A message to entrepreneurs: this is about missing entire markets, not just marketing opportunities
Could you briefly introduce yourself and the work you are doing at UNDP?
My name is Sahba Sobhani. I am the Global Program Advisor for Private Sector Development and Partnerships at UNDP.
As we know, large parts of the world´s population are excluded from markets, so the focus of our work around the private sector has been making markets work for the poor and inclusive business activities. Other agencies, like the World Bank, have been focused on business environment reforms and competitiveness. Focusing on inclusive markets has been our comparative niche.
How can companies integrate a more holistic view into their business model—one that acknowledges social and environmental aspects?
The poor are strongly dependent on environmental resources for their livelihoods but are also affected by environmental degradation. At the same time, there has been an increase in living standards that leads to resource use. It is very important to link both development and sustainability to the Sustainable Development Goals. And it is not just about carbon credits. It is about new kinds of business models and opportunities that deliver on clean water, energy, sanitation, agribusiness and ecosystem services. In this context, I see the business model opportunity for companies to look at as the nexus of poverty and the environment.
What are the main barriers to adopting a holistic approach? What kind of support do these business models need?
This is not just about missing marketing opportunities. It is not just about a product that is rolled out. This is about missing entire markets. You need to have different incentives. You need to change consumers´ preferences and awareness, to acknowledge, for example using sustainable products. You need governments to help build capacity for the poor in value chains. You need companies that are also willing to look at innovation in their business models. Where you see some success is in local cluster development.
What kind of sectors are more likely to acknowledge environmental challenges while also being socially inclusive?
I think that for solar and renewables it is easier. Niche products, where the nature of the agricultural production is not as resource-intensive. In some cases, environmental efficiency can come at the detriment of inclusion because you need large scale farms with technology, which the smaller farmers don’t have. Those are the tough ones.
You mentioned that consumption patterns are changing. One possible solution is to develop new, innovative products, which are less harmful to the environment. The other way would be to change consumer behaviour. What is your opinion on that?
I think consumer behaviour is only one pillar. We also need to look at the investment side. There is an ESG (Environmental, Social, Governance) movement that applies specific screens to filter out certain investments, but increasingly people are trying to move beyond ESG, towards impact management.
UNDP just partnered on an impact management project—a consortium with a thousand investors. They can take a “deep dive” in terms of the types of portfolios investors have and what kind of impact companies within those portfolios are having. Some companies are pioneering, trying to change their business model or trying to change consumer behaviour. Once enough of the market, about thirty per cent, is on board, you can apply some kind of a regulatory mechanism.
We have seen this historically. For example, in the 1980s and 90s, there were refrigerators with chemicals that had direct impact on the ozone layer. There were some pioneering efforts to get companies to switch, but then the convention was passed, and UNDP played a very important role in the execution of that convention.
We see the same movement with plastics. We are at a tipping point where we realise that it is not just about people bringing their reusable shopping bags. We really need to have some regulatory mechanism that addresses the issue of plastics.
To what extent are environmental and social goals mutually excluding each other? For example, in China there are improved living standards...
I think China is an interesting case, because now that they reached higher living standards, the smog and all the issues are affecting the lives of the upcoming middle class. There are huge physical and health issues. Recently, China has introduced a number of big bans. China is the largest buyer of plastics and waste in the world. Now they basically are not buying anymore, because they don’t want to become the dumping ground. The logic in the trajectory of taking environmental sustainability into account is based on the level of awareness of a society, in terms of where they are at and how it affects their own lives. At the same time, China is the biggest issuer of green bonds. So, these are genuine efforts by the government to address their environmental externalities, which is a big issue.
Take electric cars. Do you think there is a way to develop new environmentally-friendly products that create social benefit?
For this example, you have to look at the bigger picture. In an urban setting in a developing country, you have to come up with practical solutions to address issues. For example, in a place like Mumbai, the solution is not to bring in more Teslas. The idea should be: how do we create a public transportation system or subway infrastructure that enables poor people and others to use it? All of these things have to be thought about in the broader issues of policy decisions and the right set of activities—the markets you want to promote.
In a mature economy like the United States, where public transportation is not the predominant form of transportation and given how big country is, eco-fuel efficiency and all these things should be the major issue of concern. In Bogotá in Colombia, for example, they used the highways to create an express line for buses, because they could not afford to create a subway system. One has to really look at the big picture of the context where one operates. The fiscal reality, the need, and, also, what is practically feasible.
Do you have a message for entrepreneurs that are trying to build inclusive businesses?
The best thing for entrepreneurs to do is to look at your peers and understand the factors that made them successful. I would very much encourage them to look atcase studies (database) of other companies in a similar situation in order to learn from them. Sometimes you realise that maybe you are not in the best position to do “x,” but somebody else is. You have to figure out what your role in a certain market is. This is actually a corporate rule in Western countries and others; that a market entry into an emerging market does not necessarily lead to direct distribution, but partnering with others locally, who have a better sense of what is happening.
The second thing you really have to understand is if you are dealing with missing marketing opportunities or missing markets. It should not take up to three years to roll out a mobile money solution in an emerging market, but if you are doing energy it takes fifty seven years because there are so many market challenges, from infrastructure to capacity, to address. So, you really have to have an understanding of the time horizon you are dealing with. You can learn all this from case studies.
At the moment, the COP24 is taking place in Katowice. Do you have hope regarding the outcome of the summit?
Well, I think the business community has been very much at the forefront of pushing this agenda in recent years. I think it is increasingly seeing issues around climate change as a huge risk to operations, and it is going to be a big driver in trying to change the incentives. I was in Vietnam and I was quite surprised how SMEs and companies were talking about the impacts of climate change. This is becoming very real to a lot of businesses. While historically this has not been the constituency writing the agenda, I think this is hopeful. They will be at the forefront, especially the younger generation and the Millennials, and others, who are leading the future businesses. I do hope for change, regardless of the mechanics of these kinds of negotiations.