3 ways to overcome corporate sustainability barriers in transitional economies

By Kamila Novak 15 August 2016

Moscow International Business Center, the commercial district in Russia’s capital. In Russia, some traditional corporate social responsibility solutions are too early, while others are already too late. Photo by: Kirill Vinokurov / CC BY

Working as a sustainability strategist in Russia’s “transitional” market has its challenges.

In developed countries, businesses see significant opportunities to implement corporate sustainability initiatives, thanks to conducive legislation and regulations, market incentives and environmental and socio-cultural norms.

In low-income and developing countries, relatively low-cost social investments can yield disproportionate returns, as basic human needs are not always being met. In addition, developing countries present greater opportunities for scaling up social efforts while addressing the “bottom of the pyramid” and building a large customer base via community-based initiatives.

But somewhere in the middle of the development spectrum there is a group of transitional markets, including Russia, where the sustainability playing field is still evolving and sustainability solutions are not as straightforward as those typically applied in either developing or developed countries. The Russian market is peculiar in that for some of the “traditional” corporate social responsibility solutions, it is still too early, while for others it is already too late.

In May 2016, Moscow School of Management SKOLKOVO Institute for Emerging Market Studies’ Sustainable Business Lab published an inaugural report, “Sustainable Russia: A Guide for Multinational Corporations.” It outlined three categories of external barriers: infrastructural, institutional and informational. The report found that these impede the evolution of corporate sustainability in Russia but are also relevant to other comparable emerging markets.

Of the three kinds of barriers, global businesses operating in Russia have probably been most successful at addressing infrastructural barriers. The following business cases offer some useful lessons for those looking to engage with Russia — and other emerging market countries — through corporate sustainability investments.

1. Localize sourcing, invest in sustainable suppliers, and shape the industry standards.

Those interested in Russia’s possibilities for sustainable sourcing are likely to encounter two scenarios. In one of them, a lack of suppliers forces companies to import components or services, increases costs and risks within the supply chain, and contributes to a product’s footprint due to extended logistics. In the second, “traditional” suppliers are available, but “certified” suppliers who meet environmental, social, ethical and safety standards are harder to come by. In this situation most companies find they have to work with the most advanced among ‘traditional’ suppliers on a case by case basis and nurture sustainable behavior among them.

That’s the path McDonald’s pursued in Russia with its local supplier Belaya Dacha, a “master” partnership that marks its 22nd anniversary this year. In 1994 Belaya Dacha won the tender for the exclusive right to supply vegetables to all McDonald’s restaurants in Russia and Belarus. But the company’s financial restraints required McDonald’s to invest $150,000 into Belaya Dacha’s working capital in order for the supplier to fulfil the tender terms. McDonald’s acted as a pioneer in the Russian market by enforcing high safety, health and sustainability standards for its suppliers, which were more advanced than the national food safety regulations at that time.

2. Capitalize on the country’s high level of human capital and invest in sustainability training.

Russia has one of the world’s most educated workforces, with a high percentage of workers completing postsecondary education. Global businesses benefit from a large talent pool and can recruit local staff at senior management levels, with less reliance on an expatriate workforce.

Sustainability-related expertise is much harder to come by, and there is a lack of industry-specific technical expertise in sustainability — for example with precision farming. The gap is especially critical for natural resource-based industries, like agriculture or forestry, where sustainability implies predominantly aspects related to operational efficiency.

In order to overcome this lack of a qualified agricultural workforce in Russia and create a sizable pool of agricultural specialists which it could tap for recruitment, PepsiCo Inc. in 2008 launched a structured program of supporting tertiary education in the Russian agricultural sector. By 2015 PepsiCo Inc. had invested a total of $1 million in academic scholarships, supplies and equipment and other institutional contributions.

3. Facilitate multistakeholder cooperation and build strategic local partnerships.

In Russia, international NGO partners can be harder to find. With a few notable exceptions — Oxfam International, WWF, Greenpeace and Amnesty International — large international NGOs and their extensive grass-roots networks are not present. In other countries, partnerships with these grass-roots networks enable businesses to extend outreach to the most remote areas in their provision of products and services.

In Russia multinational corporations tend to form alliances with other public and private organisations in order to generate the critical mass needed to achieve shared goals. For example, Ikea and WWF joined forces with the Forest Stewardship Council in order to promote the development of voluntary forest certification in Russia. Several multinational corporations, such as Coca-Cola HBC Eurasia, PepsiCo Inc., Procter & Gamble and TetraPak, formed the nonprofit association Industry for the Environment (RusPEC), which recently has been active in lobbying the concept of extended producer responsibility in the context of consumer waste management.

The experiences of these multinational corporations in Russia suggests that market leaders are rarely those who wait for guidance from authorities, but rather those who treat sustainability as a business opportunity and not a threat, foresee emerging market opportunities and explore uncharted territories.

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About the author

Kamila Novak

Kamila Novak is a senior analyst at the Sustainable Business Lab, Institute for Emerging Market Studies, Moscow School of Management SKOLKOVO. She has been affiliated with UNICEF-India, OSCE and WWF-Russia. She has worked on the field projects in India, Kyrgyzstan, Madagascar, Kosovo and Bosnia and Herzegovina.

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