Creating positive impact through embeddedness The contribution of MNEs to inclusive growth Dr. Philipp Aerni Director of the Center for Corporate Responsibility & Sustainability (CCRS) at the University of Zurich CCRS Workshop Semper Aula, ETH Zurich, 28 May 2019

Current Framing of «Positive Impact» Impact investing as a broader category of «socially responsible investing» aims at measuring positive impact with regard to a particular theme (SDG-oriented) Does it matter in a polarized debate framed as ‘people vs profit’? Positive impact comes on top of already existing standards (e.g. ESG) CSR report as separate MNE flagship report assessing and valuing impact See latest outcome of IV methodology designed by WBCSD for various levels: https://docs.wbcsd.org/2017/05/IVR_Impact_Valuation_White_Paper.pdf Stories that cha-llenge established framing? Local/historical accounts often misrepresented

The idea of «principled embeddedness» Every company is a product of society and its needs. Social exchange always comes prior to economic exchange The root of long-term success was and continues to be a principled approach to embeddedness in society Europe in the 19th century: private standards came prior to public standards > concern about license to operate Addressing a certain need in an effective way through innovation and the creation of a new market creates «Positive Externalities» that are often unintended (spillovers) Bumpy road of trial and error leads to «principles» meant to address stakeholder concerns (no business without society)

A tool to «reframe» the debate Starting question: Does the region benefit from your presence beyond jobs and taxes? If so, in what sense? Local Business (shares of local supplies/sales, local VC)? Local Human Capital (expenses on training, CD) Local knowledge/education base (sharing with academia) Local entrepreneurial infrastructure (business services, IT/physical infrastructure, formal institution-building) Upgrading the sustainability of local business (result of enforced principles to avoid «negative» embeddedness) Contribution to the build-up of a local economic ecosystem connected to global value chains

The challenge of communication Misleading assumption in classic risk communication: You involve lay people, you inform them, you listen to them, you regulate, you gain trust Lesson learned: More (self-) regulation does not lead to more trust Sloman and Fernbach (2018): presumed knowledge about motives matter, knowledge about actual performance is secondary) Effective communication requires a meaningful (counter-) narrative combined with data collection on the ground and a culture of openness toward curious stakeholders > critical third party look is important > restoring moral agency

The way forward Main Purpose of the Sustainable Development Goals (SDGs): Human-centered approach with a focus on economic empowerment (jobs /access to finance, know-how, knowledge) Communicating the role of MNEs in the SDGs by showing what their embeddedness does for local agents of change (creating new opportunities, know-how, knowledge transfer, linking the local to the global, enabling local structural change > inclusive growth, SDG 8) Compliance/Due Diligence culture alone may not help gaining social capital > guardian morality needs to be complemented with «entrepreneurial morality», the true mission of successful and embedded companies Don’t be afraid of open door policy > people are curious about the real story. They may also discover “unintended” positive impact