Do­ing well by do­ing good

Financial Mirror (Cyprus) - - FRONT PAGE -

What­ever one may think of Musk, his courage must be ap­pre­ci­ated. He is rewrit­ing the rules of busi­ness, based on the be­lief that Tesla’s suc­cess de­pends on that of the en­tire mar­ket for elec­tric cars, and that his com­pany’s com­mer­cial in­ter­ests are in­sep­a­ra­ble from the in­ter­ests of so­ci­ety.

Musk’s un­con­ven­tional strat­egy could up­end en­tire in­dus­tries – for the ben­e­fit of all. If Tesla’s open patents suc­ceed in bring­ing other play­ers into the sec­tor, it could trans­form what is now a niche prod­uct into a mass-mar­ket phe­nom­e­non – a trans­for­ma­tion that would sig­nif­i­cantly ad­vance the fight against cli­mate change.

There is no sense in ask­ing whether Musk is try­ing to fight cli­mate change or just try­ing to make a buck. He is do­ing both. And, fur­ther­more, it is ex­actly this type of pub­lic­minded cap­i­tal­ism that will be re­quired of suc­cess­ful com­pa­nies in the fu­ture.

We live in an age of enor­mous trans­for­ma­tion – an era in which fo­cus­ing solely on near-term fi­nan­cial re­sults is a pre­scrip­tion for ex­tinc­tion, and ad­dress­ing so­ci­etal needs is en­tirely com­pat­i­ble with long-term prof­itabil­ity. While this view may seem un­con­ven­tional at the mo­ment, time will prove the pi­o­neers right. In the years ahead, suc­cess­ful com­pa­nies will take the lead in tack­ling the most ur­gent de­vel­op­ment chal­lenges of our time – ev­ery­thing from poverty and dis­ease to cli­mate change.

Con­sider Kenya’s M-KOPA, a com­pany that in­stalls so­lar power kits and col­lects pay­ments via mo­bile phones. By de­liv­er­ing elec­tric­ity at lower prices than their cus­tomers would oth­er­wise have to pay for kerosene light­ing, M-KOPA has de­liv­ered so­lar power to more than 330,000 low-in­come house­holds in Kenya, Uganda, and Tan­za­nia. New con­nec­tions are be­ing added at a rate of 500 homes per day.

Phas­ing out kerosene has an im­mense im­pact on the lives of M-KOPA’s cus­tomers, their chil­dren’s health, and the en­vi­ron­ment. But the com­pany can­not be con­sid­ered a char­ity: its rev­enues are pro­jected to reach $60 mil­lion in 2016, hav­ing in­creased by 400% in just two years.

An­other ex­am­ple is to be found in Peru, where more than 30 fi­nan­cial in­sti­tu­tions chose a sim­i­larly un­con­ven­tional path to prof­itabil­ity, work­ing to­gether to es­tab­lish Modelo Perú – a plat­form that pro­vides dig­i­tal fi­nan­cial ser­vices.

In Peru, cash trans­ac­tions had been the norm. The par­tic­i­pat­ing com­pa­nies de­cided that it was in their col­lec­tive in­ter­est to cre­ate a sin­gle na­tional plat­form for mo­bile pay­ments, and they worked with the gov­ern­ment and four telecom­mu­ni­ca­tions com­pa­nies to con­struct one. To­day, the num­ber of Peru­vians with ac­cess to af­ford­able fi­nan­cial ser­vices has ex­panded sig­nif­i­cantly. And the in­sti­tu­tions be­hind the project have gained ac­cess to a much deeper pool of con­sumers than they would have if each had devel­oped a sep­a­rate dig­i­tal plat­form.

My own or­gan­i­sa­tion, the In­ter­na­tional Fi­nance Cor­po­ra­tion, also knows the value of rewrit­ing the rules. In 2006, we in­tro­duced per­for­mance stan­dards to help our client com­pa­nies mit­i­gate risks by ap­ply­ing en­vi­ron­men­tal and so­cial (E&S) prin­ci­ples and ad­vanc­ing the pri­vate sec­tor’s lead­er­ship in re­spon­si­ble de­vel­op­ment.

Ini­tially, other fi­nan­cial in­sti­tu­tions were skep­ti­cal of our ap­proach; they saw the ap­pli­ca­tion of strict stan­dards as a sure way to lose busi­ness and prof­its. Within a few years, how­ever, ma­jor banks and de­vel­op­ment in­sti­tu­tions came to­gether to es­tab­lish the Equa­tor Prin­ci­ples based on our E&S stan­dards.

To­day, our stan­dards are ap­plied to project fi­nance around the world. They have helped level the play­ing field within the bank­ing in­dus­try. In ad­di­tion, through the Sus­tain­able Bank­ing Net­work – an as­so­ci­a­tion of cen­tral banks, reg­u­la­tors, and fi­nan­cial trade as­so­ci­a­tions – we are help­ing coun­tries de­velop na­tional poli­cies to boost green fi­nance. And we are see­ing a grow­ing ap­petite for this kind of ex­per­tise, from within gov­ern­ments and the pri­vate sec­tor.

The world has the mo­men­tum – and the means – to cre­ate a mass mar­ket for sus­tain­able fi­nance, one in which in­vest­ment de­ci­sions are driven as much by E&S and good gover­nance cri­te­ria as by cred­it­wor­thi­ness. Com­pa­nies that have signed the UN Prin­ci­ples for Re­spon­si­ble In­vest­ment

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