Returns on investment in responsible business practice: higher in a downturn?

This paper examines the impact of the downturn on “good business” - a commercial approach to investing or operating that includes the poor and boosts development. It looks at the affect of the downturn on the capacity of companies to invest in this kind of business, and the returns reaped from such investment.

The paper argues that the economies of developing countries are already feeling the effects of the downturn and will notice businesses that keep their commitments. This gives companies the opportunity to make their mark as market leaders in inclusive business, or steal a march on the companies that are currently positioned at the head of the curve in their sector.

There are many ways in which business benefits can be reaped, including:

• in production and investment
• in markets and branding
• by protecting existing shareholder value through reducing operational and reputational risk or building the loyalty and productivity of staff
• by creating new value through building competitive advantage that helps to win the next bid or licence, expand access to ethical markets and finance, attract high-flying new recruits, or mark out leaders of the sector who set the standards for competitors to pursue.

The paper suggests that many of these benefits rest on competitive differentiation, standing out as a business that delivers high social value in the eyes of stakeholders. The downturn provides a chance to increase that difference, and make it more important to stakeholders. International companies that invest and innovate now will be able to differentiate themselves more effectively from the rest, reaping higher returns in the long-term.

It notes the practical constraints to investment in responsible business, adding that these investments are not protected from the corporate squeeze and will need to generate a return to avoid being cut. The paper says that businesses cannot be asked to drop commercial principles in relation to good business practice investments, but can be asked to:

• recognise their potential added value: building resilience in a crisis, for the least resilient in the chain, is a high-value use of business competence for development
• recognise their own potential for higher return: companies that stick firmly to their responsible business commitments, and find innovative ways to meet them in the downturn, will emerge further ahead of the field