What is inclusive business anyway?
By Sahba Sobhani, Interim Head of BCtA, Ivan Lukas, Outreach and Membership Lead, BCtA and Markus Dietrich, Director for Asia and Policy, iBAN
The question is, what constitutes truly inclusive businesses? What distinguishes a company from business-as-usual, and how we can identify inclusive businesses to partner with them around a Sustainable Development Goal agenda? Clearly, not all companies that provide goods and services or income opportunities to the poor and low-income population automatically qualify as viable inclusive businesses, meriting financial assistance or partnership.
To answer these questions, Business Call to Action and UNDP, in partnership with iBAN, built upon the G20 Inclusive Business Framework to develop the draft Inclusive Business Operational Guidelines, which will be released this fall. These guidelines can help key stakeholders—including governments wishing to develop enabling policies, investors looking for companies to finance, and even companies themselves interested in self-assessment—to identify inclusive businesses. The guidelines are informed by key learnings from the G20 inclusive business platform and draw on IB characteristics used by leading institutions in the field.
So, what does it take to be called an inclusive business according to these soon-to-be-released guidelines?
As a starting point, here are the eight questions you need to ask:
Interaction with the BoP and Impact: This feature aims to ensure that companies truly integrate the base of the pyramid into their core business in a way that allows individuals at the BoP to escape the poverty trap.
1. Does the organization reach people at the base of the pyramid?
2. What role do people at the base of the pyramid play in the company’s value chain?
3. To what extent are people at the base of the pyramid a focus of the business?
4. Does the business model deliver impact to the base of the pyramid?
Financial Viability: This feature aims to ensure that IBs are commercially viable or are on track to scale and be viable in the future.
5. How profitable and bankable is the business model now or in the future?
Environmental, Social and Governance (ESG): IBs must consider sustainable development in all of its dimensions, including environmental, social, and governance.
6. How does the company perform along ESG criteria?
Additional IB features: While not considered to be defining features of inclusive business, the replication and innovation may be relevant features for the business model or the investor.
7. Is the business model replicable to reach scale and systemic impact?
8. Is the business model innovative in reaching the BoP, providing competitive advantage?
Furthermore, gender equality and employment generation are additional features for you to consider while reviewing the company.
These questions are key broad features one has to analyse to understand whether, and to what extent, a particular company, or a business line within the company’s core business, falls into the category of inclusive business. The features are accompanied by more specific metrics that allow for scoring to quantitatively capture all elements of inclusive business.
The importance of measuring, managing and reporting impact is critical to driving business value and seeking to maximise impact. It should be noted that impact measurement and management should be calibrated to the inclusive business approach taken, for instance whether it is an inclusive business model, inclusive business activity, or a social enterprise initiative. This guide refers to the work of the Impact Management Project (IMP), which aims to develop market norms for assessing and managing impact.
The upcoming draft IB operating Guidelines provide a proposal for a common framework to analyse and define inclusive businesses around the world. The authors hope that these guidelines will help to identify and replicate successful approaches more easily and unlock funding opportunities for companies to make an even bigger impact.