Inclusive Business - More Effective For Development Than CSR
From civic engagement and monetary donations to corporate social responsibility activities, corporations have assumed a more active role in the fight against poverty, appropriating a portion of their operational expenses to programs that benefit the people. But in the current situation, is CSR enough for the private sector to fully realize its potential to fast-track the world’s development progress?
The Asian Development Bank (ADB) believes that firms with an “inclusive business” approach can offer much more than widely-practiced CSR activities — two different approaches that, if well managed, could really make a difference in achieving development goals, with the former anchoring the latter.
According to Armin Bauer, principal economist of ADB, CSR was initially perceived as the government’s responsibility only, but now it’s also the work of the private sector. “Inclusive business is not just about corporate social responsibility or about giving a scholarship here and there to a poor person. That’s not what we’re talking about”, he said. “What we’re talking about is making poverty reduction the core principle of the business or the company, not something on the sidelines.”
In the Philippines alone, about 20,000 companies have existing CSR programs, while select universities and colleges also offer CSR courses and certificates. Out of all of these, however, only 0.5 percent or about 100 firms are considered “inclusive” businesses, and even then banks would only be willing to finance 20.
Inclusive business, according to Bauer, offers much more because development goals and poverty reduction become the core principles of the firm compared to CSR, where only a fraction of the companies’ operational budget is allotted. By making poverty reduction the main objective of the whole business operations, achieving development goals becomes more sustainable and inclusive. “Investors are increasingly interested in putting their money into things that also have societal value. Companies are also increasingly interested to go beyond CSR to create shared value for their business bottom line and for the society,” he explained.
The situation is no different in Africa. The importance of the private sector engagement in international development has been stressed countless times. In a recent report, the World Bank detailed its strategy for private firms to fill in the expertise resources and gap in certain development projects…..and the European Union admits that only the business community can help unlock Africa’s energy potential.
Experts insist the sector’s true potential has not yet been realized. So how do we attain that goal?
For Bauer, the main challenge is not necessarily the lack of funding but the lack of businesses willing to try the inclusive business approach.
“The more challenging question is how many businesses are coming up with viable inclusive business proposals. If there are proposals, there is also money to invest in,” he said. “The bottlenecks are the inclusive business proposals, not the financing.”
Bauer further explained that one of the reasons why there is a lack of good firms willing to assume the inclusive business approach is the risk it poses to the viability of the business itself by putting the goal of “money behind.” This issue of viability also becomes a problem when prospective companies willing to do the inclusive business approach don’t attract enough funding — especially from private banks — because of the non-profitability risk.
Other roadblocks include the absence of a business and investment climate necessary for start-up operations of countries in the region, lack of technical knowledge on how to successfully run an inclusive business, insufficient expertise and capacity both from the government (as regulators) and the private sector community, as well as informing all stakeholders of what inclusive business really means.
“There is limited public knowledge and understanding about inclusive business,” Bauer said, explaining that this lack of understanding contributes to the main issue which is the lack of good inclusive business plans despite the potential of the market living under the poverty line.