How to move from rhetoric to action on inclusive business

As stakeholders expect more accountability and transparency on environmental, social and governance (ESG) issues, businesses are increasingly recognizing that a sole focus on profitability is not enough for long-term sustainability and competitiveness.

The COVID-19 pandemic has turned the spotlight on the social aspect of ESG like never before, while the proliferation of digital technologies has enabled businesses to address concerns. These include reimagining new ways of engaging customers and the workforce, as well as expanding access to products and services for underserved communities. Together, these factors underpin an imperative for companies — regardless of their size, sector or market — to seriously consider how a shift toward an inclusive business (IB) model can enable them to achieve a greater ESG impact.

Southeast Asia’s huge population of more than 600 million holds much potential for more businesses to adopt the IB model, particularly in countries with higher rural populations. However, many companies may not fully grasp what IBs are and how to build or shift toward such a business model.

To be clear, IBs are organizations that provide livelihood opportunities and close access gaps for people living at the base of the economic pyramid. They do this in commercially and financially self-sustaining ways by focusing on poor and underserved individuals across their value chain as suppliers, service providers, distributors, retailers or customers.

Large organizations are particularly well-positioned to play a leading role in driving inclusiveness in business, given their extensive resources and supply chains. For example, Tony’s Chocolonely, a global chocolate producer in the Netherlands, is committed to operating with a supply chain that is free from illegal child labor and modern slavery. It also uses a transparent BeanTracker system to determine the precise location and quantity of purchased cocoa beans in real time to help maintain supply chain integrity.

It can be more challenging for smaller firms with limited resources, whether in terms of know-how or budget, to shift the needle on inclusiveness. Yet, some smaller companies are “IB natives”, or entrepreneurial businesses that have put inclusiveness at the heart of their value proposition. In Southeast Asia, three winners of the EY Entrepreneur Of The Year awards come to mind as good examples: eFishery, QL Resources Berhad and Hybrid Social Solutions.

QL Resources Berhad is an integrated agribusiness group that extends financial assistance to help fishermen own or modernize their fishing boats. In turn, QL has the right of first refusal for their catch. This arrangement provides QL with a stable source of fish supply for production, while fishermen can be confident of having an established buyer at a fair price. It is a sustainable lifeline for many fishing families.

Hybrid Social Solutions is a social enterprise that provides rural and off-grid communities as well as the underserved remote, on-grid communities in the Philippines with sustainable access to high-quality, affordable solar technologies.

Finally, eFishery is an Indonesian aquaculture intelligence company that leverages Internet of Things technology to offer an end-to-end platform. The platform provides fish and shrimp cultivators with access to feed, funds and customers, while enabling more Indonesians to buy high-quality fish at affordable prices.

In many ways, digital technology has enabled IBs to emerge, serve and thrive. Having said that, in the less developed regions, the risk of a widening digital divide between the haves and have-nots is also real. This in itself is an opportunity for technology-related companies to explore a key issue: how can they create a business that leaves no one behind — and leaves no one offline?

A framework for change

To help accelerate the shift toward inclusive business, EY developed the Inclusive Business Playbook in collaboration with global social impact investor Acumen. The playbook provides a framework to guide companies through their IB transformation and prompts them to reimagine and repurpose operative business elements — including organizational purpose and strategy, customers, workforce, supply chain, governance, ownership and value indicators — to prioritize inclusion and shared prosperity.

For example, the playbook guides businesses in addressing the following key questions:

• Can the business frame its purpose in terms of solving the problems of low-income and marginalized communities, and not creating or profiting from them?
• How can the business prioritize the needs of low-income and marginalized customers when innovating products and services?
• How can procurement practices prioritize the human dignity and well-being of low-income and marginalized people, and the fair distribution of value across the supply chain?

The framework and case studies included in the playbook highlight both the need for transformation and the ability to profitably address the challenges of poverty and inequality. 

The transition toward an IB model will be neither easy nor natural for many companies. Businesses will need a fundamental shift in how they view their purpose and distribute risks and rewards across stakeholders. Essentially, they must make business strategies and operational changes that move away from the traditional shareholder-centric model to a model that values human dignity, with particular attention paid to low-income and marginalized people.

Collaborate for greater impact

For IBs to thrive and be truly impactful, a conducive IB ecosystem involving public-private sector participation and stakeholder collaboration is paramount. This needs to happen at the national level and will be even more potent if it can be achieved regionally.

Governments play a critical part through implementing policies, grants and incentives that encourage the development of IBs, or deter non-inclusive practices. Another key element needed for IBs to flourish is constant education of all stakeholders on why prioritizing inclusion and social impact does not have to conflict with delivering financial returns. Also, what does not get measured often does not get done. Companies will need access to relevant data and the means to measure and monitor financial and social impact performance. This will allow them to track progress and gather insights to help foster growth or address gaps.

The involvement of the broader community of business leaders, financial institutions and investors to drive advocacy, funding access and skills will also be vital. As investors, customers, employees and other stakeholders pay increasing attention to inclusion in businesses, they will differentially support companies that demonstrate inclusive practices. Such pressure should help inspire change in companies.