Inclusive Business for Sustainable Livelihoods L'entreprise Au Service Du Développement Social Negocios Inclusivos Para Medios De Vida Sostenibles

Field Actions Science Reports The journal of ﬁeld actions

Vol. 5 | 2011 Vol. 5

Inclusive business for sustainable livelihoods L'entreprise au service du développement social Negocios inclusivos para medios de vida sostenibles

Virginie Bonnell and Filippo Veglio

Electronic version URL: http://journals.openedition.org/factsreports/840 ISSN: 1867-8521

Publisher Institut Veolia

Electronic reference Virginie Bonnell and Filippo Veglio, « Inclusive business for sustainable livelihoods », Field Actions Science Reports [Online], Vol. 5 | 2011, Online since 20 June 2011, connection on 21 April 2019. URL : http://journals.openedition.org/factsreports/840

Creative Commons Attribution 3.0 License © Author(s) 2011. This work is distributed under the Creative Commons Attribution 3.0 License. http://factsreports.revues.org/840 Published 20 June 2011

Inclusive Business for Sustainable Livelihoods

Virginie Bonnell1, and Filippo Veglio2 1 Project Oficer, Regional Network, World Business Council for Sustainable Development (WBCSD), 4, chemin de Conches, CH-1231 Conches-Geneva, Switzerland 2 Deputy Director, Development Focus Area, World Business Council for Sustainable Development (WBCSD), 4, chemin de Conches, CH-1231 Conches-Geneva, Switzerland

Abstract. What are the links between business and development? And what is the business role and opportunity in addressing sustainability challenges of developing countries and emerging economies?

As an engine of growth and development, and to underpin its license to innovate, operate and grow, business has a critical role to play in accelerating progress towards development.

Companies can most notably develop inclusive business ventures, that is, sustainable business solutions that expand access to goods, services, and livelihood opportunities for low-income communities in commercially viable ways. The notion of inclusive business calls for additional focus and innovation in the way companies do business. It involves creating new forms of employment, new markets, and affordable products and services. This spurs economic growth and encourages entrepreneurship.

This article highlights the concept of inclusive business in the current global context, provides a few examples of its application in practice, highlights the foundations for its success, and briely presents an interactive tool, the “Inclusive Business Challenge”. The latter, designed by the World Business Council for Sustainable Development, aims at helping companies and stakeholders identify and implement inclusive business in practice.

Keywords. Inclusive business, sustainable development, sustainability, poverty, sustainable solutions, low- income populations, value chain, business opportunities, innovation.

1 Towards a more inclusive, low-carbon sector investments make up over 85% of investment and and resource eficient economy inancial lows.1 But meeting the basic needs of a growing and increasingly Poverty and inequity in many countries remain critical chal- urbanized population in developing countries–as well as the lenges for sustainable development and global stability. aspirations of their middle classes–will increase demand for Business, as an engine of economic growth and develop- energy and natural resources, exacerbating the pressure on ment, has a critical role to play in accelerating progress the world’s ecosystems. Solving the seemingly conlicting toward achieving development goals through increasing imperatives of improving the living standards of the world’s investment, creating jobs, increasing skills, and developing population while preserving the environment will thus goods, technologies and innovations which can make peo- require a transition to a more inclusive, low-carbon and ple’s lives better. This includes the private sector’s role as a resource eficient economy. source of capital for developing countries: globally private As a global community, we already have the inancing, technologies and scientiic knowledge we need to carry out a Correspondence to: Virginie Bonnell transition toward a sustainable future. Studies such as the [email protected] Stern Review on the Economics of Climate Change2 and The Economics of Ecosystems and Biodiversity3 show that Author’s notes: The World Business Council for Sustainable Develop- ment (WBCSD)is a CEO-led, global coalition of some 200 companies advocating for progress on sustainable development. WBCSD members are drawn from over 35 countries and 22 major industrial sectors. The 1 See http://unfccc.int/press/fact_sheets/items/4982.php WBCSD also beneits from a global network of about 60 national and 2 See http://webarchive.nationalarchives.gov.uk/+/http:/www.hm-treasury. regional business councils and partner organizations. More information: gov.uk/stern_review_inal_report.htm www.wbcsd.org 3 See http://www.teebweb.org/ V. Bonnell et al: Inclusive Business for Sustainable Livelihoods

High Can help in the short run, but is not self-sustaining Focus Inclusive business

ts fi ne be Localize cial So

Does not sufficiently serve the community Low Not-for-profit Economic benefits For-profit corporate philanthropy commercial ventures

Figure 1. Inclusive business maximizes social and economic value Source: WBCSD

and local capacity. Likewise, poorer consumers can beginning sooner rather than later will save a great deal beneit from products and services that meet their of money. needs in affordable ways.

2 Business role and case in development • Finally, the transition to a more sustainable world represents a signiicant business opportunity due to The World Business Council for Sustainable Development the corresponding investments in infrastructure and (WBCSD) believes that the leading companies of the future technology by both governments and private entities will be those that align proitable business ventures with the and the long-term demand for related products and needs of society. In a recent report4, WBCSD argues that it is services needed to sustainably meet the needs of in the enlightened self-interest of global business to invest in growing populations in developing countries. providing sustainable solutions to development challenges: As the report highlights, enhancing energy and resource • First, business cannot succeed in countries that fail. eficiency, and inding new ways of sustainably meeting the Stable and prosperous societies make for better busi- rising demand for food, healthcare, shelter, energy, mobility, ness opportunities. water, and sanitation are deining challenges. The companies • Secondly, by developing a better understanding of that will be able to take advantage of those opportunities are and proactively addressing socio-economic and envi- the ones that anticipate trends and respond with smart solu- ronmental concerns, companies will be able to better tions. They are also the ones whose leaders not only lead manage their risks and thereby underpin their license their companies, but also help guide society toward major to operate, innovate and grow. investments in sustainability.

• Thirdly, developing inclusive business models, i.e. 3 Inclusive business: part of the solution sustainable business solutions that go beyond philanthropy and expand access to goods, services, and live- Inclusive business leads to the creation of employment lihood opportunities for low-income communities in opportunities for low-income communities–either directly or commercially viable ways, will help companies build through companies’ value chains as suppliers, distributors, positions in growth markets. By incorporating low- retailers and service providers. Alternatively, companies can income populations in the supply, production, distri- develop ways to supply affordable products and services to bution and/or marketing of goods and services, meet basic needs for food, water, sanitation, housing and companies generate new jobs, income, technical skills health care. Or they can develop innovative business models to enhance access to key development enablers such as energy, communications, inancing and insurance. In essence, inclusive business models try to ind synergies 4 Business and Development: Challenges and Opportunities in a Rapidly Changing World (WBCSD, 2010). Available online at http://www.wbcsd. between development goals and the company’s core business org/web/bizdev.htm operations. Sound inclusive models can deliver higher

2 Field Actions Science Reports V. Bonnell et al: Inclusive Business for Sustainable Livelihoods socio-economic value for communities through greater African government to manage and co-fund its busi- access, choice and opportunity, and presents an exciting ness development program for small mining compa- opportunity for the private sector because it is good for nies–known as the Anglo Khula Mining Fund. business. A variety of commercial returns–market y,entr • The Allianz Group, a leading global provider of insur- market share, secure supply chains, product line innova- ance, banking and asset management, has been active tion, competitive advantage–all help to build market value. in the microinsurance industry since 2005, when the Furthermore, inclusive business “is interesting for bilateral South-East Asian tsunami devastated communities and and multilateral donors, foundations, governments, and civil left many families homeless. The company realized society organizations because it has the potential to drive de- that the risks the poor face are much the same as those velopment impact in self-sustaining, self-multiplying ways for others; but without insurance, the inancial impacts 5 that do not require continuous infusions of grant funding.” of disasters are obviously greater. Yet less than 80 million people in the 100 poorest countries have access to 4 Inclusive business in action insurance (3% of the population). This is a signiicant business opportunity: microinsurance in emerging WBCSD member companies across all sectors are acti- economies represents a market of great potential growth vely testing and rolling out activities in this domain, most and proitability, as insurance markets in many rich notably by engaging independent entrepreneurs that distri- countries become saturated. However, a lack of local bute and sell products in hard-to-reach areas, to sourcing raw experience, the high administrative costs associated materials from small-scale producers, to facilitating inancial with servicing thousands of small-premium insurance transactions via mobile phones, to supporting the develop- policies, and local distrust have kept insurers from ment of local enterprises. reaching low-income populations in the developing The WBCSD’s online case study library contains detailed world. Allianz found that by working in partnership information on what companies from a wide range of sectors with local organizations, such as NGOs, trade unions, are doing to implement inclusive business ventures. Some and microinance institutions, it can reach out to clus- 6 examples from this collection include: ters of villages across southern India, Indonesia, Egypt • Anglo American, one of the world’s largest diversiied and soon West Africa. As an example, in 2006 Allianz’s mining companies, sees local enterprise development subsidiary Bajaj Allianz joined forces with CARE as a key part of its commitment to helping build a International to launch a three year partnership aimed sustainable future for communities surrounding the at providing microinsurance to people in Tamil Nadu, company’s mines. In 1989, it started its irst small and one of the areas hardest hit by the 2004 tsunami. The medium enterprise (SME) development initiative in project was designed to deliver affordable life and non- South Africa, with the aim of investing in black em- life insurance products catered speciically to farm powered SMEs demonstrating a commercially viable workers and ishermen in the coastal communities of and sustainable business plan. Called Anglo Zimele Tamil Nadu. The premium for the micro-life insurance (the Zulu word for “independence”), the scheme aims policies covering risks of accident, death, loss of house- to increase employment and entrepreneurial opportuni- hold assets, natural disasters and ire is 1 euro per year, ties for historically disadvantaged South Africans in the which provides families with € 370 of coverage in the framework of the company’s obligations to engage event of a natural or accidental death. Currently, this black economic empowerment (BEE) enterprises in its covers around 200,000 people. business activities. Run on commercial lines, Anglo • Coca-Cola is advancing business solutions for eco- Zimele develops local entrepreneurial capacity to sup- nomic development through its innovative approach to port both Anglo’s procurement requirements and distribution. Coca-Cola’s approach to distributing its broader local business and consumer needs. It has products in hard-to-reach urban and peri-urban areas in helped more than 520 local companies across a wide Africa identiies and engages independent entrepre- range of industries and sectors by providing business neurs that distribute and sell its beverages in small, development services aimed at strengthening SMEs, speciic geographical areas. The company has, to date, most notably through equity, loans and short-term created over 2,500 manual distribution centers (MDCs) minority stakes as well as by facilitating opportunities in Africa, generating over 12,000 jobs and more than to be included in Anglo’s value chain. The businesses US$ 500 million in annual revenues. MDCs are typi- supported by Anglo have an 85% survival rate. cally located in areas where a lack of stable roads and Anglo American has also worked with the South infrastructure makes it dificult for delivery trucks to travel, which helps the company secure hard-to-reach markets while creating wealth and job growth in those 5 Jenkins, Beth and Eriko Ishikawa (2010). “Scaling Up Inclusive communities. Those who set up MDCs employ others Business: Advancing the Knowledge and Action Agenda.” Washington, in the area, who then sell and distribute beverage prod- DC: International Finance Corporation and the CSR Initiative at the ucts to retailers, often by bicycle or pushcart. The Harvard Kennedy School MDCs account for over 80% of the company’s sales in 6 Please visit the WBCSD’s online case study library at www.wbcsd.org/ web/dev/cases.htm for detailed information on speciic initiatives. East Africa.

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• Vodafone, a mobile telecommunications company, has • Localize the value creation – Companies operating in developed a service that allows millions of customers developing countries often lack the usual infrastructure that do not have a bank account to complete simple and support systems: market intelligence, manufactur- inancial transactions by mobile phone. The service, ing capabilities or distribution channels. So, they have which was launched in Kenya under the name M-PESA much to gain from tapping into local networks and by Safaricom, allows customers to put money into their local knowledge. account by depositing cash at a local agent; send money to other mobile phone users by SMS instruction; with- 6 Financing inclusive business ventures draw cash at local agent; or buy airtime for themselves or other subscribers. This is transforming inancial ser- One of the greatest challenges facing inclusive business is vices by making transactions cheaper, faster and more attracting suficient and appropriate capital to inance such secure. Vodafone has expanded this money transfer ser- activities, especially in countries with considerable business vice to Afghanistan, Tanzania and South Africa, and risk. To overcome this barrier, a mindset shift is required has reached more than 13 million registered customers whereby companies embrace new ways of thinking about by early 2010. how business could be done. To make the most of available resources, companies need to redeine how, from whom and 5 Foundations for success in inclusive business for whom they raise capital. Financing inclusive business does not involve aban- While the world’s low-income segment represents the market doning the traditional modeling process of gauging risk for the future, it is vital to ensure that the products offered and after estimating the capital needs and expected future the partnerships built meet their needs. True, inclusive busi- cash flows. However, it does entail adjustments to factor ness models aim to use commercial means to better people’s in indirect and less tangible benefits for the company. lives. Developing appropriate products that meet people’s The considerable social benefits these projects bring needs and integrating low-income suppliers sustainably into mean that many non-traditional sources of capital may be a value chain are delicate balancing acts, with the risk that interested in helping such a business succeed. These companies market products that are inappropriate for low- sources of capital can help remove obstacles to profitabil- income communities or that the local suppliers supply prod- ity and bridge the lead-time until a business is fully com- ucts and services that are inadequate for the operation of mercially viable. Both direct funding (project capital), the company.7 and funding that improves the business environment and The WBCSD identiied a combination of three factors that supports partner organizations (partner capital) can help help build successful inclusive business models: focus, part- to achieve this. ner, and localize.8 In essence, companies will need to: Some companies have begun to shift their thinking from a centralized capital strategy, whereby companies raise • Focus on their core competencies – Companies that their own funds for their business to a distributed capital concentrate on their key strengths are better able to strategy, in which they also become capital conduits to ex- innovate around those strengths. This helps guarantee isting local expertise and capacities. Development agen- consistency between the company’s portfolio of activi- cies are increasingly interested in working with business, ties and the inclusive business model, and will make it and some private foundations are beginning to support easier to take successful pro-poor business mainstream for-proit ventures whose goals mesh with their own in the future. program objectives. • Partner across sectors – Governments and NGOs are In order to beneit from this public money, inclusive busi- increasingly interested in working with business. By nesses need to demonstrate tangible social beneits. And for involving development organizations that share com- partnerships to work well, managers may need to learn the plementary goals, companies can beneit from on-the- language and goals of non-business organizations.10 ground expertise and additional resources. Ensuring that they have the trust of the communities they work 7 A favorable environment for inclusive business with is also essential. Likewise, thinking across sectors might lead to innovative partnerships involving compa- The contribution of the private sector to development can nies from different industries, addressing a bundle of be accelerated, but only if there is a sound enabling envi- needs holistically.9 ronment in place. This is as true for SMEs as it is for large multinational corporations. Through endeavors such as those outlined above, companies are discovering that there 7 For a discussion, see Aneel G. Karnani, “Fortune at the Bottom of the is no “one-size-its-all” approach. To be successful in these Pyramid: A Mirage” (2006) and “Romanticizing the Poor”, Stanford markets, companies must focus on meeting real needs, Social Innovation Review, Vol. 7 (1), pages 38-43, Winter 2009. 8 For more information, see WBCSD’s report “Doing Business with the Poor - a Field Guide”, at http://www.wbcsd.org/web/publications/ sl-ield-guide-reprint.pdf Field Guide 10 For more information on this topic, see WBCSD’s report “Finding 9 On the topic of partnerships, see also the WBCSD / IBLF Guide to capital for sustainable livelihoods businesses”, at http://www.wbcsd. Development Actors at www.wbcsd.org/web/devguide.htm org/web/publications/sl-inance.pdf

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using approaches adapted to the markets they target and 8 A tool for action: WBCSD’s that integrate well with their core business competences. “Inclusive Business Challenge” This is not always easy and can carry with it considerable business risk. Inclusive business holds great promise but is still limited Each country faces a different set of priorities; every and there is an urgent need to ind ways to replicate, scale, development strategy must be orchestrated in tune with and encourage other companies to take action. One way in the local context. Therefore, rather than pressing simply which WBCSD is advancing the agenda is by developing for better governance or better framework conditions, the resources and tools to support companies wishing to do busi- WBCSD encourages governments to consider key priority ness in a more inclusive way. areas which, if addressed, could maximize the impact WBSCD and its member companies have developed vari- of development efforts and the beneits of increased ous tools to support any company wishing to do business in investment inlows. a more inclusive way. For instance, the Council In this context, the WBCSD has called upon recently launched “The Inclusive Business political leaders to focus their attention on Challenge”, an interactive presentation and the following priorities: A fair and simulation tool which introduces the competitive global market that is non- challenges, drivers and principles of discriminatory, regulatory frameworks inclusive business. It presents good that uphold property rights, promote practice examples, and suggests ways greater movement of entrepreneurs to to integrate inclusive business into the formal economy, and root out cor- company strategy. A key feature of the ruption, capacity building and access tool is in the simulation activity which to inance for local enterprises and is designed to be used in an interactive entrepreneurs, and investment in the workshop setting to identify risks and necessary infrastructure such as roads, opportunities in building inclusive busi- energy, telecommunications, and ports. ness. The tool comes in the form of a These key areas embrace companies’ most PowerPoint pack and is therefore adaptable pressing concerns. Improving governance not and customizable for awareness raising and only improves the business environment but strengthens capacity building activities of companies and organiza- human rights. Building up infrastructure and promoting tions active in this ield. It is available in English, French, education are investments that beneit people and thereby Portuguese, and Spanish, and includes a facilitation guide also development goals. with information on how to use the tool and links to additional resources.11

11 Access the tool at www.wbcsd.org/web/ibchallenge.htm