The poverty footprint

Mary Arnesen, Business and Markets Project Manager at Oxfam GB, introduces a new way to help companies understand how their operations affect the people in their value chains and the communities and countries where they operate

The social impact of corporations is moving up the agenda. With companies outsourcing a wide range of activities, and increasingly moving manufacturing to developing countries, their supply chains have been subjected to growing scrutiny by the media and consumers.

In addition, developing countries themselves are now seen as attractive markets, and, as in developed markets, a company’s licence to operate in developing countries is closely tied to its impact and how it is perceived. Companies have a strong interest in better understanding their social impact, and are more aware of the risks they run if this impact is not understood and improved.

Over the last few years, the mainstreaming of sustainability issues has led to a lot of detailed work to develop sophisticated “footprint” models of carbon and water usage. But social analysis, particularly in the area of poverty and development, still lags behind in terms of robust methodologies and metrics. According to Gerry Boyle, Oxfam GB’s Head of Business Relations, “The impact that large companies have on development is often a mystery to companies and stakeholders alike.”

As a leading civil society organisation dedicated to reducing poverty, Oxfam believes that consistent metrics and frameworks are sorely needed, and that these represent the next step in companies understanding their impact. Many companies already track and try to alleviate the impact of specific business decisions, such as building a factory or a mine. However, given the multi-dimensional nature of both poverty and modern multinational operations, it is significantly more complex to track and manage the wider effects of a company and its global value chain on poverty.

The business impact

Oxfam has therefore developed its Poverty Footprint methodology to map out key issues related to poverty, to create a rigorous framework against which a company can understand its business impact, positive and negative, and to provide a structure for transparency and reporting of this impact. It is a collaborative research process, built around the premise that the findings will not only help businesses to improve their impact on people, but at the same time can improve operations and generate opportunities for innovative business solutions.

“We need to dig beneath the surface of what makes people poor. Sometimes companies have no idea that certain activities are impacting significantly on poor people. And if you aren’t aware of, or don’t understand why and how these impacts are occurring, you won’t be managing them! Our methodology uses a series of quantitative and qualitative tools which address both the idea of what poverty is, and what corporate activities need to be assessed,” explains Boyle.

Key aspects of the methodology are that:

• it is people-centric – looking at issues from the perspective of people living in poverty;
• it is based around a particular value proposition (an area of interest to both the company and community stakeholders) which allows the study to focus on strategic impact areas; and
• t provides a composite picture of poverty – looking at how different layers of activities add up to a broader picture.

At the core of the methodology is the development of a matrix that helps to set the scope of subsequent research. This matrix overlays five business-related dimensions, with five key parameters of poverty, to help structure the broad range of questions that need to be answered to understand the multi-dimensional picture of poverty.

Research questions

Within the matrix subject areas, research questions are developed that look not only at how corporate activities enable development, but also how they may create barriers to development.

Kyle Cahilll, Oxfam America’s Poverty Footprint Senior Programme Officer, comments, “We find ourselves asking questions ranging from ‘How could markets increase opportunities for women, and improve their involvement and overall benefits from trade?’ to ‘How are revenues distributed and shared throughout the value chain?’ From ‘How does the company contribute towards the delivery of essential services in the region, and how does this affect public delivery of such services?’ to ‘How are product development and marketing initiatives impacting on the cultural environment and health of communities?’” The research is carried out with the close involvement of company personnel, and thereby provides both Oxfam and the company with a unique opportunity to learn from each other’s views, and build on these, to create new insights into how activities affect both individuals and communities around a business operation. Involving company personnel also ensures that those closest to the business can assist in identifying the most practical solutions.

Unilever

In 2005, global consumer goods company, Unilever, worked with Oxfam to pilot the footprint methodology within the company’s Indonesian supply chain. The research included work with local farmers and traders, factory workers and management, and communities. These communities included those dependent on Unilever for employment (directly or indirectly), those targeted by advertising, and those who received Unilever’s philanthropic support.

One thing that the study revealed was that the company was using twice as many people for distribution as for production, and more of them were part-timers than the company had assumed. This discovery allowed Unilever to identify critical levers, like labour engagement and unionisation, and increased access to credit, as ways to increase financial stability among this population and, by doing so, to improve productivity.

It also highlighted the complexity of tackling poverty. Thomas Lingard, Unilever’s Global External Affairs Director said, “By examining the jobs and the value created at each point in this chain, we learned a great deal about where companies can have the most positive and negative impact on poverty reduction. But participation in value chains alone does not guarantee improvements in the lives of people living in poverty; other social institutions and resources are needed.”

The footprint process can also help companies identify issues and constraints which have relatively simple solutions. If implemented, these solutions would benefit both the corporation and those with whom it interacts.  For example, in a study with a domestic Indian company, Oxfam’s research found that while the company’s smallholder farmers valued information and capacity-building services in general, only 8% of them were aware of and made use of the information services that the company had developed to benefit them. By linking their information services more directly with the procurement function, the company could more easily reach its farmers to provide information to ensure that the crops being grown were those most in demand by the market and to boost smallholder productivity.

Poverty footprints, by combining a focus on the key dimensions of poverty and the key business areas likely to affect them, have helped companies to understand the scope and different ways in which their activities impact on people living in poverty. Companies can also gain insights into how their corporate policies and practices can be adapted to maximise their overall contribution to poverty reduction.

(Source: UNIDO)