Investing in Sustainable Urban Progress in São Paulo

February 25, 2014
  • Marshall Chase

    Former Associate Director, BSR

Over the past few years, BSR has been expanding our role in São Paulo, Brazil, helping Brazilian and global companies understand and address sustainability issues that take place in the context of the country’s sometimes tumultuous evolution.

Through our work, we have found that one of the biggest opportunities for companies operating in Brazil is to understand and help address the challenges of this growing urban society. This article focuses on several of these challenges through the lens of community need and business opportunity in São Paulo, the economic hub of South America and one of the largest cities in the world.

Companies have a significant role to play in addressing challenges ranging from clogged transportation infrastructure that saps economic productivity and keeps people away from their families, to air pollution that adds to health costs and shortens life expectancy, to public corruption that diverts public funds and challenges peoples’ faith in their government. Whether the city successfully meets these challenges will be determined in part by whether business, government, and civil society can effectively work together.

Big City, Big Needs

A sprawling, utilitarian city of 11 million people, what São Paulo lacks in charm it makes up for in purpose: Its main industries—the manufacture of vehicles, chemicals, and electronics; aerospace; biofuels; and a vibrant service sector—drive the economy of the entire region, providing more than 12 percent of the Brazilian GDP and solidifying its place as the 10th largest city economy in the world.

São Paulo’s size comes with a unique set of problems. The city is among the most expensive in the world, and there is a significant gap between the incomes of the rich and the poor. A study from the São Paulo University showed that in 2000, half of the state’s population earned only 15 percent of the income in the state.

Perhaps most noticeably, São Paulo is a modern city built on shaky infrastructure, with challenges in transportation, water, waste management, and housing. These problems have their roots in both the city’s growth and in a government that is often seen as inefficient, opaque, and in need of political reform. According to a recent survey by the NGO Rede Nossa São Paulo, more than half of São Paulo´s inhabitants claim they would leave the city if they could.

Transportation is the most noticeable sign of Sao Paulo’s prosperity and its troubled infrastructure. The city has approximately one car for every two people, and the average Paulistano spends two hours per day in traffic jams, costing the city about R$50 billion (about US$23 billion) per year, according to a recent study from the Getulio Vargas Foundation. Meanwhile, those on public transit complain about an overpriced, overcrowded, and uncomfortable system: Indeed, the massive 2013 protests were prompted initially by a proposed price hike for public transit. A recent study by IBOPE (the Brazilian Institute on Public Opinion and Statistics) revealed that 78 percent of São Paulo’s residents would like to see investment aimed at improving transportation.

Paulistanos generally have adequate access to water resources, but the system loses about 30 percent of water in distribution and must rely on increasingly distant supplies to meet the city’s growing needs. Inadequate wastewater management is also an issue, and the city’s two rivers, the Tietê and Pinheiros, are among the 10 most polluted in the country and also regularly contribute to local floods.

Waste management and housing are two other significant issues for the city, which produces more than 20,000 tons of waste daily. Additionally, according to a 2008 SEADE Foundation study, approximately 3.5 million inhabitants live in slums and irregular settlements that resulted from unplanned urban expansion.

Another concern in the city and the country is the significant gap between the skills needed in an industrialized and rapidly growing economy, and the available skills of the workforce. According to a 2013 study by ManpowerGroup, 68 percent of Brazilian employers have difficulty finding skilled workers, compared with 35 percent globally. As a result, businesses face increasing competition for skilled workers that may limit opportunities for growth.

Government corruption and mismanagement are seen as significant contributors to these problems. In a recent quality of life survey, Paulistanos rated transparency and governance the worst among 25 indicators. Residents gave the city the worst scores on punishment of corruption, transparency of government expenditures, and integrity of city leaders. In a related survey, less than 40 percent of Paulistanos said they trust local government institutions such as the city administration, the county court, city council, and police.

This frustration with government and unmet urban needs boiled over in last year’s waves of protest, which began in São Paulo as a result of a raise in bus fares. Rather than being cause for concern, however, these protests may be a sign of progress: Local and national governments have responded with efforts to promote greater transparency and address some of the infrastructure concerns driving the protests—but they cannot do it alone.

A Role for Business

As a central element of São Paulo’s identity, business has a range of important roles to play in the city’s development, from the obvious (providing goods and services to meet local needs) to the challenging (appropriate engagement with government). Several of these roles include:

Providing goods and services that meet Paulistano’s needs: “Globalization” does not involve simply developing a product for a company’s home market and selling it around the world, but designing solutions that meet the needs of many different local markets. In São Paulo, there are business opportunities in understanding and meeting the unique needs of Paulistanos, and in contributing to the city’s development.

For example, one outcome of the protests has been a renewed government commitment to funding improved urban mobility, including an investment of R$8 billion in São Paulo and a plan for integrated urban development that focuses on public transit hubs by bringing companies and workers closer together. Infrastructure companies with expertise in smart urban development will be able to support improvements like this. Ericsson, for example, is working to increase the availability and attractiveness of public transportation by creating information links between local transportation networks and consumers.

Supporting a skilled workforce: In the short term, companies can offer good jobs that pay well, provide adequate benefits, and help improve quality of life for residents. In the longer term, they can help address skills shortages and support an educated workforce through partnership with local academic institutions and through development of programs like GE’s new Brazil Global Learning Center in Rio de Janeiro, where leaders from industry, academia, and government share best practices with GE employees from around the region.

Investing in smart localization of production and sourcing: Brazil is one of many countries that are encouraging various industries to use local suppliers and manufacturers to help support local economic growth. While these policies create challenges for global operations, companies can make investments in ways that meet their own needs—for example, by shortening supply routes in order to reduce supply costs and improve efficiency, or improving supply chain resilience by diversifying their supply base. But this must be done strategically, with consideration of local capabilities and opportunities.

Engaging with government to build new solutions and improve governance: Companies are often hesitant to engage directly with governments in Brazil because they don’t want to be associated with perceived corruption. However, it is critical that companies work with government to raise awareness about potential business solutions to urban problems, and to highlight the policy requirements that will support continued economic growth. If companies do this in a transparent way, government engagement is more likely to be effective.

There are opportunities for companies to support specific solutions, and there are also opportunities to help improve the process of governance. Companies like NEC and GE, for example, work with governments to demonstrate how various technologies can improve public services and administration. Companies also have worked with government to encourage stronger technical specifications in public contracts rather than an exclusive focus on lowest-cost (and potentially low-quality) solutions.

Collaboration for Progress

One of the key lessons from Brazil’s protests is that, to make progress on the biggest challenges, there must be more collaboration between civil society, government, and business. People will not sit idly by while “development” leaves their needs unmet. These interactions need to be transparent and ethical, and the outcomes of this work must create benefits for all stakeholders.

Since the protests began, there has been an increase in engagement between the public and government. But there is a need for more active and appropriate engagement by both domestic and global companies. The lessons that the government and citizens are learning are also relevant for companies: Collaboration is needed to help all parties understand real needs, foster change, and address dissatisfaction before it becomes unmanageable.

Let’s talk about how BSR can help you to transform your business and achieve your sustainability goals.

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