04
SEP
2015

Global companies can have a positive impact in volatile countries

Map painted on hands.Concept of having the world in our hands

This week’s article by Oliver Balch in the Guardian, “What can a South Sudan brewery teach us about business in conflict zones?”, explores the promises and perils of investing in conflict and other complex environments. His overall view is that when done well, corporate investment in volatile countries can be both profitable and have a positive local impact – but companies need to first understand the risk. As a key starting point for companies to consider, we could not agree more.

International development practitioners have frequently used methodologies to establish and foster community-driven local enterprises to enhance area stability, reduce violence, and mitigate local drivers of conflict in areas of strife. In recent years there have even been several academic, foundation, and government efforts related to the idea of generating peace through commerce. But what happens when international corporations invest in business enterprises in conflict, or more often, post-conflict zones with the hopeful promise of lasting stability, for the purpose of growing their business and generating a reasonable rate of return – can these top-down driven corporate investments enhance local stability as well? And, as importantly from the perspective of sustainability and return on investment, can these companies profitably operate in such a volatile environment over the long term? Not surprisingly, with both questions it depends.

It begins with understanding the environment and assessing the risks.  To illustrate his point, Balch highlights the situation of SABMiller’s brewery in South Sudan. SABMiller is the world’s second-biggest brewer and built the first brewery in South Sudan. Its commercial enterprise, however, is now suffering from the return of increased instability and civil unrest to South Sudan and the company’s diminished access to essential raw materials and hard currency amid conflict-induced inflation. As a result, Bloomberg reports that SABMiller may be forced to halt operations in South Sudan. Through this example, Balch examines and presents considerations related to the question of how companies can establish a long lasting presence which benefits both the business and the region.

In addition to possessing local knowledge and risk awareness, companies must also have the right policies and practices. To operate sustainably in a complex environment, the way in which a company establishes and administers itself is particularly critical. Beyond assessing the commercial viability of its offerings, companies must identify and understand the potential pitfalls and increased risks of operating in the far less predictable and volatile environments that post-conflict environments present. As far as possible companies must accurately identify all known and potential relevant risks to the enterprise and then apply mitigation policies and practices to address the same. For companies that operate in complex environments, increased human rights risk carries high reputational, legal, operational, and financial consequences if not sufficiently addressed with appropriate company policies and practices. Company leadership must commit to respecting human rights – building a business that is both commercially successful and socially responsible, including developing and publishing a corporate human rights policy statement reflecting this vision.

Company human rights policies must also include and address the use of subcontractors and supply chain partners who may directly contribute to a company’s human rights risk exposure through a business relationship.

Companies should consider conducting human rights due diligence to mitigate corporate risk exposure and foster local stability through effective community engagement practices.  Companies are able to mitigate some of the more heightened risks associated with corporate operations in areas of instability by conducting human rights due diligence activities as called for by the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. Implementing human rights due diligence at the beginning of an investment decision process will help company decision makers more fully understand the local operating environment as it relates to planned operations. As part of this process, companies should conduct local human rights risk and impact assessments to identify and address actual and potential human rights impacts associated with the planned business operations. Doing this effectively requires the company to engage with the local communities in order to solicit feedback and establish complaint mechanisms, all of which help to support local stability and community support of company operations.

Other large global consumer product companies invest in post-conflict environments – and provide good evidence that their presence can benefit both the region and the business.  Coca-Cola, like SABMiller, provides its products to consumers around the world – over 200 countries according to the company and including recent post-conflict environments such as South Sudan and Sri Lanka.

The companies do have a business partnership for non-alcoholic bottling operations in Africa and both companies publicly communicate their commitment to managing human rights risks (see SABMillers’ 2015 Sustainability Report  and Coca-Cola’s Human Rights policy – available in 17 languages).

However, there seem to be differences with how the global consumer brands implement their respective human rights policies. Coca-Cola has made explicit commitments to globally implement its human rights due diligence process to identify, prevent, mitigate and be accountable for human rights abuses as well as to implement processes to enable the remediation of any adverse human rights impacts the company causes or to which it contributes.

Furthermore, Coca-Cola has developed a long-standing partnership with UN-Habitat to promote water sustainability in several developing countries around the world (to include South Sudan).

Carrying out effective human rights due diligence neither assures a company’s profitable return on investment in a high-risk environment such as South Sudan, nor guarantees that the company’s local presence will have a positive impact benefiting both the region and business. It will, however, provide tangible benefit by reducing corporate risk exposure by identifying, preventing, and mitigating risks long associated with operating in such environments and will foster local stabilization efforts in areas afflicted by conflict. But Mr. Balch is exactly right: done well, corporate investment in volatile countries can have a positive impact.