TED@BCG Milan
Wendy Woods: The business benefits of doing good
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"The only way we're going to make substantial progress on the challenging problems of our time is for business to drive the solutions," says social impact strategist Wendy Woods. In a data-packed talk, Woods shares a fresh way to assess the impact all parts of business can have on all parts of society, and then adjust them to not only do less harm but actually improve things. Learn more about how executives can move beyond corporate social responsibility to "total societal impact" -- for the benefit of both a company's bottom line and society at large.
Wendy Woods - Social impact strategist
Wendy Woods is a Senior Partner and Managing Director of The Boston Consulting Group (BCG) and Global Leader of BCG's Social Impact practice, which she helped create. Full bio
Wendy Woods is a Senior Partner and Managing Director of The Boston Consulting Group (BCG) and Global Leader of BCG's Social Impact practice, which she helped create. Full bio
Double-click the English transcript below to play the video.
00:12
A few years ago,
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all the developed
countries in the world --
countries in the world --
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the wealthier ones --
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and all of the charities
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together donated about 200 billion dollars
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to developing countries in the world --
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the ones that bear most of the burden,
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the heaviest burden
of the world's biggest problems:
of the world's biggest problems:
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poverty, hunger,
climate change and inequality.
climate change and inequality.
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That same year,
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businesses invested in those same
countries 3.7 trillion dollars.
countries 3.7 trillion dollars.
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Now, I get to travel a lot in my work
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and I'm privileged
to see the amazing things
to see the amazing things
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that NGOs and some governments are doing
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with some of that 200 billion dollars:
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helping malnourished children
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or families that don't
have access to clean water,
have access to clean water,
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children who wouldn't
be educated otherwise.
be educated otherwise.
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But it's not enough
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because the biggest problems
in our world need trillions
in our world need trillions
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not just billions.
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So if we're going to make
lasting and significant progress
lasting and significant progress
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in the big challenges in our world,
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we need business,
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both the companies and the investors,
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to drive the solutions.
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So let's talk about
what business should do.
what business should do.
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And when I say that,
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you probably think that I'm going
to talk about corporate philanthropy
to talk about corporate philanthropy
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or corporate social responsibility.
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CSR is the norm today,
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and it's very useful.
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It provides a route
for corporate generosity
for corporate generosity
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and that generosity is important
to many corporations' employees
to many corporations' employees
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and customers.
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But you know what?
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It's just not big enough,
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or strong enough,
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or durable enough
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to drive solutions to the biggest
problems in our world today
problems in our world today
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because it's incremental cost.
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Even when business is booming,
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CSR just isn't designed to scale.
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And then of course in a downturn,
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it's one of the first programs to be cut.
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So no,
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CSR --
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corporate social responsibility --
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isn't the answer,
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but TSI --
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total societal impact, is.
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TSI is the sum of all of the ways
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business can affect society
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by doing the real work:
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thinking about their supply chains,
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working on their product design
and manufacturing processes
and manufacturing processes
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and their distribution.
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The real work of business,
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when done with innovation,
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can actually create
core business benefits for the company
core business benefits for the company
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and it can solve the meaningful
problems in our world today.
problems in our world today.
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So what does TSI look like?
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Focusing on TSI
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means incorporating
social and environmental considerations.
social and environmental considerations.
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And you know what?
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It's something that isn't completely new.
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It's been thought about for a while.
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But the hard part is that corporations
almost exclusively still think
almost exclusively still think
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about something called TSR:
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total shareholder returns.
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But TSI --
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total societal impact --
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needs to stand alongside TSR
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as an important and valid driver
of corporate strategy
of corporate strategy
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and corporate decision-making.
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And we've got the data
to show you why and how.
to show you why and how.
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Some companies
are already making this happen.
are already making this happen.
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They're beginning to make it happen.
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So let me tell you the story about Mars.
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Mars is the sixth-largest private company
in the United States.
in the United States.
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If you're like me,
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they make some important products,
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like coffee and chocolate.
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So not surprisingly,
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one of their most important
ingredients is cocoa.
ingredients is cocoa.
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And some of their competitors
are actually really worried
are actually really worried
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about the sustainability
and the availability of cocoa supplies.
and the availability of cocoa supplies.
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But not Mars.
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They're confident in the stable supply
of that crop for the long term.
of that crop for the long term.
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And why is that?
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It's because they partner
with NGOs around the world
with NGOs around the world
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that are working
with small shareholder farmers.
with small shareholder farmers.
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And those certification agency's NGOs
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are working to help farmers
improve crop yields,
improve crop yields,
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they're making sure that they get
a fair, premium, livable wage
a fair, premium, livable wage
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and they're helping them address
any human rights potential issues
any human rights potential issues
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in supply chains,
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and they're helping minimize
the effects on the environment,
the effects on the environment,
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like deforestation.
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Mars is on a path
to 100 percent certified cocoa,
to 100 percent certified cocoa,
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so this is a good program
for farming communities,
for farming communities,
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it's a good program for the environment,
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and it's a good program for Mars,
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who has solved a significant risk
in their supply chain.
in their supply chain.
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But now let's get to the data,
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because it's actually really awesome.
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And let me explain exactly what the data
points I'm going to talk about are.
points I'm going to talk about are.
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When analysts and financial people
look at companies,
look at companies,
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they think about
a lot of different statistics.
a lot of different statistics.
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I want to talk about
two of the most important ones.
two of the most important ones.
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I'm going to talk about
the overall value of a company --
the overall value of a company --
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it's valuation --
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and I'm going to talk about its margin.
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Basically the difference
between all of its earnings
between all of its earnings
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and all of its costs.
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So in our study,
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we looked at oil and gas companies,
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and the oil and gas companies
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that are performing
most strongly on TSI --
most strongly on TSI --
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total societal impact --
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see a 19 percent premium
on their valuation.
on their valuation.
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19 percent.
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When they do really well
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on things like minimizing
the impact of their company
the impact of their company
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on the environment and water,
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and when they have very strong
occupational health and safety programs.
occupational health and safety programs.
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And when they also add in
strong employee training programs,
strong employee training programs,
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they get a 3.4 percentage point
premium on their margins.
premium on their margins.
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But what about other industries?
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Biopharmaceutical companies
that are the strongest performers on TSI
that are the strongest performers on TSI
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see a 12 percent premium
on their valuation.
on their valuation.
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And then if they're best
at expanded access to medicines --
at expanded access to medicines --
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making medicines available
for the people who need them --
for the people who need them --
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they see a 6.7 percentage point premium
on their growth margins.
on their growth margins.
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For the retail banks
that are strongest on TSI,
that are strongest on TSI,
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they see a three percentage point
premium on their valuation,
premium on their valuation,
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and then for those that differentially
provide financial inclusion --
provide financial inclusion --
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access to financial products
for people who need it --
for people who need it --
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they see a 0.5 percentage point premium
in their net income margin.
in their net income margin.
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Now, these numbers for banks
may not seem very big,
may not seem very big,
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but in highly competitive industries,
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even really small differences
in margin matter a lot.
in margin matter a lot.
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Now, what about those
consumer goods companies --
consumer goods companies --
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the ones who make those products we love
like coffee and chocolate?
like coffee and chocolate?
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Consumer goods companies
that perform best on total societal impact
that perform best on total societal impact
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see an 11 percent valuation premium.
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And then if they do those smart
things with their supply chain --
things with their supply chain --
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inclusive and responsibly
sourcing their product --
sourcing their product --
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they see a 4.8 percentage point premium
on their growth margins.
on their growth margins.
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These numbers are significant.
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We've long known that things
like fundamental financials,
like fundamental financials,
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growth rates and financial risks
are key drivers of valuation,
are key drivers of valuation,
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but this rigorous analysis shows
that social and environmental factors --
that social and environmental factors --
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total societal impact measures --
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are also linked to valuations and margins.
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Wow.
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All else equal --
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we didn't confuse
the analysis with anything.
the analysis with anything.
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All else being equal,
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companies that perform strongly
on social and environmental areas
on social and environmental areas
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achieve higher margins
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and higher valuations.
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Now, I do understand
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that companies are under
a lot of short-term earnings pressures.
a lot of short-term earnings pressures.
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But fortunately,
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the investors who create
some of this pressure
some of this pressure
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are actually more and more themselves
starting to think longer-term
starting to think longer-term
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and starting to think with this TSI lens.
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In our conversations
and surveys with investors,
and surveys with investors,
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75 percent of them say
they expect to see improved revenues
they expect to see improved revenues
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and improved operating efficiency
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for companies that are thinking
with a TSI lens.
with a TSI lens.
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And they're actually starting
to incorporate this
to incorporate this
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in their own investing behavior.
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Last year,
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23 trillion in global assets
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were in the category
of socially responsible investing.
of socially responsible investing.
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Now, that's five billion
over just the last two years.
over just the last two years.
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And it represents a quarter of the total
global assets managed in the world.
global assets managed in the world.
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I know that some of you
may be cringing a little bit right now.
may be cringing a little bit right now.
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Because in my decades
of strategy consulting
of strategy consulting
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with businesses and NGOs
and governments around the world,
and governments around the world,
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I find that many businesspeople
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are hesitant to talk
or even sometimes think about
or even sometimes think about
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the business benefits of doing good.
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They somehow think
it's going to negate the value
it's going to negate the value
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of the benefits
they're creating for society.
they're creating for society.
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Or that they'll be perceived
as heartless or even mercenary.
as heartless or even mercenary.
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But we really do need
to think differently.
to think differently.
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We need to think differently
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because the only way
we're going to make substantial progress
we're going to make substantial progress
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on the challenging problems of our time
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is for business to drive the solutions.
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The job of business
is to meet customer needs
is to meet customer needs
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and to do so profitably.
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They need to to survive.
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So one of the best ways for businesses
to help ensure their own growth,
to help ensure their own growth,
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their own longevity,
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is to meet some of the hardest
challenges in our society
challenges in our society
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and to do so profitably.
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And when they do that innovatively,
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when they do that ethically,
responsibly, incredibly,
responsibly, incredibly,
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they should be proud.
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But if you still aren't sure about this,
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let's talk about a few more examples.
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What if you're a technology company
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and you're trying to grow your platform
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and you're trying to grow your customers?
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Like, Airbnb.
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Airbnb has a portfolio
of total societal impact activities.
of total societal impact activities.
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They're all spot-on their core business.
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In one initiative,
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they're helping enable their community
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to provide housing for free
to those in disaster:
to those in disaster:
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crisis survivors and relief workers.
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In another effort on their part,
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they're actually helping
and working with NGOs
and working with NGOs
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to ensure that people can provide
housing for free for refugees.
housing for free for refugees.
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Now, what I love about this program
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is that I don't think
most people would've figured out
most people would've figured out
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how to express their generosity
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and open their homes
for those in such dire need --
for those in such dire need --
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certainly not so quickly
or so easily or efficiently --
or so easily or efficiently --
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without this innovation by Airbnb.
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But at the same time,
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this is core to their corporate strategy
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and core to their growth
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because they grow by increasing
the number of hosts and guests
the number of hosts and guests
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using their platform.
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But if they'd only
been thinking exclusively
been thinking exclusively
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about the return side of things,
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I'm not sure they would have ever
figured out this route to growth,
figured out this route to growth,
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because they're not
charging transaction fees.
charging transaction fees.
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So it's a pretty exciting way,
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when they were thinking
about how to bring their capabilities
about how to bring their capabilities
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to a need in society
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and at the same time
drive their own growth.
drive their own growth.
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But what if you're trying to find
new customer segments?
new customer segments?
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Let's move to South Africa,
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and let's talk about Standard Bank.
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In South Africa,
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the government has a regulation
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that requires all banks
to donate 0.2 percent of their profits
to donate 0.2 percent of their profits
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to small and medium
black-owned enterprises.
black-owned enterprises.
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And many banks just donate
this to the entrepreneurs,
this to the entrepreneurs,
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but Standard Bank thought creatively.
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And what they did is they took those funds
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and they invested them
in an independent trust,
in an independent trust,
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and they used that trust to fund loans
to these black entrepreneurs.
to these black entrepreneurs.
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This is a highly leveraged model.
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They can support a lot more
entrepreneurs with capital,
entrepreneurs with capital,
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and because their success
is completely intertwined
is completely intertwined
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with the success of the entrepreneurs,
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they're actually also using the fund
to provide technical assistance.
to provide technical assistance.
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14:10
More entrepreneurs supported,
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2416
14:13
more people and communities
being lifted out of poverty.
being lifted out of poverty.
255
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14:17
And it's successful for Standard Bank.
256
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14:19
So successful that they're actually
working on expanding this program
working on expanding this program
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14:24
to other areas in their portfolio.
258
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14:27
It's not like we haven't been trying
to solve the problems in our world
to solve the problems in our world
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14:31
for a long time.
260
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1200
14:33
We have, and they're still here.
261
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2200
14:36
We're making progress,
262
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1936
14:38
but it's not far enough,
263
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14:40
or fast enough,
264
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1376
14:41
or universal enough.
265
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1400
14:44
We need to flip our thinking.
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14:47
We need to have business --
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14:49
both companies and investors --
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14:53
bring creative, innovative
corporate strategy and capital
corporate strategy and capital
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5000
14:59
to solving the biggest
problems in our world.
problems in our world.
270
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15:03
And when they do that innovatively,
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3800
15:08
and when they do that
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15:11
with all of their thinking
and all of their strategy
and all of their strategy
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15:14
and all of their capital,
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2056
15:16
and they're creating
both total shareholder returns
both total shareholder returns
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15:19
and total societal impact,
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we know that we will solve those problems,
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both profitably and generously.
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Thank you.
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(Applause)
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ABOUT THE SPEAKER
Wendy Woods - Social impact strategistWendy Woods is a Senior Partner and Managing Director of The Boston Consulting Group (BCG) and Global Leader of BCG's Social Impact practice, which she helped create.
Why you should listen
Wendy Woods is responsible for BCG's work addressing global health, development, education, environment and climate, humanitarian response and total societal impact. She works with businesses, governments and social sector organizations, helping clients rethink business's role in society, create inclusive strategies, improve effectiveness, develop public-private partnerships and drive change. She is passionate about improving cooperation across the private, public, and social sectors to help solve the world's most intractable problems, as highlighted in her previous TED Talk, "Collective cooperation in the social sector."
Woods is also a frequent contributor to BCG's thought leadership across a wide range of topics, most recently co-authoring "Preparing for a Warmer World," "Total Societal Impact: A New Lens for Strategy," and "Why Paid Family Leave is Good Business."
Woods is a member of the Board of Trustees for the Centre for Public Impact, a BCG foundation dedicated to improving the positive impact of governments. She earned a BA in economics from the University of Michigan and an MBA from the J.L. Kellogg Graduate School of Management at Northwestern University.
Wendy Woods | Speaker | TED.com