February 18, 2019

The state of inclusive business: four things we know

Author : Paula Pelaez / Publisher: The Guardian

Companies recognise they won't succeed in failed societies. At the same time, employees, consumers and other stakeholders are encouraging companies to also deliver societal value, and contribute to solving the most complex challenges of our time, reflected in the UN's Sustainable Development Goals (SDGs).

People living at the bottom of the economic pyramid (BoP) have at most $10 (£7.90) - or its equivalent in purchasing power in other currencies - a day to cover the costs of food, housing, education, transport, medical care and clothing. Most of these individuals are in developing countries, which for many businesses represent frontier markets. Low-income markets are mostly overlooked and represent untapped potential for economic growth.

But increasingly, companies are valuing inclusive business as a concrete model for driving both SDG impact and company growth.

Integrating the BoP can play an important role in bolstering business when included in company value chains as suppliers, distributors, retailers, consumers, and employees. In addition to company growth, inclusive business presents an opportunity to break the cycle of poverty for billions by contributing to higher incomes; affordable, accessible and adequate products and services; and sustainable livelihoods.

This year, Business Call To Action partnered with GlobeScan to take the pulse of the state of inclusive business, surveying various companies and other stakeholders such as government, multilateral organisations, NGOs, academics, thinktanks and investors. The following statistics for overall responses are based on the feedback of all 193 participants, while company-specific statistics are based on feedback from 91 companies. Here are four key things we learned:

Companies are heeding the clarion call of the SDGs
We are now three years into an ambitious 15-year plan to improve the quality of life of every human being on the planet, articulated by the 17 Sustainable Development Goals. Three-quarters of all respondents said the SDGs had either significantly or moderately influenced companies' decisions to adopt inclusive business models - demonstrating that efforts to bring the private sector on board to achieve these goals have been successful.

Four out of five companies said SDGs had influenced their decision to engage in inclusive business. This was strongest among SMEs - with 89% - followed by 74% of large national companies and 71% of multinationals.

Drilling down to specific SDGs, inclusive business initiatives are thought to have contributed most to SDG eight: Decent Work and Economic Growth; and SDG one: No Poverty. Also rating highly were SDG three: Good Health and Wellbeing; SDG two: Zero Hunger; and SDG five: Gender Equality. Surprisingly, only 10% of companies said they were contributing to SDG 10: Reduced Inequalities, even though this is a core element of inclusive business.

It's helping to ensure we leave no one behind
At the heart of any inclusive business is its ability to improve the lives and livelihoods of those living at the bottom of the economic pyramid, while maintaining company profit.

Two-thirds of respondents said inclusive businesses are doing what they are intended to do - lifting people out of poverty and reducing inequalities. This was even stronger among corporate respondents: 79% said inclusive businesses were very effective, while a further 12% said they were moderately effective.

Inclusive business does not only bring improvements in the lives of the BoP - it also benefits the company. Over half of surveyed companies said they had benefited from improved brand equity and reputation; 46% said it had opened access to new markets, while 43% said that it had given them a competitive advantage over other companies. This value is resoundingly recognised company-wide: 85% of respondents said that inclusive business was seen to add value across the whole company, and not just among those who are engaged in the inclusive business initiative.

When reflecting on their own initiatives, most companies reported that the impact of their initiatives on improving the lives of low-income communities had been significant. Among Business Call to Action member companies, almost all members (91%) agreed that their inclusive business initiative has had a large impact on improving the lives of low-income communities.

In terms of how they were actually improving lives, respondents reported that low-income populations were primarily engaged as consumers or employees - meaning they experienced better working conditions, more fair and consistent pay. As consumers they were also provided with better access to affordable essentials such as healthcare, finance, education, professional development, technical training and more.

It's not just growing, it's expanding
There are many stages a company must go through to get to a point where the inclusive business initiative is fully realised and flourishing. Interestingly, most respondents said they were either at a scale-up stage - where they were focusing on extending or replicating successful initiatives - or they were still growing initiatives slowly within the organisation.

Large national companies were much further along their inclusive business journeys than multinationals and SMEs, with the vast majority (79%) at the scale-up stage, compared with just 44% of SMEs and 39% of MNCs.

As for forward-looking growth strategies, most companies were inclined towards expanding existing inclusive business models into new markets or partnering to achieve deeper or greater scale, rather than acquiring existing inclusive businesses.

There are shared barriers to success
Despite positive growth over the past decade, there are common barriers that many inclusive businesses face around the world that are significantly hindering success. Two-thirds of those respondents who had an active inclusive business cited a lack of access to sufficient financing as the greatest barrier, while 59% said that restrictive or unsupportive government regulations posed the greatest risk to the success of an inclusive business initiative.

Demonstrating that global issues have a profound impact on the way business is done at the local level, the impact of climate change and the impact of technology advances were cited by respondents as the next most significant risks to the success of their inclusive business initiative. Managing gender inequality within companies and among low-income communities was seen as a top priority for more than 60%.

In short
Overwhelmingly, respondents were optimistic about the state of inclusive business, and most were actively engaging in or supporting inclusive business initiatives. The SDGs were viewed as an integral part of any inclusive business model, and the private sector was largely committed to contributing to them. Most were persevering and succeeding even despite the challenges they were facing.

Recognising the urgency and the unique role that business has in achieving the SDGs, we hope the findings of this survey spur dialogue and additional uptake of inclusive business models - as a concrete pathway for inclusive and sustainable private sector growth.

Paula Pelaez is the head of Business Call To Action

This article was written by Paula Pelaez from The Guardian and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.