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- Question of the week
Governments aligning their instruments to promote inclusive business, will enable ‘good growth’.
Businesses are being queried on whether they actually drive good growth
The systemic challenges facing our planet and people today call for innovative solutions to be implemented in more scalable and more sustainable ways than traditional aid-driven models. We see a growing convergence of the public, private and non-profit sectors towards shared approaches to tackle pressing social and development issues. Stakeholders are taking front and center stage and questioning companies over the extent to which they factor environmental, social and governance (ESG) and human rights issues into their business decisions and whether they spread social and economic opportunities in the countries where they operate. In short, businesses are being queried on whether they actually drive “good growth”.
Inclusive business as a gateway to development
In this context, “inclusive business” is gathering momentum. Defined as profitable core business activity that also tangibly expands opportunities for the poor and disadvantaged in developing countries, inclusive business represents a shift away from the purely philanthropic narrative of corporate social responsibility. It is not an “add-on”, but a way of doing business. By engaging the poor as employees, suppliers, distributors, consumers and innovators, inclusive business provides an opportunity to integrate a marginalized and underserved segment of the population into the formal economy. Commonly referred to as the “base of the pyramid” (BoP), this segment often lacks access to goods, services and livelihood opportunities – a gap that inclusive business models could bridge in a commercially viable way. Business models that boost private sector development in low-income countries are increasingly been explored also as starting points to transfer skills and build resilient supply chains.
When business favors development: Total impact measurement and management
But how can one weigh, monetize and track the impacts of inclusive business? How can policymakers, investors and businesses measure the extent to which a certain business model favors development? The recently-launched Dutch Good Growth Fund (DGGF) is based on the notion that understanding and measuring the impact of investment in low-income countries is a prerequisite to good growth. PwC (together with Triple Jump) is responsible for managing the financing of local SMEs in up to 66 selected countries through investing in intermediary funds. The methodology used for monitoring the actual impact of investments under this track is the Total Impact Measurement and Management (TIMM). It provides a holistic understanding of the social, fiscal, environmental and economic impacts of a business’ activities. It allows to measure and compare the trade-offs between different options and take better strategy decisions. By clearly quantifying and showing what their impact is, and who it affects, businesses can shape a new, more vibrant conversation with their stakeholders and ultimately deliver “good growth”. Investors and policymakers can see what trade-offs are needed to leverage the full potential of business for development. In a case study on a brewer in Africa, the methodology was used to measure and value the financial and social benefits of (a) importing barley or (b) growing an alternative crop locally. It puts a value to what normally would be a set of qualitative overlays to financial analysis, and helps management identify key ESG trade-offs, e.g. “improved societal outcomes from sourcing locally” vs “increased use of an already scarce water resource in those same communities”. Total impact measurement and management brings a new perspective, one in which management can identify different scenarios of impact and reach, take more informed decisions and communicate them in a more transparent way.
Governments apply many different instruments to promote development, including financial incentives such as Dutch DGGF. Governments pursuing good growth could well investigate how total impact measurement and management can complement their policy instruments. Its uptake brings a new shared language to the fore, and drives a deeper exploration of the private sector’s actual and potential contribution to development.
Inclusive business is an exciting step forward that deserves a place in tomorrow’s development agenda. Measuring and managing its total impact will allow it to move beyond broad-brush or anecdotal evidence. Policy makers could well investigate how alignment to impact measurement and management can strengthen their instruments.
Robert van der Laan, Partner Sustainability & Responsible Governance, PwC
Anna Bulzomi, Senior Associate Sustainability & Responsible Governance, PwC
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