As foreign aid dries up, companies take the lead in global development

July 24, 2014, 11:39 AM UTC
contract armin harris
Kyle Bean for Fortune

Coca-Cola, operating mostly under the media radar over the past three years, has trained half-a-million poor women in 44 countries to become small-scale capitalists. They include owners of sari-sari convenience stores in the Philippines, farmers growing mangoes in Kenya, and dirt-poor villagers building tiny recycling operations out of discarded bottles from trash heaps in Mexico.

Along the way, the world’s largest beverage company is testing two propositions. The first: Can social good directly contribute to a global company’s bottom line? The second: By weaving that “good” into a company’s day-to-day profit-making operations—as with Coke’s supply chain—can the Fortune 500 produce a more lasting force against global poverty than traditional foreign aid?

“Government aid was about handing out money,” says Alice Korngold, consultant and author of A Better World, Inc. “This is about enabling people to achieve their dreams of building and owning companies—and that’s sustainable.”

In any event, American taxpayers have lost their appetite for foreign aid, which stands at less than 1% of the U.S. budget—and comprises just 9% of global capital flows, compared with 71% in 1960. “At no other time in history has U.S. foreign aid made up such a small share of global capital flows,” according to the Washington-based Center for Strategic and International Studies.

CHARITY BEGINS AT HOME Over the past half-century, Congress has lost its taste for doling out dollars around the world. Taxpayers don’t seem to be complaining.CHARITY BEGINS AT HOME Over the past half-century, Congress has lost its taste for doling out dollars around the world. Taxpayers don’t seem to be complaining.Graphic Source: Office of Management and Budget, Expenditure on international assistance programs

Even with NGOs and the Gates Foundation’s multibillion-dollar efforts weighing in, global companies bring unparalleled reach and financial muscle to the development table. In the past few years a boomlet of Fortune 500 companies has started tackling everything from world poverty to climate change.

Is it all a grand PR play, giving CEOs a feel-good platform at Davos while countering ugly headlines about sweatshops, resource depletion, and—in the case of sodamakers like Coke—obesity rates? (As to the last charge, Coke notes that most of its bestselling drinks are no- or low-calorie.)

In some cases, yes, says Korngold, who has studied the programs in depth. She estimates that, at most, 10% of global U.S. firms have serious initiatives in place with the potential to help the global poor while helping themselves.

Coke’s 5by20 initiative passes the Korngold smell test because the company partners with top-notch NGOs (like UN Women, Technoserve, and the Gates Foundation) and is so thoroughly enmeshed in corporate strategy that the board devotes a committee—with prominent names—to monitor this and other social initiatives. In-country managers are also onboard.

Just as important, the initiative—which boasts clear metrics for success—is aligned with Coke’s core business and “is not just a philanthropic program,” notes Jane Nelson, who investigated 5by20 from her post at the Harvard Kennedy School. Coke offers a mix of business skill training, financing, and peer mentoring—but only to women who are part of the company’s value chain. That means mom-and-pop shops and distributors, fruit growers, recyclers, even artisans producing crafts from leftover labels.

And 5by20 is one to watch if only because of the sheer audacity of CEO Muhtar Kent’s vision: teaching business skills to 5 million mostly poor women by 2020. (Mounting research shows female breadwinners are key to a community’s growth and stability, a fact that has made investing in women a popular cause. Goldman Sachs, Exxon Mobil, and Wal-Mart have similar programs.)

None of this will last, of course, unless companies see financial self-interest at work. And for Coke, no doubt, training and financing millions of women who sell and distribute the company’s products can buy truckloads of brand loyalty.

Does Kent’s 5by20 goal carry the risk of being too brazen when veterans of the global poverty scene counsel humble caution? “It’s good to be ambitious,” says Charlotte Oades, the company global director for women’s economic empowerment. “It stretches you and makes sure you are aiming to have a positive—but scalable—impact.”

This story is from the August 11, 2014 issue of Fortune.