Doing business with the poor

As Mexico climbs the ladder of rich nations, can business bring the poor out of poverty without destroying the environment? Ben Tuxworth gets engaged with the corporate culture.

Less than a decade ago, Mexico was still in the grip of 70 years’ uninterrupted rule by the Partido Revolucionario Institucional (PRI). Even now, it is still only developing the kind of vibrant civil society on which European and US models of corporate social responsibility so heavily depend.

As a result, the conventional measures of business sustainability suggest that Mexican companies still have a long way to go. KPMG’s 2008 corporate responsibility survey found that, of the 100 largest companies in Mexico, only 27 published any kind of corporate social responsibility (CSR) report in 2008, and that, of these, only five involved third parties in comment or assurance. Oil and gas company Pemex, and mining giant Industrias Peñoles, were among just six Mexican companies (compared with 48 from Brazil) to file CSR reports with the Global Reporting Initiative – although both did distinguish themselves by garnering A+ ratings.

But things are changing fast. A survey in May of 2008 by Vivian Blair and Associates showed a growing appetite from consumers for action by business and government, with 73% saying their expectations of businesses‘ responsibility are not being met, and 37% claiming to be willing to change their buying habits to support a worthy cause. Numbers like these explain why consumers are at last getting a voice with which to apply pressure to business.

Alconsumidor is one of two independent consumer organisations established in Mexico in the last few years. Like such groups everywhere, their aim is to help consumers make better choices, support them when things go wrong, and ultimately to encourage business and government to raise standards. Alconsumidor has a strong public face, with their website encouraging consumers to share their stories of corporates – good and bad – online, and founder Daniel Gershenson taking on the issues of the day in a blog hosted by the respected Mexico City daily newspaper, Reforma. Meanwhile, rival group El Poder Del Consumidor has recently joined forces with civil society network Red Puentes and others, including Oxfam Novib, to form the Centro de Información del Comportamiento Empresarial (Corporate Behaviour Information Centre). This will act as a corporate observatory, providing and supporting campaigns against companies with poor social responsibility practices.

All of which will serve to drive change. But in one respect at least, a lack of a strong third sector has not stopped action by business. To some commentators, Western eyes misinterpret the Mexican social responsibility scene.

“In Mexico corporations are treated as citizens, with responsibilities to match”

In emerging economies, people expect business – particularly state-owned businesses – to provide the social welfare not yet offered by government. Jean Logsdon of the University of New Mexico sees a distinctive history of social contribution by business in Mexico, much of it filling a void left by government. “While the role of NGOs has not been as important in promoting CSR as in other countries, Mexican firms have undertaken a social role for historical and cultural reasons, based on Mexico’s religious and political history… While in other contexts corporate citizenship metaphorically treats the corporation as a citizen, in Mexico corporations are literally treated by Mexican society as real citizens, with responsibilities to match.”

With such a large proportion of the population living in poverty (Mexico has a median annual household income of $7,297), Mexican businesses seemed to notice C.K. Prahalad’s ‘fortune at the bottom of the pyramid’ (the idea that millions of low-income consumers provide an ideal market) well before he did. For a century or more, a wide range of businesses have been finding ways to sell things to the poor, with a mixture of commercial, philanthropic and development goals. Today, there’s more activity than ever.

Entrepreneur Ricardo Salinas recalls his grandfather saying “if you want to get rich, sell to the poor”. His Grupo Salinas is now a huge empire of companies selling consumer electronics (via his Grupo Elektra), broadcast media (via TV Azteca) and the financial services to pay for it all – via Salinas’s Banco Azteca, one of a number of new microfinance operations reaching low-income consumers. With loans averaging just $247, Azteca has helped countless low-income consumers get a slice of material affluence, from DVD players to motorbikes. But with an APR somewhere between 55% and 100%, it’s also turned out to be a hugely profitable model. Azteca, and others like it – including Compartamos Banco and FinComún – have attracted criticism for selling the poor and uneducated loans they barely understand and, in reality, may not be able to afford.

Though Salinas’s business practices have landed him up in court in recent years, there are many who defend the microfinance route, and other companies have found much more approval in Mexico by offering something to the poorest consumers. With a severe housing shortage affecting over 20 million people, in 1998 building materials giant Cemex started work on another scheme that has become an exemplar bottom-of-the-pyramid offer. After carrying out research in deprived communities in Guadalajara, Cemex concluded that housing construction was hampered by lack of resources and knowhow, with poor customers unable to keep contractors working, and materials wasted because of lack of storage space.

Points of light

In response, Cemex developed Patrimonio Hoy. It allows low-income families to order construction materials in small quantities in the right sequence, paid for with microfinance from Cemex. The typical cost for a family is about $16 per week, most of which goes on the materials, with the remainder covering access to advice, a guarantee on fixed prices, storage and delivery. By May 2008, 205,000 Mexican families had used Patrimonio Hoy, borrowing the equivalent of around $94 million, and building around 105,000 10m2 rooms. Cemex claims that 99% of these loans have been paid back. The scheme has won awards from Business in the Community among others, has been extended to Colombia, Venezuela, Nicaragua, and Costa Rica, and may now be rolled out in other countries in the Cemex global empire.

Pemex and Industrias Peñoles make contrasting examples of how homegrown Mexican business is rising to the challenge of sustainable development. To Juan Felipe Cajiga, who leads on corporate social responsibility at the Centro Mexicano para la Filantropía (CEMEFI), Industrias Peñoles is an exemplar of community engagement. Made up of more than 50 companies, it is the world’s largest producer of silver, alongside a range of other metals and minerals; it operates in nine states in Mexico, and employs nearly 10,000 people.

Peñoles’ largest mine, Tizapa, lies in the municipality of Zacazonapan – about 200km west of Mexico City – and provides employment to around 20% of Tizapa’s 4,000 inhabitants. Since 1999, representatives of the community, Peñoles and the local state have been meeting as the Committee for Development of Zacazonapan. This has work teams on education, health, ecology, culture, sport and infrastructure, and supports the local authority in these areas. Peñoles has been taking its lead from the committee in the Tizapa mine, pursuing a strategy of sustainable development, which, according to Cajiga, has helped both Peñoles and the people of Tizapa overcome “the pre-existent paternalistic culture, in which authorities and business… create dependence and apathy”. Where the traditional model was simply to provide community demands, Peñoles has become an enabler, helping the community access development resources from government and NGOs.

The results in Zacazonapan have been significant. Along with a new health centre, sports arena, school bus, and waste management infrastructure, are new phone lines, ambulances, a TV network and a wide range of events, educational programmes and a public market. The work has also helped Peñoles build trust with its employees, show leadership and enhance its reputation.

Pemex, the state-owned company created by nationalising 17 foreign oil companies in the 1930s, and now the biggest enterprise in Latin America, is on what might seem a more conventional track. A high tax burden (Pemex is the largest taxpayer in Mexico, contributing about a third of government revenues) and falling oil prices have put the squeeze on, but Pemex has been reporting on its social and environmental performance in different ways since 1999, finally gaining its Global Reporting Initiative’s (GRI) A+ status in 2008.

Though it might seem odd for a state-owned company with no competitors, and little need for external investment, to bother with such thorough reporting, this seems to reflect a more general need within Mexican business to be trusted. Certainly the Pemex reports try hard to demonstrate this trustworthiness, with claims backed up by Transparency International and GRI itself – and results include a programme of energy saving within the company which has already reduced its emissions by about 11 million tonnes of carbon a year.

Local business, global standard

As a culture around sustainability and social responsibility develops in Mexican business circles, homegrown initiatives are emerging to help formalise their response. CEMEFI and the Alliance for Corporate Social Responsibility now run a socially responsible enterprise award scheme, recognising companies operating in Mexico that show a “fundamental social vision in both policies and programmes that allows them to go beyond their legal obligations... achieving success in their businesses while at the same time having a positive impact on the communities in which they operate”. The scheme evaluates firms against four criteria: quality of the work environment; ethics and governance; links with the community; and care and preservation of the natural environment. Over 400 companies are now on the CEMEFI track.

Meanwhile, transnational corporations and NGOs from the US, Europe and elsewhere are bringing their CSR culture to Mexico. The World Business Council for Sustainable Development and the World Resources Institute were behind the launch of the Greenhouse Gas Protocol in Mexico in 2004. By 2008, more than 50 major companies were tracking their CO2, giving policymakers access to data on 35% of the country’s industrial emissions, and giving companies access to profitable offset schemes through the Kyoto Protocol’s Clean Development Mechanism. Mexico is also the best-represented Latin American country in the UN’s Global Compact, with 367 companies signed up to its voluntary corporate social responsibility initiative.

In 2008, the Mexican subsidiaries of Coca-Cola, Philips, Natura, Wal-Mart and Unilever got together to form Grupo Transforma, a new collaboration for sustainable development. Their first project is to commission a mobile exhibition on sustainable development aimed at children, to be hosted first by Mexico City’s Museum of the Child. But their aim is ultimately much grander: recognising the colossal economic impact of North American companies they have set out to raise awareness and generate action on the big issues like climate change, in partnership with the growing band of national and international NGOs in Mexico.

Ben Tuxworth is Communications Director at Forum for the Future.

This article is part of the Green Futures Special Publication Viva la vida verde, in which we set out the key sustainability challenges facing Mexico, and showcase some of the innovative green breakthroughs under way. Read more articles here.

27 February 2009

Ben Tuxworth