Colombia’s changing social and economic fortunes have been driving a heightened interest in strategic corporate sustainability
Colombia’s economic success is pushing strategic corporate responsibility onto business agendas.
Riding high on Colombia’s economic wave, a number of large family-owned enterprises such as Alpina and Carvajal have been expanding their operations overseas. This has encouraged such companies to view their social and environmental strategies as a source of competitive advantage in the international marketplace. It is also exposing them to international best practices and stakeholder expectations in corporate sustainability.
Alpina typifies this generation of family-owned Colombian enterprises. Founded in 1945 and now the third largest dairy products company in the country, Alpina has been steadily building its presence in overseas markets, most recently the United States.
“We have been seeking to replicate our best practices in all markets where we have operations,” says an Alpina spokesman. Our arrival in North America signifies entry into a market that is well advanced on sustainability issues. This will enable us to adopt the latest generation of standards.”
Domestic producer groups and exporters have also recognised the importance of aligning their production strategies with global best practice as a means to attract foreign investment and compete internationally.
“Colombia has a long industrial history. Flower, coffee, sugar, and fruit producer groups are seeking to grow and to position themselves more competitively on the international market,” says Ernst Ligteringen, chief executive of the Global Reporting Initiative (GRI). “They see environmental and social sustainability as essential components of the quality needed to compete internationally.”
Colombia’s National Coffee Federation is a case in point. Reckoned to be one of the largest and most well-organised coffee producer groups in the world, the federation represents 550,000 small coffee producers, and has been steadily integrating sustainability into its activities in recent years.
Its flagship sustainability programme, Sustainability that Matters, has been highly successful in attracting corporate philanthropic investment and state development assistance. The federation estimates the programme channelled $381m of benefits to its growers through its various activities in 2010. The organisation also published its first GRI-compliant sustainability report in 2010.
In May 2012, in one of the largest commercial tie-ups between a brand and a producer group, the federation announced a five-year $85m partnership with global coffee brand Nespresso, owned by Nestlé. The partnership will see an annual public-private investment of $17m to bring small Colombian coffee farmers into Nespresso’s AAA sustainable quality programme, developed by the Rainforest Alliance in 2003.
Foreign investment benefits
If the need to attract foreign direct investment is driving the uptake of strategic corporate responsibility, domestic companies also benefit from the transfer of international best practice through foreign investment.
Bavaria, Colombia’s largest drinks company, has benefitted from this knowledge transfer. Bought by SABMiller in 2006, Bavaria is SABMiller’s largest operation in Latin America and accounts for a sizeable chunk – about 1.2% – of Colombia’s domestic economy. According to Fernando Jaramillo, Bavaria’s corporate affairs director, SABMiller has strengthened Bavaria’s approach to sustainable development.
“For many years Bavaria had a strong social and environmental conscience,” Jaramillo says. “SABMiller has brought a new international methodology and system of application that has encouraged us to keep being transparent and committed. It has also allowed us to turn our social and environmental conscience into serious technical and measurable commitments.”
In the past few years Bavaria has been scaling up its sustainability programme, aligning with SABMiller’s global sustainable development principles while making interventions appropriate to the Colombian context.
The scale of commitment is impressive. The Bavaria Foundation was founded in 2006 with a $50m endowment. It runs education, microcredit and entrepreneurship programmes. The company has also maintained its strategic focus on water, and for the past two years has been involved in a large-scale public-private alliance to protect Bogota’s municipal water supply.
An alliance between Bavaria, conservation NGO the Nature Conservancy, Bogota’s Aqueduct Company and the Colombian National Park System, the project is aiming to remove 2,000 tonnes of sediment from Bogota’s municipal water supply annually by promoting reforestation and encouraging sustainable land use practices in the alpine highlands (paramos) that provide water to the city.
At this early stage, the alliance is seeking donors for an endowment fund that will guarantee the long-term viability of the project. For José Yunis Mebarak, Colombia representative for the Nature Conservancy, the success of the project to date is a result of its innovative public-private model; rare but increasingly possible in Colombia.
“This is no ordinary NGO-business partnership. We have the private, public and NGO sectors around the table. What makes the alliance strong is its collective resource,” Mebarak says.
National pride
Underpinning the approach of many Colombian companies is a stated commitment towards the country’s social and economic development. In fact, the degree to which large Colombian enterprises invoke, and are united by, this “responsibility to country”, is unique.
Neither overly patriotic, nor unduly earnest, this sense of unity and responsibility towards Colombia’s social development is undoubtedly a consequence of Colombia’s tumultuous recent history and reflects a shared desire to move forward.
“To some extent there is the sense that if you invest in the issues of poverty and strengthen the state, Colombia won’t return to the past,” says Pablo Uribe, director of Compartamos Con Colombia.
And the business case for corporate social responsibility resonates neatly. “What is good for Colombia is good for business,” Jaramillo says.
Leading sectors
Colombia’s extractive sector has a longer history of activity in corporate social responsibility compared with other sectors. This reflects global trends although the escalating national debate around the impacts and benefits of the mining sector suggest the industry still has much work to do.
“The contribution of the mining industry to Colombia’s sustainable development needs to be better understood by society,” says Julián González, vice-president of sustainability and public affairs at Cerrejón Coal. An independently operated joint venture between BHP Billiton, Xstrata and Anglo American, Cerrejón’s open-cast coal mine in the Guajira department is one of the largest in the world.
Although not without its critics, Cerrejón has done more than most mining companies in Colombia. It has shown that serious public engagement, community investment and a confident articulation (matched with resources) of the mining sector’s role in Colombia’s social and economic future can pay dividends.
Cerrejón launched its innovative foundation system in the Guajira department in 2008. Four foundations now invest in the local community, in four strategic intervention areas: water, indigenous peoples, progress and institutional strengthening.
The success of the foundation system has been its upfront recognition that wealth generated through the company’s extractive operations should be used to build local capacity and to prepare the Guajira region for an economic future independent of Cerrejón’s coal operation.
Other mining companies have been less successful, particularly in cases where civil protests against local mining operations have been interpreted as a need to increase spending on philanthropy communications, rather than addressing the underlying causes of resistance.
Many commentators admit that the vast spending of the mining sector as a whole has not necessarily translated into effectiveness – perhaps a signal that the sector’s wider political issues must be resolved before meaningful progress can be made.
Corporate social investment
Colombian corporate social investment strategies are among the best in the world. Typically they are implemented through corporate foundations and they are characterised by their scale and sophistication. Colombia’s foundation sector is recognised to be one of the most established and effective in Latin America.
A recent study of the sector undertaken by the Promigas Foundation and the Foundation for Institutional Development for Social Organisations found that education, income generation and peace were the most commonly addressed themes for Colombia’s corporate foundations.
The study identified a recent shift away from basic philanthropy towards strategic philanthropy, where the increasing focus is on scale and model-replication. The changing dynamics between foundations and their patron businesses was also highlighted as a major structural shift within the sector.
“We found that Colombian foundations are increasingly addressing the strategic objectives of the company,” says Lucia Ruiz Martinez, executive director of the Promigas Foundation and co-author of the report. “Businesses are seeing that their foundations can be a source of social innovation for the business.”
For Margareth Flórez, executive director of RedEAmerica, there are two distinct models within the sector. First are foundations with their origins in large family-run Colombian enterprises. This first wave of foundations typically operated at arm’s length from the business.
The second wave of foundations are closely aligned with the business and were typically founded more recently, in the past 20 years.
The Carvajal Foundation sits squarely in the first wave. It was founded in 1961 by the Cali-based Carvajal family – now owners of a multinational, multisector business operating in 15 Latin American countries with an annual turnover of $1.5bn. The foundation supports vulnerable communities in Cali through income generating, education, housing and other social development programmes. It boasts an annual budget of $17m.
“The foundation operates with total independence from the business. The issues of the business are not our issues. We focus on integrated development particularly at the family level in our sphere of influence,” says Roberto Pizzaro Mondragón, Carvajal Foundation chief executive.
The contribution of Colombian corporate social investment to the country’s social and economic progress is unclear, in large part due to the absence of available measures. What is clear, however, is that more than ever before Colombia’s private sector is playing an important role in shaping the economic and social fabric of Colombia’s future.
Case study: the Bavaria Foundation’s high potential entrepreneurs
The Bavaria Foundation aligns its mission with SABMiller’s sustainable development priorities as well as the social and economic development needs of the country.
Launched in 2010, Destapa Futuro (which means “open the future”) is the foundation’s flagship programme. The largest private initiative if its kind in Colombia, Destapa Futuro aims to drive national economic and social development by supporting high potential entrepreneurs throughout the country.
Each year the programme disperses grants totalling $1.5m to 60 successful entrepreneurs. Projects and business models are selected on their ability to deliver high social and economic returns. Entrepreneurs that don’t win grants receive business training as well as assistance with their strategic business plans.
Destapa Futuro offers further support mechanisms to Colombian entrepreneurs most notably through its angel investor and mentor networks. Entrepreneurs in Colombia typically lack access to investment capital, a result of a recognised gap in access to business financing.
Following discussions with the Inter-American Development Bank, the Bavaria Foundation determined it could play a major role in promoting economic and social development in Colombia by helping to bridge this financing gap. Through its angel investor network, Destapa Futuro connects entrepreneurs with private sources of finance.
“Through the backing of SABMiller and Bavaria, Destapa Futuro is able to encourage an environment of confidence in Colombia’s entrepreneurship system,” says Catalina Garcia Gómez, director of the Bavaria Foundation.
The Bavaria Foundation calculates that the businesses of entrepreneurs awarded grants since the launch of Destapa Futuro have generated some 5,000 jobs in Colombia.
Case study: Promigas, reaching the base of pyramid
Colombia remains one of the most unequal countries in the world. Some 86% of the population do not have access to bank loans while 84% of consumer credit to low income groups is provided by informal agents who can charge up to 240% interest per year.
In 2007, Promigas launched inclusive business model Brilla. The Brilla brand offers financing to customers at the base of the economic pyramid for goods that improve households’ quality of life.
88% of Promigas’s residential customers belong to Colombia’s lowest income bracket. The company has connected more than 90% of these customers to the natural gas network by offering financing for up to 72 months.
As more customers paid off their connection fee, Promigas revenues from financing activity started to decline. But the Brilla business model offered a solution to preserve revenue, to differentiate Promigas from competitors, and to connect with the next generation of customers while supporting the social and economic development of natural gas users.
As of December 2011, Brilla had reached 651,441 families with credit worth $307m of which $146m had been paid. By 2016 Brilla aims to impact 1.5m households with credit worth $730m.
Brilla recently began offering credit for micro-insurance products and will be releasing a study later this year that measures the social impact of its financing system.