G20 Leaders welcome launch of platform on inclusive business

Leaders at the G20 Summit in Hangzhou, China emphasized the need for sustainable and inclusive growth, and welcomed the launch of the G20 Global Platform on Inclusive Business. The platform is a global partnership that seeks to accelerate the adoption of inclusive business policies and programs.

“We will work to ensure that our economic growth serves the needs of everyone and benefits all countries and all people including in particular women, youth and disadvantaged groups, generating more quality jobs, addressing inequalities and eradicating poverty so that no one is left behind,” the G20 leaders said in their year-end Communiqué.

“We acknowledge the important role of inclusive business in development, and welcome the establishment of the G20 Global Platform on Inclusive Business and its future actions. We welcome the G20 Inclusive Business Report for the 2016 Summit.”

Inclusive businesses directly reach people living at the base of the economic pyramid. The G20’s latest inclusive business report highlights inclusive business’ important role in contributing to the 2030 Agenda by reducing poverty, shrinking inequality, and contributing to sustainable economic growth. It identifies the challenges facing inclusive businesses and outlines possibilities for future action by the G20.

“The G20’s leadership on inclusive business has been powerful. The launch of the Platform on Inclusive Business and the high level of engagement by G20 members to share their experience in supporting inclusive business brings a much-needed focus on the policy challenges that these companies face in trying to reach people at the base of the pyramid,” said Eriko Ishikawa, Global Head of the Inclusive Business Team at International Finance Corporation (IFC), a member of the World Bank Group.

“Inclusive business approaches can contribute greatly towards the Sustainable Development Goals. The G20 is clearly supporting this potential with their leaders’ statement and endorsement of the Global Platform on Inclusive Business, giving policy makers a platform to learn from good practices and create enabling environments for pro-poor and pro-business solutions,” said Magdy Martínez-Solimán, UNDP Assistant Administrator and Director of Bureau for Policy and Programme Support.

As part of its work on inclusive business in 2016, the G20 conducted research on how specific policy instruments support inclusive business and ran a series of workshops to help policymakers learn from each other’s experiences on the topic. The G20 also invited companies to voice their opinions on inclusive business policy challenges. All of the results of the 2016 activities, including a series of country case studies, are posted on the G20 Global Platform on Inclusive Business website. 

The G20’s efforts on inclusive business are jointly supported by the World Bank Group and the United Nations Development Programme (UNDP).

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G20 Inclusive Business Report for the 2016 Summit

Leaders at the G20 Leaders Summit in Antalya, Turkey issued a call to action to public and private sector representatives, international organizations and civil society to advance the ability of businesses around the world to integrate low-income people into their value chains.

The following report was prepared for the G20 Leaders Summit held in Hangzhou, China on 4-5 September 2016.

1. Inclusive business is at the core of the G20 Agenda

Inclusive businesses – companies that work with people living at the base of the economic pyramid (BOP) – can make important, multi-dimensional contributions to sustainable development. By connecting low-income segments of the population with markets, inclusive businesses contribute to strong, sustainable, inclusive, and balanced economic growth, and have the potential to support G20 objectives, such as boosting employment and quality and decent jobs, including for women and youth.

Inclusive businesses were characterized in the G20 Inclusive Business Framework as those that “provide goods, services, and livelihoods on a commercially viable basis, either at scale or scalable, to people living at the base of the economic pyramid, making them part of the value chain of companies´core business as suppliers, distributors, retailers, or customers.” Inclusive Business should be socially and environmentally sound. These businesses can be classified as those that integrate the BOP into their core business strategy (inclusive business models), those for whom the low-income segment is part of but not central to their model (inclusive business activities), and other entities with a mission to maximize the social return (social enterprise initiatives). There are common elements to the three approaches.

These businesses can promote sustainable development in all its dimensions – economic, social, and environmental. They can improve access to affordable quality products and services, enhance productivity and resource efficiency, and/or generate new income – through decent work and livelihood opportunities – across the BOP. In short, they can enable inclusive growth and advance sustainable development.

This Summit Report builds on the G20 Leaders’ Call issued under the Turkish G20 Presidency and draws from the G20 Global Platform on Inclusive Business (GPIB), a global partnership launched in April 2016 in Nanjing, China, and currently implemented by the United Nations Development Programme (UNDP) and the World Bank Group. GPIB’s goal is to provide support to policymakers and accelerate the adoption of inclusive business policies and programs. Primary activities so far have included policy research, country case studies, company surveys, and policymaker workshops.

Findings discussed here include: how inclusive business can support the Sustainable Development Goals established in the 2030 Agenda; the obstacles for businesses looking to work with the base of the economic pyramid; and policy and financing approaches to fostering inclusive business.

2. Inclusive business and the 2030 Agenda

The 2030 Agenda for Sustainable Development, which includes the Sustainable Development Goals (SDGs), lays out universal and ambitious aspirations to “transform our world” towards economic, social, and environmental sustainability. The engagement of the private sector is critical to achieving the SDGs. The 2030 Agenda calls on businesses ranging from microenterprises to multinational corporations “to apply their creativity and innovation to solving sustainable development challenges.”

While all businesses pursue the generation of revenue and seek to grow in new markets, many businesses also provide social benefits such as strengthening stakeholder and community relations and contributing to stable markets and societies.

Inclusive businesses, however, go a step further by integrating low-income segments of the population into their business strategies. The impact of these businesses goes beyond the usual private sector contributions to development – creating jobs, hiring and training individuals, and generating government revenue through taxes. Inclusive businesses create decent work and livelihood opportunities for men and women at the base of the economic pyramid and/or provide them with quality and affordable goods and services they may not otherwise have access to, including by integrating those people into their value chains.

Thus, inclusive businesses can make an important contribution to the 2030 Agenda, by reducing poverty (enhancing livelihoods and access to goods and services), shrinking inequality (not just of income or wealth, but of access to services, goods, and resources), and contributing to sustainable economic growth as well as a global sustainable development partnership (by including individuals at the base of the economic pyramid in their profitable business ventures, as suppliers, distributors, or customers). The G20 has clearly recognized the potential contribution of inclusive business in its G20 Action Plan on 2030 Agenda for Sustainable Development.

Depending on the business’ specific engagement, inclusive businesses may additionally contribute to SDGs. For example, some inclusive businesses are addressing the potential of 2.5 billion low-income, smallholder farmers and their families who produce nearly 70 percent of food consumed worldwide on 60 percent of the planet's arable land. Their business models include directly sourcing products from smallholder farmers; providing critical inputs and training; improving distribution in deprived areas; providing mobile-enabled services; and becoming aggregators by organizing the supply from smallholders and cooperatives to large buyers while providing credit, storage, and transport to help farmers improve yields and guarantee a more stable supply.

Other inclusive businesses are providing “last-mile” infrastructure to underserved communities, such as water kiosks in slums and other off-grid utilities. There is a large market of low-income people who invest some $710 billion a year in housing, modern energy services, communications, and water services. Inclusive businesses seek, for example, to leverage flexible pay-per-use schemes that allow access to services depending on individual economic situations and household liquidity.

3. Obstacles to inclusive business

A survey conducted for the G20 Global Platform on Inclusive Business found that working with the base of the economic pyramid poses several challenges.

Lack of financing affects inclusive businesses, as well as the BOP in their value chains. Of all policy areas, access to finance for BOP individuals in the company’s value chain was rated as the biggest obstacle. Financing for the business was rated as a much more difficult obstacle for those companies that had worked with the BOP for less than five years. Of respondents aware of financial incentives to incorporate the BOP in their value chain (37 percent), the majority found those incentives at least somewhat beneficial. Financing was found to be a common issue across all regions.

Inclusive businesses are constrained by the lack of skills among the BOP in their value chain. Few respondents were aware of any government efforts to build BOP capacity through training, while almost all indicated that the lack of government programs in this area is at least somewhat constraining their business. 70% of respondents had their own initiative to increase the capacity of the BOP in their value chain.

Existing government rules related to inclusive business are not always beneficial. Survey results identified four categories of rules and regulations as potential obstacles, two stemming from existing regulation and two calling for new regulation. A third of respondents said they did not find the existing inclusive business rules beneficial. Many respondents suggested that their needs would be best met through sector-specific support such as agricultural, financial, or educational-based inclusive business rules. Further investigation on intermediation between the BOP and enterprises is required.

Lack of research on BOP markets is the most common information-related obstacle. There is still a general lack of data available to companies interested in inclusive business. Where companies were aware of government efforts to share information, such efforts were found to be beneficial. For example, consumer market data enabled inclusive businesses to understand better the preferences of the BOP population.

Policy recommendations vary depending on the approach to inclusive business. When asked what specific policies would be most helpful, overall, over half of respondents pointed to improving access to finance and/or providing financial incentives to businesses. However, financing solutions were suggested by 59 percent of companies identified as having an inclusive business model, 42 percent of those with inclusive business activities, and 38 percent of social enterprise activities. Companies with inclusive business activities provided the most recommendations for rules (42%) and social enterprise initiatives had the most recommendations related to capacity (25%).

4. Policies for inclusive business

How policymakers can take action on inclusive business policy

Government policies supporting inclusive business range from overarching national development plans to sector-specific policies and programs. These policies go further than merely creating a business environment conducive to business – they focus on facilitating, intermediating, and fostering the specific relationship between businesses and the base of the pyramid. They also require participation by a broad range of government ministries and direct engagement with the private sector. Helping inclusive businesses meet their financing needs is central to any government effort or policy reform in this space. Yet a one-size-fits-all policy is inadequate, as the different types of inclusive businesses require distinctly different approaches.

The Global Platform on Inclusive business conducted a series of policymaker workshops and country case studies throughout 2016. (Country case studies include Brazil, Canada, Colombia, France, Germany, Italy, Philippines, Sweden, and the United Kingdom.) This work revealed the importance of a series of factors that are relevant across countries and sectors in designing and implementing policies to support inclusive business. These factors include the following:

• Applying the inclusive business typology

Understanding the distinctions and differences among the various inclusive business approaches and the landscape of inclusive business in the domestic context is essential to any government developing its strategy. That means defining a set of criteria or guidelines and analyzing the sectors in which inclusive businesses operate, their unique needs and challenges, and how they differ from those faced by other businesses.

• Targeting the relevant approach

The impact of policy interventions often depends on the businesses’ approach to working with the BOP. For example, companies that have already reached scale and financial sustainability – through their business models or business activities – can often replicate their existing model or activity into another region or country much more rapidly compared to initiatives that have yet to reach scale. Such companies are more likely to reach a larger number of women and men at the BOP than start-up organizations.

• Empowering a government champion

An advocate within the government is often critical to driving the agenda and building public awareness about inclusive business. This advocate – an influential individual, a small team, or a dedicated agency – is more effective when it can leverage an inter-agency, coordinated, and integrated approach with stakeholders in the inclusive business ecosystem.

• Developing a comprehensive and integrated policy approach

Governments must recognize how inclusive business policies align with and fit into national development plans, anti-poverty efforts, agency-level initiatives, and future plans for the implementation of the Sustainable Development Goals. National development plans and anti-poverty programs can further their principal goals by including policies to foster and facilitate inclusive business. Inclusive business can also be anchored in broader social and economic policy frameworks.

• Avoiding preferential treatment of individual companies

Inclusive business policies should be designed to support broad subsectors, activities or technologies, and should avoid focusing on individual firms. Government programs and support initiatives should be open and accessible to all companies based on open and clearly defined criteria.

• Engaging all relevant actors

A range of different actors can facilitate inclusive businesses. They include – in addition to the government – local financial institutions, development finance institutions, multilateral development banks, private investors, United Nations agencies, development partners, non-profit organizations, civil society, grassroots organizations, cooperatives, research institutions, universities, business intermediaries, and the media. Consistent with the G20 Framework on Inclusive Business, some actors work in multiple areas of the typology covering business models, business activities and social enterprises initiatives (International Finance Corporation, Asian Development Bank, Inter-American Development Bank, UNDP’s Istanbul International Center for Private Sector in Development, Business Call to Action, Inclusive Business Action Network, etc.). Some organizations target a broader agenda faced by global companies, including environmental and social issues and sustainable value chains (Shared Value Initiative, World Business Council for Sustainable Development, etc.). Still the greatest number of actors concentrate solely on social entrepreneurs and impact investment funds (Skoll World Forum on Social Entrepreneurship, Sankalp, Global Initiative on Impact Investment, Rockefeller Foundation, etc.).

How policy instruments are being used to enable and support inclusive business

A growing number of countries around the world are supporting their inclusive businesses through a variety of specific policy instruments. These efforts are driven by the governments’ desire to engage the private sector in order to accelerate the pace of addressing poverty, while creating opportunities to address social and environmental challenges. Government approaches typically focus on:

• Enabling inclusive businesses to enter and operate in low-income markets (i.e. by removing obstructive policies or making information on consumption patterns of the BOP more available)

• Assisting inclusive businesses with the integration of the low-income segment into their value chains (by encouraging companies to source from BOP producers)

• Empowering low-income communities to participate in inclusive business value chains (by building the BOP’s capacity and by providing the BOP with access to finance)

In 2015, the G20 Inclusive Business Framework identified a list of policy instruments available to governments to support inclusive business. These instruments were organized around the core challenges faced by inclusive businesses – rules and regulations, financing, information, and capacity Throughout 2016, the G20 initiative on inclusive business sought to understand better specific policy instruments by: examining design options, identifying common elements and good practices, exploring success factors and prerequisites for effective implementation, recognizing barriers and risks, and providing evidence of effectiveness and results. This effort considered challenge funds, insurance programs, development partnerships, legal forms of business, certification and accreditation, public procurement, and awareness raising initiatives.

The findings reveal extensive government efforts especially in the area of legal frameworks to enable social enterprises to operate more like corporate entities. What is lacking, however, are efforts targeting existing businesses. This applies to both local firms in developing countries as well as multinational corporations with subsidiaries or programs that target the BOP.

The research identified three potential pathways for governments to support inclusive business:

• Establishing and scaling up policies and programs designed specifically for inclusive business

Countries have adopted a range of policy instruments and programs specifically designed to enable inclusive business. At the sector level government programs may facilitate inclusive business by leveraging them to reach the BOP. For example, government-supported insurance schemes can create platforms through which companies can offer insurance services to low-income communities or can pay premiums for BOP customers. Governments can also provide risk-sharing mechanisms or fully or partially subsidized coverage for specific services.

Programs designed to support the growth of inclusive business at the firm level often take the form of a partnership. For example, development partnerships are agreements between public and private-sector entities to pursue a shared set of goals. Ideally, such partnerships are open to any company that meets a defined set of criteria and combine public sector outreach and resources with private sector entrepreneurialism and skills. In addition to the government entity and the lead private company, partners can include subnational governments, donors, business associations, and civil society organizations, among others. A government can increase the appeal of such partnerships by offering incentives such as favorable tax terms, co-financing, infrastructure access, and policy reforms.

• Reorienting existing initiatives to focus them on inclusive business

Many countries have programs to foster business growth, entrepreneurship, or small and medium-size enterprise development. While these programs are sometimes designed with broad objectives in mind, they can be tailored and modified to fit the needs of inclusive business. In some cases, refocusing a program requires rather straight-forward modifications. For instance, enterprise challenge funds or business plan competitions are common programs in many countries to foster entrepreneurship. Their design structure lends them to relatively easy adaptation for inclusive business. Enterprise funds can award grants or subsidies through a competitive process to private-sector organizations that submit solutions with an explicit public or social purpose. These funds can trigger new ideas and innovative solutions, or promote the scale-up of existing solutions. They may focus on one issue, sector, or country, or address a combination.

Priority lending initiatives targeting small and medium-size enterprises are another example of programs that can be adapted to an inclusive business agenda. For example, incorporating clearly defined criteria for inclusiveness in investment and lending can better direct capital toward those businesses that engage the BOP. Furthermore, the development of lending programs in previously underserved markets can support more inclusive growth.

In other cases, adjusting inclusive business policies may be more complex and require a more thorough analysis to determine their appropriateness. For example, some countries have designed procurement policies to allow preferential access to specific segments of the private sector, including small and medium-size enterprises as well as businesses representing disadvantaged groups. In these instances there are several commonly used preferential procurement strategies that could be applied to inclusive businesses. These include setasides that require a certain percentage of government contracts be awarded to inclusive business, bidprice discounts, preferential award criteria, and procurement based on whole cost accounting.

• Considering policies and programs initiated in other countries and adapting them domestically

Due to the nascent nature of inclusive business policies, it is often helpful for emerging market policymakers to look at the experience of other countries. Many advanced economies, for example, have designed initiatives to support businesses with a social mission or those that integrate disadvantaged groups into their value chains. The cooperative movement is another example in case.

For example, in Europe and North America new laws have been enacted to facilitate the creation of social enterprises that go beyond the traditional not-for-profit organizations. The names for this legal form varies by country, but their purpose is similar – establishing a stable conceptual definition that creates and enables a rationale for direct support, financial or otherwise. From the social enterprise’s perspective, a specific legal form can create a clear market differentiation, broad legal protection to directors and officers, differentiated shareholder rights, and greater access to capital than current not-for-profit approaches.

Adopting this concept in emerging economies would require policymakers to consider the context of where such reforms were first developed, where it can be replicated, and the particular approaches to inclusive businesses for which it would be most relevant – since to-date it has been primarily used for the creation of social enterprises.

Despite overall progress in designing and implementing inclusive business policies, the following are just a few of the many questions that require further research and analysis:

• What is the evidence regarding the effectiveness of current inclusive business policies?

• How do different inclusive business policy instruments interact to achieve greater effectiveness?

• What are the success factors for the policymaking process to take root, given that inclusive business policies often cut across established government departments and involve multiple stakeholders?

5. Coordinated support for inclusive business

The G20 can help drive the focus on inclusive business among their membership and can support policymakers in a clear and cohesive manner. They can play a key role in bringing inclusive businesses, governments, development finance institutions, United Nations agencies, and civil society together to promote inclusive business models, activities and social enterprises.

• Building awareness through clear and consistent messaging

Policymakers will be more effective in promoting inclusive business if they are able to convey the basic tenets of the concept to the public and to their colleagues. Country cases and policymaker workshops convened by the G20 Global Platform on Inclusive Business revealed the need to build the knowledge base around inclusive business among stakeholders. This is an effort that must be sustained over time in order to reinforce the message and ensure that the concept is fully understood. Bilateral, international, and member organizations can reinforce this effort, prevent confusion, and focus the discussion by delivering clear and consistent messaging. The G20’s Inclusive Business Framework offers a common definition and framework that other organizations have begun to adopt. Policymakers have also indicated that the typology of inclusive business approaches as laid out in the Framework has helped to build their understanding. At such an early stage of development, consistent messaging is critical, and all G20 members can help deliver a clear and consistent message that the private sector can and must play a role in combatting poverty by adopting an inclusive business approach.

• Encouraging action among members

Country cases show that the G7 (formerly G8) task force on social impact investment spurred members to create their own task forces, agree upon principles, and consider their local context. G20 members can take a similar role with respect to inclusive business, as recommendations from the G20 (and other member-based organizations) can drive countries to take action within their local context. Indeed, the G20 and its members must assume leadership on the issue going forward.

• Driving comprehensive analysis of the inclusive business ecosystem

Comprehensively supporting inclusive business requires consideration of all three approaches to inclusive business. Depending on the local context, certain inclusive business approaches may be further along than others in terms of policy support and awareness.

• Sharing knowledge and developing partnerships

All organizations are able to share knowledge on inclusive business policy and develop partnerships with policymakers. The Global Platform on Inclusive Business survey found that companies believe organizations like the G20 can play an important role in sharing information on BOP markets. There are many new entities vying for resources and a voice on the issue of using inclusive business to alleviate global poverty. The G20 can encourage and help them to share their experience and knowledge.

6. Increasing financing for inclusive business

While it is crucial to have customized and integrated approaches to supporting inclusive businesses, a common challenge for new ventures and across the life cycle of inclusive businesses relates to financing. Helping inclusive businesses meet their financing needs is central to any government effort or policy alteration in this space, and access to appropriate finance is consistently raised as an issue.

A one-size-fits-all financing policy is inadequate, as the different types of inclusive businesses require distinctly different approaches. As noted in Section 3, nearly 60 percent of business for whom the base of the pyramid is central to their strategy said policies that improve financing would be most helpful to them, while only about four in ten businesses taking one of the other two approaches to inclusive businesses had the same view. There is clearly a financing gap that needs to be bridged. In fact, many multinational corporations are able to initially self-fund pilot ventures into inclusive business activities, but some type of grant through challenge funds or feasibility study support can accelerate this process. By contrast, for developing country companies replicating or expanding an inclusive business model, access to long-term funding is limited and many rely on development finance institutions. Policymakers must keep these differences in mind when considering financing options.

The type of support provided will also depend on the lifecycle of the overall company, as well as the scale of the company’s specific inclusive business effort. For example, start-ups and social enterprise initiatives most often require venture capital, returnable capital, or grant funding because of the higher risk profile inherent to such enterprises that have not yet scaled. The Global Platform survey revealed that, of the inclusive businesses that find financing to be the biggest obstacles, two-thirds are those that have been working with the BOP for five years or less.

The Global Platform’s peer-learning events revealed that policymakers are exploring new methods of financing, including various forms of returnable capital, and that evaluating the long-term financial sustainability of the company is a major issue. Closer coordination between government efforts on inclusive business and development finance institutions could facilitate more effective outcomes. Areas of collaboration include:

• Reviewing financial sustainability of early-stage inclusive businesses

Designing appropriate selection criteria for public and private investors and reviewing applicants in ways that increase chances of financial sustainability is critical to securing financial support for inclusive businesses, especially social enterprises that need the most support at the start-up phase. Connecting with those who will likely be next-stage financiers – multilateral development banks, development finance institutions, commercial banks, and investment funds – early on in the process is beneficial and can address the hand-over issue and ease the company’s transition to the next stage of financing post-grant, a phase which often involves scaling a business for a much larger impact.

• Mobilizing additional resources for inclusive businesses

Donor-funded concessional financing can mitigate risk and enable development finance institutions to match it with market-rate financing for all three approaches to inclusive business. Development financing institutions’ ability to crowd-in funding from other investors can also enable them to mobilize capital from other development finance institutions and from additional sources. Global Platform research found that successful examples of inclusive business financing, especially early-stage businesses or activities, are often complemented by some form of technical assistance. Close coordination between financier and technical assistance providers could help to ensure that any advisory support is closely aligned with business needs and will help to accelerate scaling.

• Sharing information and collaboration case studies

Bridging the information gap is key. Policymakers indicated that it would be helpful to look at specific examples of successful collaborations between bilateral agencies and DFIs on inclusive business. They also suggested that many companies are unaware of the full range of financial tools available to them. Bringing together relevant, practical funding information for both companies and government agencies would be of value.

7. Way forward

Producing this report was possible given the G20’s convening power, member support, and contributions by international organizations to highlight policy insights on fostering inclusive business. These insights present a priority selection rather than a comprehensive assessment. As the global community works toward sustainable development and implementing the 2030 Agenda, continuing and expanding upon efforts to facilitate inclusive business can open up a wide range of possibilities. Specifically, the G20 encourages action in the following areas:

• Quick wins in financing

Access to finance for both inclusive businesses and for those at the base of the pyramid are key areas that warrant a priority focus. The G20 supports strengthened consideration of inclusive business as a strategic priority by development financing institutions, both multilateral and bilateral, including through scorecards and other relevant processes. The G20 also requests increased coordination and collaboration, specifically on definitions, data on financial flows, and results measurement.

• Driving the inclusive business ecosystem approach

Building on individual policy lessons, taking a comprehensive ecosystem approach allows governments to harness the synergies of interacting policy instruments while also addressing all stakeholders. The G20 can further develop collective and domestic action on policy, financing and reporting towards inclusive business ecosystems. It can build on the Global Platform on Inclusive Business to this end and promote good examples, including by launching an award.

• Measuring for 2030

Inclusive business has great potential to contribute to the Sustainable Development Goals and the 2030 Agenda processes being spearheaded by the United Nations. G20 supports a better understanding of inclusive business outcome and impact measurement for sustainable development, including reporting successes. This may also comprise harmonization of measurement methodologies, adequate third-party validation as well as integration of private sector contributions in national review process.

• Championing peer learning and action

Advancing inclusive business requires leadership. The G20 encourages member to identify inclusive business champions to coordinate inter-agency collaboration and to fully utilize the GPIB peer-to-peer learning mechanism. The platform can be a powerful tool if members and non-members actively contribute their experiences. The G20 supports its members and non-members to apply the G20 Inclusive Business Framework to their domestic contexts as relevant and in their overseas investments and development cooperation. The G20 also encourages additional research on policy and financing mechanisms, including on global value chains and specific sectors, in order to deepen their understanding on how to support inclusive business environments in their context.