Inclusive and sustainable businesses: The role of the private sector

While many companies produce sustainability reports and set net zero carbon targets, those with a clear roadmap for achieving their carbon goals are still a minority

There was a news article published on 7 February 2024 in Daily FT titled “Sri Lanka takes bold steps to promote Inclusive and Sustainable Business” (https://www.ft.lk/business/Sri-Lanka-takes-bold-step-to-promote-Inclusive-and-Sustainable-Businesses/34-758194).

It further stated: “In a bid to boost economic growth whilst prioritising social and environmental welfare, Sri Lanka is embarking on a journey to promote Inclusive and Sustainable Businesses (ISBs).

As a person who has involved in successfully implementing inclusive and sustainable business programs in Sri Lanka, I thought I should contribute my insights on this topic by addressing the role the private sector can play in Inclusive and Sustainable Business (ISBs). 

Introduction

The global development agenda prioritises both economic growth and social inclusion. The rapid economic expansion in emerging markets present an unparalleled market opportunity. By leveraging the concept of Inclusive and Sustainable Business (ISB), there is a substantial potential to expedite progress towards the Sustainable Development Goals (SDGs) in these regions. Inclusive growth will not happen without Inclusive and Sustainable Business Models (ISBMs): financially viable and scalable models that enhance access to goods, services and livelihoods for low-income communities. Inclusive and sustainable business involves companies that capitalise on market opportunities that benefit the poor and their own business objectives. 

What is in Inclusive and Sustainable Business?

Inclusive and Sustainable Business refers to sustainable business solutions to expand access to goods, services and livelihood opportunities for low-income communities in commercially viable ways and to protect environmental sustainability (World Business Council for Sustainable Development 2005).

There are four common elements of inclusive and sustainable business approach:

1. Market oriented

2. Business relationship with the low-income communities

3. Offer basic goods and services to low-income communities to enhance livelihoods.

4. Environmentally and socially sound and enable inclusive growth and advanced sustainable development.

Businesses have traditionally supported inclusive development through civic engagement, monetary donations, and Corporate Social Responsibility (CSR) activities. However, the impact of these initiatives is often modest compared to the broader influence of core business operation in society. Therefore, there is a growing recognition that businesses need to integrate social responsibility into their core operation. Inclusiveness and sustainability should be key considerations in business strategy, rather than being treated as mere afterthought. 

Role of the private sector

Over the past decade, there has been growing demand for alternative approaches to addressing poverty and environmental issues in developing countries and emerging economies. These approaches diverge from traditional aid and charity approaches that have been dominant. Instead, there is a shift towards discussing inclusive and sustainable business approaches that emphasise the role of innovation and pro-poor entrepreneurship. These new approaches suggest redefining the roles of various actors in the private sector, including multinationals, large national firms, Small and Medium-sized Enterprises (SMEs), as well as for Non-Governmental Organizations (NGOs). 

Also, over the past decade, poverty alleviation and environmental concerns have become prominent issues on corporate agendas. There is a growing societal expectation for the business sector to actively participate in addressing poverty and finding environmental solutions. The mobilisation of the private sector can be critical in advancing the Sustainable Development Goals (SDGs) agenda by providing financing and driving the transformation of business practices towards inclusivity and sustainability. 

While many companies produce sustainability reports and set net zero carbon targets, those with a clear roadmap for achieving their carbon goals are still a minority. So, how can senior executives move beyond words to take bold leadership that creates positive impact business models for a more inclusive and sustainable future? 

Developing inclusive and Sustainable Business Models

A company can create, capture and deliver value, with a value creation logic designed to improve resource efficiency and company-level adoption of three types of Inclusive and Sustainable Business Models (ISBMs) Innovations.

Value proposition – what value a company proposes to existing and potential customers.

While the value proposition is typically concerned with the product and service offering to generate economic return, in a sustainable business, the value proposition would provide measurable ecological and/or social value in concert with economic value. 

Value creation – how the business is organised to deliver the value. 

The value creation and delivery element is the mechanism through which value will be created and monitored and the types of partnerships and value network needed to deliver on the value proposition.

Value capture – how financial value is retained for the company, for low income customers, suppliers and partners.

The value capture element explains how the firm will generate revenues and profits from its value proposition, accounting for its revenue stream, costs structure and growth strategy. 

For example, a company can consider an opportunity for value creation and capture by looking to resolve some of the market failures that impact maize farmers (e.g. inadequate availability and access to inputs and markets and imperfect information on pricing). It then designs a business model that involves creating value by collaborating with a local civil society organisation to form farmer groups, which it supplies improved seeds and fertilisers on credit. 

The farmer groups distribute these to its members and bulk their surplus through local collection centres. The business then agrees to collect the surplus and pay a fair market price, after deducting costs of inputs provided. This agricultural value creation system thus seeks to improve the incomes of small maize farmers by helping raise smallholder productivity and improve market access.

Adopting ISBM innovation involves several key success factors. Some of these practices include:

1. Collaborative partnerships: SBMs often require collaboration between different stakeholders, such as Government, NGOs, local communities, and businesses. Building strong partnerships and engaging stakeholders throughout the process can help ensure the success of the business innovation.

2. Scalable and replicable: To have a significant impact ISBMs need to be scalable and replicable. This means designing the innovation in a way that it can be easily expanded to reach a large number of beneficiaries or replicate in different contexts, thus maximising its potential to address social and environmental challenges.

3. Access to finance: Adequate access to finance is vital for implementing and scaling ISBM innovations. This includes securing investment capital, exploring innovative financing mechanisms, and leveraging public-private partnerships to mobilise resources.

4. Capacity building and skills development: Building the capacity and skills of both the entrepreneurs and beneficiaries is essential. Providing training, mentorship and support to entrepreneurs can enhance their ability to develop and manage ISBM.

Organisational factors that drive ISBM innovation for SDGs include:

1. Leadership commitment: Strong leadership commitment from top management is crucial for driving ISBM innovation. Leaders need to embrace the importance of addressing social and environmental challenges, set a clear vision, and allocate resources to support the initiative.

2. Organisational culture: A supportive organisational culture that values social and environmental impact can foster innovation. This includes promoting collaboration, risk-taking, and learning from failures. Encouraging employees to think creatively and experiment with new ideas can drive the development of ISBMs.

3. Cross-functional collaboration: ISBM innovation often requires collaboration across different departments and functions within an organisation. Breaking down silos and encouraging collaboration can facilitate the exchange of knowledge, expertise, and resources, leading to more holistic and effective solutions.

4. Stakeholder engagement: Engaging stakeholders, including employees, customers, suppliers and communities, is essential for ISBM innovation. Involving them in the decision-making process, seeking their input and feedback, and ensuring their representation can result in more inclusive and sustainable solutions.

Conclusion

ISB is exciting for the private sector, because of the potential to reach low-income people at scale, whether as consumers, producers, or employees. Also, there are variety of commercial returns – market entry, market share, secure supply chains, product line innovation, enhanced brand reputation and competitive advantage – all help to build market value. This opens up new growth opportunities for businesses, while simultaneously promoting sustainable development. This concept gives low-income consumers access to a wide variety of affordable, easy-to-use products and more lifestyle choices. Small-scale producers and suppliers gain access to new markets and employment opportunities. ISB therefore promotes self-supporting development.

(The writer has implemented Finland Government funded Inclusive and Sustainable Business program Weconomy in Sri Lanka. He received his training on Inclusive and Sustainable Business at Aalto University in Finland. He is currently a researcher on Inclusive and Sustainable Business Models. He can be contacted via email [email protected].)