From philanthropy to radical new business models in Latin America
- Felipe Chajin is the head of Sistema B, the fast-growing Latin American chapter of the B Corp movement
- B Corps have a fiduciary duty to weigh the interests of employees, consumers, suppliers and society at large, alongside shareholders
- With high levels of political instability, labor informality and public mistrust, doing business in Latin America is difficult enough as it is
- But the COVID-19 pandemic has spurred the search for new business models that offer greater resilience to external shocks.
May 11 – When Felipe Chajin first learned about the B Corporation movement, a certification system for socially and environmentally responsible businesses, the 40-year-old industrial engineer said it was “love at first sight”.
As CEO of Servioptica, a Colombian eye care company started by his father, he had wanted to start a tie-up with a national magazine to provide subsidized eyewear to low-income consumers.
The project didn’t work out, he recalls: “But the magazine said I had to focus on B companies, which I had never heard of before… but within three months we were certified.
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Today, the Bogota resident has held his new position as executive director of Sistema B, the Latin American branch of the B Corp movement, a model that began in the United States in 2006 and is based on the principle that businesses should be “inclusive, fair and regenerative”.
To date, 4,642 companies in 78 countries have been certified as meeting the same core standards, which include a written commitment in their bylaws for directors to consider the interests of all “stakeholder” groups equally.
This means that a company has a fiduciary duty to weigh the interests of employees, consumers, suppliers and society at large alongside its obligations to shareholders.
Latin America was one of the first regions outside the United States to embrace the B Corp model and remains one of the fastest growing areas for the movement. Today, one out of six certified companies in the world is domiciled in the region.
According to Chajin, the COVID-19 pandemic has prompted new discussions about new business models that provide greater resilience to external shocks.
Despite having less than a tenth of the world’s population, Latin America accounts for around 30% of the global death toll from COVID-19 (with over 1.5 million recorded deaths), making it the hardest hit corner of the planet. According to the Organization for Economic Co-operation and Development (OECD), this has led to soaring levels of unemployment and poverty across the region.
Meanwhile, the region’s heavy dependence on raw materials means that efforts to accelerate growth are putting enormous pressure on the natural environment – as recent record deforestation figures in the Amazon all too clearly illustrate. .
As a family business, Servioptica, which has since been sold to global ophthalmology company EssilorLuxxotica, had already enshrined many practices encouraged by the international certification system.
These included measures to proactively employ people with disabilities, a generous stock option program for staff and the use of recyclable packaging.
As the first step in the B Corp certification process, companies are required to complete a standardized impact assessment, which shows where their key social, environmental and economic impacts occur and suggests how these could be improved.
“We had a lot of good intentions, but it was a bit disjointed and all over the place, which is where the B Corp assessment tool helped,” says Chajin.
It’s a story that echoes in the South American private sector; namely, a cultural predisposition towards philanthropy, influenced by strong values of company founder, but supported by little professionalism or strategic alignment.
Sistema B is not the only organization in Latin America trying to bring more rigor to what Chajin calls “conscious capitalism”.
Latin America has the second highest number of companies after Europe that are members of the world’s largest corporate sustainability initiative, the United Nations Global Compact.
The continent also has a well-established network of business-led organizations promoting corporate responsibility, including Instituto Ethos in Brazil, Instituto Argentino de Responsabilidad Social y Sustentabilidad (IARSE) in Argentina and Cecodes in Colombia. .
Like the United Nations Global Compact, Sistema B works with businesses of all sizes, not just large corporations. With small and medium enterprises generating 60% of productive employment in Latin America, this fills an important gap.
But he is more radical in his ambition, with his eyes set on economy-wide systemic change.
Hence Sistema B’s strong advocacy for corporate law updates to formalize business models that enable a fiduciary duty to people and the planet, not just shareholders.
Chajin’s home country of Colombia has been at the forefront of this initiative, establishing a law in 2018 (Ley 2019) that allows companies to incorporate as charitable and collective benefit societies. Peru, Ecuador and Uruguay followed suit.
He admits that the requirements, which include changes in a company’s legal objectives and regular reporting on its non-financial impacts, are “not so strict” and that the new legal format could present a “risk of greenwashing”.
But the flip side is a “very positive” increase in awareness of alternative business models, he says: “We are now seeing many businesses in rural areas and small towns joining the movement, and more businesses usually join in the conversation”.
In the same vein, Chajin plans to increase calls on governments in the region to integrate social and environmental considerations into public procurement.
He cites the example of Argentina, which recently made changes to its online public procurement system, Sistema de Identificación de Bienes y Servicios (SIByS), to include environmental credentials of listed goods and services.
“We want companies that have good practices with a triple impact (social, environmental and economic) to be recognized in the allocation of points in public procurement systems”, he specifies.
Chajin is not naive about the challenges ahead. With high levels of political instability, labor informality and public mistrust, doing business in Latin America is hard enough.
A key step will be to massively strengthen management skills and mindsets, he says. The second is important given the widely held assumption that sustainable business is about mitigating risk rather than a vehicle for new opportunities and positive impact, as Sistema B argues.
This shift in mentality is on the way, says Chilean social entrepreneur Gonzalo Munoz, a former high-level UN champion on climate change and co-founder of Sistema B.
He points to the influence of Academia B, an online training program designed to inform business educators across the region about the tools and strategies of the “new economy.”
“I honestly believe that Sistema B has played a vital role in the evolution from CSR (corporate social responsibility) to sustainability to ESG-focused management in Latin America,” says Munoz.
The new executive director of Sistema B hopes that the economic turmoil of recent years will awaken companies to the relevance of business resilience and sustainability.
“The pandemic has left many businesses in dire straits because they weren’t properly prepared,” he observes. “Five to ten years from now, the same thing will happen to companies that don’t adopt goal-oriented strategies.”
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