MOST PEOPLE RESPOND to incentives. A lower price. A deadline. Chocolate pudding after you eat your vegetables.
Big companies respond to incentives, too, such as tax breaks or lower costs of inputs.
Remarkably, Danone Corp. has created its own incentives to step up its positive-impact game by getting lenders to agree to lower the price of money Danone borrows if it meets a range of socially beneficial goals. And, even more remarkably, in February, 12 global banks agreed.
Based in France, Danone makes and sells Dannon yogurt and other dairy products, infant and medical nutrition, and bottled water—a $2-billion-dollar industry. Any seller of bottled water and infant formula has and deserves critics, and although the company has far to go in serving the social good, it has come a long way. Danone focuses on environmentally sound sourcing, packaging development, and recycling, as well as employee well-being. Several of its subsidiaries are B Corporations, meaning they annually pass an independent, in-depth evaluation of how well they serve all stakeholders, including employees, customers, communities, and watersheds—not just shareholders, the only constituency that drives most businesses.
According to the lending deal, as reported in Forbes, Danone’s cost of capital will rise or fall with the percentage of its sales from B- Corp subsidiaries. Doing more business with all stakeholders in mind will result in cheaper loans to meet operating expenses and to invest in new business. In addition, Danone’s environmental, social, and governance (ESG) performance will be evaluated by other third-party monitors. A greenwashed annual report will not suffice. “This may be the first time a company’s cost of capital has been explicitly tied to its third-party-verified ESG performance,” reports Forbes.
Why is this beyond noteworthy? When financial incentives are aligned with social and environmental progress, there is hope for significant change simply due to scale.
Advocates for ESG management have been saying for decades that corporations perform better when they conduct business with transparency, hire and retain talent without bias, treat employees well, mitigate environmental impact, and use resources responsibly. And they do so with less risk of expensive litigation, regulatory penalties, and public ire.
The Danone deal signals that even the global banks are catching up and catching on—and quantifying the lower-risk and higher-performance expectations with money, the ultimate business incentive.
This is not just one capital deal for one company. And it’s not limited to the socially responsible investment industry. This is a business trend so obvious that even mainstream publication Fortune wrote that “smart leaders should turn B-Corp guidelines into a checklist to drive their business.”
B Lab, the nonprofit organization that certifies B Corps, reports there are 2,100 B Corps from 50 countries and more than 130 industries. If B Corps get cheaper loans, we can expect to see many more.
The world’s largest investment manager, BlackRock, has openly stated that it sees the greatest value (i.e. it expects to invest) in companies that conduct business with a larger social purpose and contribution. Giant brokerage houses such as Merrill Lynch and Fidelity have launched impact-investing platforms to appeal to investors looking for socially screened and environmentally sustainable portfolios.
Whether from a genuine sense of contribution (as I trust motivates B Corps) or opportunistically following the money (as I suspect motivates the large brokerage houses), to have more money and power working for the good of our communities and our planet is good news and will benefit us all.
Susan K. Taylor is co-owner of Just Money Advisors Inc., an investment management firm in Louisville, Ky., that specializes in socially responsible and community investing.
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