
Benefits to the community: poverty reduction, reduced criminality, increased public revenues from sales and
revenues tax, reduced public expenditure (security, social benefits)
17. Key Performance Indicators
Program-specific
Youth-at-risk programs
- # of youth-at-risk trained in construction (labourers and
technical workers) disaggregated by male and female
- # of youth-at-risk hired by construction company
(labourer and technical worker) disaggregated by male
and female
- # of contracts completed by youth-at-risk
- Level of performance of youth-at-risk (see baseline and
follow up surveys in Appendix A)
- Level of satisfaction of youth-at-risk working in
construction (economic and social impact)
Local SMEs program
- # of local SMEs included in the hotel’s supply chain
- Share of women-led SMEs
- # of contracts completed by local SMEs (including share
by women-led SMEs
- Amount in $ and share in % of total procurement
purchase from local sourcing (including from women-led
SMEs)
Business indicators
The inclusion programs are expected to have a
positive impact on the following business indicators
- Level of annual revenue generated by construction
company, hotel and local SMEs
- Amount of costs for hotel’s security
- Amount of expenses for hotel in case of riot or other event
- Amount of costs for logistics and marketing of hotel
- Hotel, construction contractor and SME’s market shares
- Organizations’ (hotel, construction company) brand
perception by stakeholders
See detailed costs and benefits rationale for each program in Appendix B
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18. 19
Key Lessons Learned and what is next for us?
• Communication and cooperation between all stakeholders is necessary
• Data collection is one of the key processes requiring general collaboration
• Availability, or rather scarcity, of data can however represent a challenge in this process
• Training organizations, local business associations can provide:
• Resources for training and capacity building
• Pool of potential candidates thanks to established networks
• Clear identification of financial mechanisms and incentives necessary to demonstrate
broader social benefits and have support organizations’ buy-in
• Involvement and availability of local “experts” enable to confirm assumptions
during the project design and make informed choices
o CUSO Jamaica provided in-field support
o Interviews with key stakeholders were conducted
• The quantification and monetization phase is crucial to attribute values to costs
and benefits, requiring the use of proxies
Value-chain approach
(where applicable)
Existence of supporting
local organizations
Deep understanding of
the local reality
Translation of non-market
values into market values
19. How our clients react to the appraisal process:
“We would have never taken the time to discuss all this.
Now, we have pressure to deliver a real solution.”
CFO Chilean fruit exporter
“If you support a local, woman-owned bakery, how many
suppliers benefit? How many families? How many children
are then able to go to school and move on to good jobs?
We have always understood this process anecdotally but
are working more diligently on metrics, and the IDB-Deloitte
shared value team was able to show how to do so in
greater detail, including dollar value. This was a great
learning opportunity for us.”
Marriott VP for LAC
20
IDB partners with private sector stakeholders to achieve breakthrough financial results with high development impact
All of our deals have a focus on development, we have three high level goals, by 2015 to have supported $10B in climate friendly investment and 250,000 small and medium enterprises, as well as positively impacting 15 million people
IDB partners with private sector stakeholders to achieve breakthrough financial results with high development impact
All of our deals have a focus on development, we have three high level goals, by 2015 to have supported $10B in climate friendly investment and 250,000 small and medium enterprises, as well as positively impacting 15 million people
IDB partners with private sector stakeholders to achieve breakthrough financial results with high development impact
All of our deals have a focus on development, we have three high level goals, by 2015 to have supported $10B in climate friendly investment and 250,000 small and medium enterprises, as well as positively impacting 15 million people
Hydroelectrica Rio Las Vacas – Guatemala
45MW run of river hydro, 18KM northeast of Guatemala City.
Business Challenge: High maintenance costs due to high level of solid waste that must be removed before water can pass through the turbines.
Social problem: Local demographics show high levels of unemployment of unskilled labor in surrounding area and environmental degradation.
Shared Value Investment
The company invested in a recycling plant to recycle the plastic waste removed from the river, transform it into posts used for fencing, and helped form a cooperative of pickers to perform the work.
Financial Return to the Company
Decreased O&M costs due to reduced maintenance of turbines, damage-related shutdowns and fence posts.
Social Return to the Community
New source of local employment
Oxygenation of water flow improves water quality
Recycled fences used to reduce erosion and risk of landslides
Reduced need for incinerators and landfills, reduced carbon emissions.
Key Points:
Challenges faced by many companies in emerging markets often cannot be resolved internally because they are driven or exacerbated by the political, economic or social context and trends.
Such challenges are more effectively addressed through a shared value approach, leading to better outcomes over the long term, because they account for external factors over which the company has no control (contextualize and embed)
Successful implementation of shared value strategy and interventions may make companies better loan candidates via improved financial and risk profile of a client
As a consequence, a company’s reputation will improve as well as their business (word of mouth); this will benefit IDB indirectly
In the CBA calculations, the hotel owner (Caribe Hospitality) and the hotel manager (Marriott) are not distinguished as the agreement binding both parties (interests on revenues and on profit) makes it difficult to separate who will assume the costs and who will get the benefits.
Even using conservative assumptions, the model showed that including local businesses in the supply chain will bring economic benefits to the hotel’s owners and operators primarily from lower cost of local vs imported goods and logistics and process efficiencies, beginning in the first year of operations. Tangible returns on providing job training and experience to at-risk youth were harder to quantify, but the IDB-Deloitte team concluded—based on its interviews in Jamaica and research elsewhere—that efforts in this area would pay off in the long run, by fostering community goodwill, improving neighborhood security, and in general contributing to the broad goal of social inclusion
SME results for Caribe and Marriott:
Note: In the CBA calculations, the hotel owner (Caribe Hospitality) and the hotel manager (Marriott) are not distinguished as the agreement binding both parties (interests on revenues and on profit) makes it difficult to separate who will assume the costs and who will get the benefits.
Largest benefits starts in 2015, corresponding to the hotel’s opening and beginning of full operations
Costs are mainly administrative in order to identify, communicate with, monitor the SMEs and assess and adapt the needs: these are on-going costs but which are fairly minimal compared to the benefits as showed from 2015 to 2022
Benefits reflects various sources of savings and gains compared to « business-as-usual » as presented in preliminary projections, especially:
Avoided custom duties on imported goods thanks to locally sourced goods
Lower marketing costs thanks to local involvement
Lower logistics costs thanks to an increased resilience of the supply chain
Lower costs due to higher competition locally
Higher banquet revenues: local population expected to chose this hotel because it supports the local community and businesses
Youth-at risk results for Caribe/Marriott:
The costs mainly reflects the stipends/salaries paid by the hotel owner (CH) to the youth-at-risk
2018 costs explanation: Last cohort in 2017 with contracts that could extend until 2018
Benefits are minimal for this stakeholder at this point, as they mainly benefit the contractors in charge of the hotel’s construction
The program starts to have a real impact 3 years after the beginning of the program (2016/2017) as it accounts for the time needed to improve the corporative image and the reputation to be built, eventually leading to greater business opportunities.
It is expected that hotel would engage less security costs or have lower expenses in case of riot or social event due to the inclusion of youth at risk showing a certain level of engagement with the local community
Generation of proxies based on conservative estimates and taking into account expert input (e.g. lower productivity and higher turnover for youth at risk inclusion into hospitality workforce.