Why should a business with a principal duty to its own commercial outcomes, invest in something like inclusive business?

  • Firstly, there is an opportunity to achieve shared economic advancement. Inclusive business is not about charitable donations, it is about the exploration of viable commercial arrangements which have an ROI.
  • Secondly, it is about reducing your exposure to risk, through securing your supply chain and protecting it from market forces
  • And finally, there’s a necessity to take a role as a business leader and have a strong reputation in the market. There are opportunities to be reputationally perceived as a leader in sustainability, which has benefits to sales with the building of greater trust.

Industries are using inclusive business mindset to build differentiated products, explore new markets and secure a sustainable supply chain. The following outlines the business case inclusive business.

Financial

Businesses around the world are finding innovative ways to work with low-income people living in developing countries, working with them as suppliers, distributors, retailers, or customers. Inclusive business approaches provide business the opportunity to understand the dynamics of the market from a holistic perspective and incorporate practices that lead to economic benefits to the business’ bottom line.

Mounting evidence [1] shows that sustainable companies deliver significant positive financial performance, and investors are beginning to value them more highly.  According to the 2015 EY Global Institutional Investor Survey, investors “… more than ever, are using nonfinancial performance to draw conclusions on value and better inform and underpin their decisions.”

At the end of the day, inclusive business models that can demonstrate a financial return to the business, or is at least cost neutral, are far more likely to gather executive and shareholder support than programs that deliver social impact alone.  Such models are also far more resilient during periods of market downturns and corporate distress.  For most companies, the internal case for inclusive business has traditionally been rooted in either:

1) the marketing function and in revenue protection or growth arguments (e.g., improved sales to “green” consumer segments, brand value improvement, consumer/customer demand for certification) or

2) in the risk management function, sometimes disguised as CSR, in terms of licence to operate, meeting legal requirements, and mitigation against NGO and/or market backlash (e.g., child labour, environmental harm).

While the marketing and risk management perspectives are of course valid contributions to the overall business case, we see the opportunities for creating shared value going beyond these to encompass both the revenue and cost structures to determine how profitability can be improved for all members of the supply chain to build both shareholder and societal value. However, this long-term value creation must be translated into a clear return-on-investment case, including a net present value analysis, to help management decide on the relative attractiveness of inclusive business investments relative to other pressing needs and justifying these decisions with shareholders.

Risk management

The food system is faced with several challenges related to innovation, demand, supply and regulation. A step change is needed to meet future demand, given that growth rates in agriculture yields have been declining and are currently below world population growth with crop yields approaching theoretical maximums in developed countries.   Climate change, water scarcity, and poor labour conditions in much of the world increases the risk exposure for businesses. McKinsey reports that the value at stake from sustainability concerns can be as a high as 70% of earnings before interest, taxes, depreciation and amortisation.

Reputation and Lead

Business can be cynical about consumer interest in sustainable products – especially where willingness-to-pay is concerned.  However, a shift is occurring in the minds of consumers – it is less about ‘me’ and more about ‘we’ in the decision-making processes, especially with the millennials. An Accenture study found that we expect more transparency, honesty, and tangible global impact from businesses.  Being a leader in sustainability will increasingly have bottom line impact in the years to come.

The other consideration is what happens if you do not ensure your value chain meets accepted standards and a crisis occurs. Breakfast and snacking occasions have high switching opportunities, as Nestlé discovered with the Greenpeace Orangutan campaign. A sustainability risk is potentially big when the whole world can find out about it overnight.  Once a reputation is lost, building that trust can take several years. Demonstrating leadership to the market, as Edelman’s 2017 Trust Barometer highlights, is an important asset in current times, and businesses “must step outside of their traditional roles and work toward a new, more inclusive operating model that puts people …at the centre of everything they do.”

Businesses are working within a complex and unprecedented brew of social, environmental, market, political and technological forces. These require sophisticated, sustainability-based management. Yet businesses are often reluctant to place sustainability as a key part of their strategy in the belief that the costs outweigh the benefits. For those looking for new potential approaches, perhaps inclusive business is the answer.

Learn more on what is Inclusive Business here.


[1]  Arabesque and University of Oxford reviewed the academic literature on sustainability and corporate performance and found that 90% of 200 studies analysed conclude that good ESG standards lower the cost of capital; 88% show that good ESG practices result in better operational performance; and 80% show that stock price performance is positively correlated with good sustainability practices.