CSR in Latin America: The Moral Case, The Business Case

Different parts of the world use corporate social responsibility (CSR) in different ways. In the U.S., it’s often synonymous with corporate philanthropy; in Europe, it’s more likely to be associated with how socially responsible the day-to-day management of a company is. In Latin America? Expectations run higher. Its home-grown multinationals (MNCs) — as well as governments and general public — view CSR as a way to reduce poverty and address other pressing social issues across the region, while ultimately improving the sustainability of companies, asserts Lourdes Casanova in a published paper written with fellow Insead academic, Anne Dumas, titled, “Corporate Social Responsibility and Latin American Multinationals: Is Poverty a Business Issue?” Recently published in Universia Business Review, the paper raises questions about whether the region’s home-grown MNCs are indeed able to run successful businesses while improving the lives of the under-privileged. In an interview with Universia Knowledge@Wharton, Casanova — who is also the author of a 2009 book titled, Global Latinas: Latin America’s Emerging Multinationals — shares her thoughts on the subject.

The following are edited extracts of the conversation.

Universia Knowledge@Wharton: How long have Latin American multinationals been practicing CSR? What are the main differences between them and multinationals from other parts of the world?

Lourdes Casanova: The founders of Latin American companies, [some dating as far back as 100 years], have been committed to the development of their local economies. They wanted to — and, in fact, managed to — contribute to the technological progress of their countries and, at the same time, improve the lives of less-fortunate citizens. The concept that we now call CSR is something more recent. It has its origins in the 1990s, when companies such as Body Shop, Ben & Jerry’s and Shell saw a need to [formalize and articulate] what their CSR activities aim to do. In the current phase, the concept is expanding in developed societies that have fewer social problems than emerging societies. The multinationals are "exporting" this concept to emerging nations.

The question I address in my article is whether we need different ways to measure the social commitment of companies that operate in societies with higher rates of poverty and social inequality. Like the people who live in the markets where they operate, these companies must make a commitment to be part of the solution to the social problems.

Between 1990 and 2007, the percentage of people living on less than US$1.25 a day declined 12% and the number of people in extreme poverty — that is, on less than US$1 a day — fell 9.1%. Yet despite the fact that Latin America’s economic growth has significantly cut poverty rates, there are still more than 180 million poor people in the region. Because of the economic crisis, the number of poor people increased by 12 million in 2009. Why are the region’s governments failing to combat this? What are these countries doing to alleviate poverty and social inequality?

Studies show that economic growth is related to the reduction of poverty. This correlation is obvious in China and, to a lesser degree, in India. Although the percentage of poor people declined after 1980 in Latin America, there are more poor people in the region today in absolute numbers than there were 30 years ago. This is a tremendous failure. There is a clear need for policies aimed specifically at reducing poverty. If we set aside the ethical dimensions for a moment — which, of course, we should not — the growth of any society is based on internal and external consumption. In an economy that relies heavily on its service sectors, prosperity comes when people can, for example, afford to buy a house and have a mortgage, access to the Internet and take a vacation. We have to combine the efforts of civil society, governments and the private sector to reduce extreme poverty once and for all.

Brazil wants to achieve this by 2016, when it hosts the Olympic Games. The Brazilian government announced that it wants to reduce poverty to 5% by that date. The idea is to create a special fund with the revenues generated from the recent offshore oil discoveries, including the deposits in the Tupí area.

Universia Knowledge@Wharton: What are the most notable initiatives when it comes to CSR in Latin America?

Casanova: One of the leading CSR companies is Petrobrás, the [semi-state-owned] Brazilian oil company. It committed itself to working with the government’s "Zero Hunger" plan (www.fomezero.gov.br), which was set up in 2003 to eradicate hunger and extreme poverty and encompasses a number of different programs, including "Family Purse." Thanks to the latter program, 11 million people each receive around US$44 a month, which enables children to go to school and have periodic health check-ups. Petrobrás collaborates with non-government organizations in every area of education, health, housing and efforts to improve living conditions in the favelas (the marginal neighborhoods in urban areas).

Ten years ago, Cemex, the Mexican cement company, launched an initiative to provide micro-loans to families on low incomes so they can renovate their homes and provides them with free advice as well as construction materials at fixed prices. Almost 200,000 families have received US$70 million of loans. With that money, the company is helping to reduce the housing shortage — estimated to be some four million units — which affects one in every four Mexicans.

Fortunately, these are not the only cases. Another company is Grupo Bimbo, the Mexican multinational food company. Bimbo has always been very concerned about the wellbeing of its staff and getting involved in CSR was a natural extension of that. It has also partnered with FinComun, a provider of community financial services, to offer loans to the country’s small shops. Some 80% of Bimbo’s revenues come from such establishments and one-quarter of those customers need these loans. The loans are a way for the company to have a more secure and stable [supply] chain.

Another outstanding company is Brazil’s Natura Cosméticos. The company uses environmentally and natural methods to manufacture its beauty products, using materials that come from indigenous communities in the Amazon rain forest. Its business model has improved the lives of some 400,000 women by providing them with jobs.

Universia Knowledge@Wharton: What sectors do these initiatives target most often, and why?

Casanova: Education is one of Latin America’s unresolved issues. In particular, public primary and secondary education continues to be inferior. The region has excellent universities: TEC in Monterrey and ITAM in Mexico City; University of São Paulo and ITA, both in Brazil; University of the Andes in Colombia; Catholic University and Adolfo Ibáñez University in Chile; and University of San Andrés in Argentina are among the region’s many excellent universities. However, families have no choice other than to send their children to private schools so that they can attend the best universities.

For their part, companies [focusing on CSR] often need to set up their own educational centers to address the deficiencies in basic and technical education. The competition with China and India for cheap and unskilled labor was lost quite some time ago, so the region needs trained labor that contributes to innovation and development.

Universia Knowledge@Wharton: How has the crisis affected CSR policies in the region?

Casanova: Because of the crisis, companies in Europe and the United States have had to change their priorities. The urgency of survival trumped goals that were [merely] considered "important." At a time when society is asking the financial sector to take responsibility for the crisis and companies should be expanding their commitment to society more than ever, some companies have delayed their CSR programs. In contrast, in emerging nations in general and Latin America in particular, the environment is optimistic, and I see a strengthening of corporate commitment to society. Managers want to be part of the solution, and they are renewing their fight to improve conditions in their countries. It’s worth remembering that the private sector, along with civil society, has said they are committed to reconstructing Chile after the recent earthquake.

Universia Knowledge@Wharton: What about foreign companies present in Latin America? How much have they committed to CSR?

Casanova: Multinational companies from Western countries often launch CSR policies in their countries of origin. Only during the second phase of their CSR program development do they extend the policies to subsidiaries in Africa or Latin America. Each country has its idiosyncrasies and adaptation makes sense. Nevertheless, society judges companies in a global way. Although Shell is one of the companies rated highest by organizations that evaluate CSR, the global press focus on the negative environmental consequences of its operations in Nigeria, putting the company’s image is at risk worldwide.

Latin America has a key role to play in [contributing to] the revenues and profits of Spanish multinationals. At a time when nationalism is growing in the region, companies emerging as winners will be those that get most involved with the social and economic development of the continent. Banco Santander, with its support of universities [through Universia, the portal of Latin American universities sponsoring this site], and Telefónica Foundation, with [the Spanish teleco's] Proniño social program aimed at eradicating child labor, have been the pioneers. The penetration rate of banking services and the use of broadband and mobile applications are both tied to GDP growth, and thus, the reduction of poverty. The altruistic initiatives reflect the interest of these companies in increasing their business activity in the region.

Universia Knowledge@Wharton: How do you see CSR evolving in Latin America? Should Latin American multinationals play a more active role in solving problems such as poverty and social inequality?

Casanova: Today, social problems are a concern for every government in the region. From Mexico’s "Opportunities" program to "Family Purse" in Brazil, every country has its own state-funded programs for assisting underprivileged people…. Without a doubt, companies and ordinary citizens must be involved in solving serious problems that require the collaboration of every social participant if they are to be resolved.

Universia Knowledge@Wharton: What benefits would companies get from such activities?

Casanova: The service sector accounts for more than two-thirds of Latin America’s GDP. Beyond improving their own image, companies in that sector will increase their profits as the purchasing power of Latin Americans improves and by expanding the middle class, which is responsible for the prosperity and stability of every country.

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