Managing the Pro-Development Impacts of Your Business

Looking back on corporate responsibility in 2010, one of the topics that rose to the top of the agenda was the role of business in international development. In particular, this was spurred by the UN’s review of (a lack of) progress towards meeting the Millennium Development Goals. There are a range of initiatives to advance business contributions to reducing poverty and promoting sustainable development in the poorer regions of the world, from the World Economic Forum, World Business Council on Sustainable Development, International Finance Corporation, and the UN Global Compact, among others. New buzz terms abound, including social enterprise, base of the pyramid business, and now ‘inclusive business’. Given this growing attention to the role of business in development, it is an appropriate time to reflect on how this area of activity could be improved to enhance the development outcomes and make it an important part of commercial activity. One question is how the broader corporate responsibility profession, with its focus on policies, stakeholder dialogues, standards, audits, trainings, reports, analysts and indices, can support better business contributions to international development. In an article in Issue 39 of the Journal of Corporate Citizenship, published today, with my colleagues Ian Doyle (Lifeworth Consulting) and Tapan Sarker (Asia-Pacific Centre for Sustainable Enterprise), we argue for a new level of integration and systematizing of different aspects of the business in development agenda. We propose a “sustainable inclusive business management system” be developed, to guide practice, training and project funding. To that end we identify the important personal qualities of managers (Box 1) and the characteristics of business projects (Box 2) that enable beneficial engagements by large enterprises in low income communities.

Our proposal responds to the growing efforts to review the developmental impacts of core business operations. The term ‘Inclusive business’ describes the belief that business can have a greater positive impact on development by adapting their core business to encourage development outcomes, rather than through corporate philanthropy, or new base of the pyramid initiatives that target the poor as consumers, or support for social enterprises. [1] ‘Inclusive Business’ is defined by the United Nations Development Programme (UNDP) as ‘business models that create value by providing products and services to or sourcing from the poor, including the earned income strategies of non-governmental organisations.’[2] The focus is less on small enterprises seeking to address social needs profitably, but large firms being able to adjust their core businesses to benefit more people as either consumer, employee, or supplier.

A report in April 2010 by the International Finance Corporation (IFC) entitled ‘Scaling Up Inclusive Business’ marked a watershed in the discussion of business contributions to development, as it uncovered some myths and mapped out a new agenda.[3] First, they found that most companies that  engage in more inclusive business practices do not do it for reputation, risk management or innovation promotion. Those traditional drivers of voluntary responsibility are not sufficient to make a real difference to investment strategy. Instead there has to be an obvious model for sales growth for companies to invest significantly in including more people in the sphere of their positive impact.

Second, they did not find any success from specialist base of the pyramid approaches, but a “whole pyramid approach.” Beth Jenkins and her co-authors explained that: “most of the commercially viable, scalable examples… take more of a “whole pyramid” approach in which the poor are segments within a much broader overall market, supplier base, or distribution network… Cemar, for example, was required by law to electrify the entire state of Maranhão in Brazil’s low-income northeast region. The company was permitted to charge higher-income, higher-usage customers higher tariffs – enabling it to cross-subsidize those with low requirements and abilities to pay, with the government providing additional subsidies.

Their third key finding is the essential role of governments in creating enabling conditions and even imperatives for inclusive business. One of the most successful examples in the report was from the Philippines, and the often highly charged issue of private provision of water services. The report highlighted how the Manila Water Company is effectively providing water for impoverished communities due to the company and the government planning to ensure the successful meeting of public need and private expectations. Through a series of partnerships between the company, municipal governments and local communities, low-income neighbourhoods not only have access to water but are themselves central to the efficiency and cost-savings components of Manila Water’s inclusive business model. The resulting benefit to the community is superior service and water quality while actively participating in keeping the costs of water low.[4] In many countries the private provision of water by large corporations has created criticism and even protest. Perhaps one of the most important means of ensuring that the costs have been kept down and thus maintained Manila Water’s licence to operate is that the government required the company to cross-subsidise, so that they charge wealthier consumers more in order to fund the infrastructure for poorer consumers. This suggests a key government role to encourage some forms of inclusive business, including through regulations that require inclusive practices in return for licences.5

A fourth finding was the general lack of good examples of inclusive business by large firms. “Large-scale success stories – reaching large numbers of poor people directly or via replication – are still the exception, not the rule,” wrote Beth Jenkins and her co-authors.6 Given the companies in their investment portfolio are receiving funds from a development-oriented institution one might assume some examples of inclusive business, yet only about 100 were found to have a potential inclusive business dimension, in addition to about 100 micro-finance initiatives. That is roughly 13% of the IFC investment portfolio.[7]

The fifth finding, and main purpose of their report, is the need for greater collaboration on enabling conditions for inclusive business, if they are to be mainstreamed beyond the current low level. For this purpose, more collective action is called for on issues such the dual evaluation of business activities, the development of in-depth market information on the needs, aspirations, capabilities, and limitations of low-income consumers and producers, as well as on awareness-raising, education, and training for low-income consumers, suppliers, distributors, and retailers. In a seminar on this topic co-hosted by IFC and Harvard University, participants described a need for “greater transparency [from potential donors to inclusive business projects] about what is possible and on what terms; faster decision-making and execution; and more judicious, strategic communication with external parties and the public at large.”[8]

In the Journal of Corporate Citizenship, we argue that donors will need to become clearer about what kinds of projects are worthy of support and what management systems need to be in place to promote success. Some donors have measurement systems, such as the IFC’s own “Development Outcome Tracking System”, however such systems do not yet include the social and environmental standards that are already agreed by the wider international community as important aspects of sustainable development. Other goals, such as the MDGs, and standards, such as the ILO conventions, were not designed for business directly, while the UNGC only provides generic principles that are not comprehensive (not including health, for instance). Attempts to make broad goals such as the MDGs relevant to companies by using them as the basis for measurement tools, as with the, are useful for bringing attention to core business contributions to development, but they do not assess the full impact of business. For instance, the data on employment creation does not distinguish between a decent job and forced labour. Standards such as the ISO 26000 social responsibility standard, which was published in November 2010, will prove useful, but as it focuses mostly on reducing negative impacts of business practice, it will not be sufficient for guiding inclusive business and social enterprise, where the intention is to generate positive impacts in specific ways.

Therefore we argue in the Journal of Corporate Citizenship that it is time now for a more holistic and integrated approach to business contributions to development and their measurement – a form of “sustainable inclusive business”. We suggest a management system could be developed to improve large companies’ contributions to development. To help with that process, in the article we identify the important personal qualities of managers (Box 1) and the characteristics of business projects (Box 2) that we have identified enable beneficial engagements by large enterprises in low income communities. We think that these qualities and characteristics should be sought in any potential recipients of funds for sustainable inclusive business projects, to ensure that such projects do help their intended beneficiaries in an effective, efficient and sustainable way.

Box 1: Personal Qualities of Managers of Sustainable Inclusive Business

There are key personal qualities that are important for business executives in large corporations to move their organisation towards helping poverty reduction in a sustainable way:
1) Active: aspiring to be a conscious agent of sustainable development in ways that involve core business
2) Coherent: addressing both the positive and negative impacts on low income communities of current and planned business activities, leaving no issue ignored for long
3) Self-aware: focusing on your new USP – your ‘Unique Serving Points’ – by identifying the special capabilities you bring to a particular situation
4) Transformative: seeking enterprise opportunities that disrupt obstacles to social progress.
5) Creative: using methods and indicators that promote creative team-working to innovate new solutions
6) Inquiring: learning together with unusual colleagues, sharing your own approaches while appreciating low income communities and their organisations as co-innovators, while increasing your understanding of the complexity of development issues (including by applying the project characteristics ).

Box 2: Project Characteristics of Sustainable Inclusive Business Initiatives

A particular business project should have the following characteristics in order make a positive contribution to sustainable development. Projects that do not exhibit these characteristics may create some benefit, but risk causing new problems in the communities they affect, and therefore having unintended negative consequences for both sustainable development and the performance and reputation of the organisations involved:
1) Provides products, services or decent work to lower-income communities in ways that stimulate more sustainable production and consumption patterns as a whole
2) If out-competing goods and services produced by locally-owned operations, then offers superior eco-social qualities to existing options, and provides local employment
3) Supports a mixed-ownership economy
4) Provides new sources of capital to community members
5) Provides community members with new access to markets, on stable and transparent terms
6) Transfers appropriate technology and skills to community members
7) Generates a return on investment that is acceptable to the company to be part of a scalable business, without future reliance on cash or in-kind subsidy from government or voluntary sector partners
8 ) Supports good governance and enabling conditions in the local community and nationally, in accordance with relevant UN principles on human rights and development
9) Involves mechanisms for participatory monitoring, evaluation and learning that address each of the preceding characteristics, to inform future strategy and operations.

The references are available in the full article in the Journal of Corporate Citizenship, in the ‘World Review’ of Issue 39. To reference this source, use the following: Bendell, J, Doyle, I and T. Sarker (2010) World Review, Journal of Corporate Citizenship, Issue 39, Greenleaf Publishing, UK.

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