Trends


By Elizabeth Boggs Davidsen

What would you do with $2.2 trillion dollars?

Dec 15, 2016

By Elizabeth  Boggs Davidsen and Charmain Love

The groundswell of businesses that want to be more purposeful and work alongside government and civil society organizations means that we should dream bigger about how to solve some of the biggest challenges the world faces today. And maybe money isn’t an excuse anymore, given a report by the New York Times (in the United States) and research by Grant Thornton (in the United Kingdom), showing that the balance sheets of companies in these two countries alone have $2.2 trillion in cash waiting to be used. 

Imagine what problems could be solved with $2.2 trillion. According to a recent piece in The Huffington Post, $26 billion a year would enable every child in the world to access basic education. With $109 billion, the number of people without access to clean water and basic sanitation could be cut in half. With $44 billion, world hunger could be wiped out. With $6 billion, 4 million malaria deaths could be prevented. With $2.2 trillion, all this could be done and there would still be money left over to contribute to the investment of $13 trillion needed to stabilize increases in greenhouse-gas emissions.

The question is, what’s preventing businesses from spending money on their balance sheets to enable sustainable growth worldwide?  
One opinion is that corporate structures limit companies from innovating and investing. Internal bureaucracy, short investment horizons, high return expectations, and risk aversion all hinder companies from investing needed cash to meet pressing social needs. Evidence of this short-term vision is seen in the rapid increase in the percentage of a company’s net income that is spent on shareholder buy-backs and dividends, which has grown from 63% in 2009 to a whopping 116% in 2015.

Some also see this hoard of cash as modern-day war chests. Corporations are sensing that change is in the air—but are not sure of its direction, and therefore want to be prepared with money to respond and react when change occurs. This might involve either a market defense strategy, or a proactive acquisition spree, in an attempt to preserve the status quo. 

And yet, investment leaders are calling for greater consideration of options for future-proofing organizations. Larry Fink, chief executive of investment management corporation Blackrock, sent a letter earlier this year to chief executive officers of S&P 500 companies in which he called for longer-term strategy and management with serious calls to action:  “We are asking that every CEO lay out for shareholders each year a strategic framework for long-term value creation… Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need.” 

CEOs should listen, given that Blackrock is the world’s largest investor, with $4.6 trillion under management. It is time to connect Fink’s call for longer-term business strategy with a global system hungry for new solutions. Health, employment, education, and climate change are all under pressure as we see an ever-growing population and a shifting economic mix. And recent political events are creating an opportunity like no other for business to step in as a force for global good in the long term.

We know there is growing appetite for this new role of business to be more than just talk. To get there, we need to reject a traditional binary approach to thinking about the role of business: on one side maximizing profit, and on the other side allocating some of its excess to the pursuit of positive impact. We need to take a page from the technology playbook and recognize that the future lies beyond the binary—like in the world of quantum computing, where 1s and 0s can coexist. A business can generate profit while simultaneously solving problems. This idea of Quantum Innovation was first introduced in 2014, and we believe it is a concept whose time has come.

Purposeful ways to spend cash sitting on corporate balance sheets

The most straightforward way for businesses to lean into this quantum landscape is to unlock their cash on balance sheets and focus it on corporate venturing. But not just any corporate venturing—corporate venturing for impact, which has a clear strategy of creating positive outcomes for both the business and society. According to James Mawson, founder of trade paper Global Corporate Venturing, more than 1,600 corporations already do this, about half of the top 100 companies in the Fortune 500: “Companies that have yet to start are already at a competitive disadvantage."

One approach to a corporate venturing for impact strategy is to build partnerships in the wider market. For example, a company could work with another company that has complimentary expertise and networks. dRx Capital is a perfect example. Two companies, Qualcomm and Novartis, came together with their respective experience in technology and health to create a $100 million fund focused on improving the lives of patients and clinicians and ushering in the era of digital medicine. The result:  A solid corporate venturing strategy that combines the best of both companies—and creates positive health outcomes.

For companies that want to support inclusive businesses, we are seeing an increase in market models that integrate low-income people into supply chains as consumers, employees, producers, or retailers. This provides big businesses with a way to understand new trends, consumer habits, and disruptive innovation and technology. The new publication Unchartered Waters: Blending Value and Values for Social Impact gives numerous reasons why companies should support inclusive businesses, including  to gain a window on disruption (early access to  breakthrough developments gives companies an edge in emerging markets); and to tap into new markets and learn about consumer preferences while stimulating additional demand.

Another way to engage in corporate venturing and support inclusive businesses is through third-party impact investing funds. Why? Impact investors fund inclusive businesses and offer some of the best hope for addressing pressing social and environmental challenges. Through a strategic alliance with an impact investing fund, a company would be able to support inclusive businesses, benefit from insights and know-how when entering new markets, and sharpen its lens on the future. Moreover, since impact investing fund managers select and manage investments, the company wouldn’t need much internal expertise on how inclusive business models operate. Impact investing funds are a good way to learn the ropes of corporate venturing for impact, and there are many funds to choose from in emerging markets. 

The market place for impact investing is growing, and can be navigated by using the Global Impact Investing Network’s (GIIN) ImpactBase, an online global directory of impact investment products. 

So what problem is your business solving?

Charmian Love

Charmain Love is cofounder of Volans, co-authored Practitioner’s Guide: Steps to Corporate Innovation, Investment, and Collaboration through the Corporate Impact X project, in partnership with the Inter-American Development Bank Group and Big Society Capital. She has an MBA from Harvard Business School.

Categories: Trends

Elizabeth Boggs Davidsen

Elizabeth Boggs Davidsen

Elizabeth Boggs Davidsen is chief of the Multilateral Investment Fund's Knowledge Economy Unit, which seeks to cultivate the driving forces of the new economy—technology, innovation, and entrepreneurship—to promote inclusive growth and job creation in Latin America and the Caribbean.

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