This is a paraphrased extract version of Alex’s keynote speech at the LBMA Sustainability and Responsible Sourcing Summit in London, 28-29 March 2022.
For too long, we have thought about responsibility as a burden, something which creates extra cost. Risk management is important, but let’s think about the value creation and the opportunities it creates by shifting to a societal approach to business.
I’ll start with an example. The Great Rift Valley stretches across two continents and 6,000 kilometres from Lebanon in Western Asia to Mozambique in Africa. It has some of the world’s highest mountains and some of the world’s deepest lakes, one of which is called Lake Magadi. This lake is home to fewer than 1,000 people, including Emmanuel Sironga, who makes a living selling and herding goats.
Cash Was King
Cash used to be king for Emmanuel. He’d sell a goat for cash, being alert to forgeries. Then he’d walk for an entire day to deposit the cash in the nearest bank. He couldn’t graze his goats in the greenest pastures because his fear of robbery meant that he needed to be close to a bank. This all changed due to a responsible business: Vodafone. In 2007, Vodafone launched M-Pesa, a mobile money service in Kenya. This allowed people to transfer money from phone to phone, without even having a bank account – a real benefit to the 15 million Kenyan adults with no access to banking at that time.
Cash-free trading transformed Emmanuel’s life. But this is not just a story about one person. Within the first seven years of launching M-Pesa, some 200,000 households were given access to finance and were lifted out of poverty. It also positively impacted gender equality, as many of these households were headed up by women who were then able to move from agriculture to business and retail.
Lake Magadi, home to Emmanuel Sironga
Value to Society
Now a different example, about tax. In 2012, Vodafone became the first telecoms company to release a tax transparency report showing how much tax it was paying to governments worldwide. That’s quite some move, because a telecoms company can choose to locate its IP in low-tax jurisdictions. But what does this have to do with sustainability and ESG? Let’s ask two questions. Which of these decisions – launching M-Pesa or releasing the tax transparency report – created the most value for society? And which of these decisions, had it not been made, would have led to the most public outrage, or damage to Vodafone’s ESG rating or reputation?
Clearly, launching M-Pesa created the most value for society. There was no clear profit from launching M-Pesa in Kenya. The tech challenges were huge, and where was the profit in serving some of the poorest people in the world?
But if Vodafone had not launched M-Pesa, there would have been no outrage. You don’t get vilified by the media or experience customer boycotts for not coming up with an innovative idea. And the repercussions for not being transparent on tax? Potentially massive.
Within the first seven years of launching M-Pesa, some 200,000 households were given access to finance and were lifted out of poverty.
Responsible businesses should do no harm, and should not cheat on taxes or mistreat their workers. But responsibility is much more about actively doing good and creating value, even if you don’t need to do it from a risk management perspective. I’d like to shift our thinking on responsibility from the second question to the first.
Let me briefly introduce a framework that I have developed. Often, we think of the value that a company creates as a pie, which can be split between investors in the form of profits – the blue portion – and society, in the form of fair taxes, fair wages, preservation of the environment – the orange portion.
Many supporters of responsible business think that it’s about splitting the pie differently – increasing the slice that goes to society by reducing the slice that goes to investors, for example, by heavy regulation. But investors play a critical role in society. They include parents saving for their children’s education, pension funds investing for retirement and insurance companies funding future claims. A responsible business has a responsibility to generate long-term profits.
My view of responsibility is that it’s about growing the whole pie. We should create value for society, but through innovation and pursuing excellence, not by splitting the pie differently, because that also benefits investors.
If you’re driven by creating value for society, it leads to investments that otherwise could not have been justified, but which ultimately generate profits. It’s more than just good business. It’s up to you to consider what resources and expertise your organisation has, and how you can use this creatively to serve society and develop opportunities to boost long-term returns.
We should create value for society, but through innovation and pursuing excellence, not by splitting the pie differently.