Two reasons to ignore the business case for sustainability- and what we can do about it

There is a strong business case for sustainable and inclusive business; however, advocates should acknowledge that transitioning to this model will not always come without cost.  There are three ways we can overcome these obstacles.

Everyone is talking about the benefits of sustainable and inclusive business.  In a recent speech, UK Minister for International Development Justine Greening announced that DfID is developing a strategy “for working with businesses interested in responsible investment in developing countries” She has good reason to do so: research demonstrates that inclusive business leads to improved quality of goods, supply chain transparency, product innovation, access to resources, and social legitimacy, and to reduced risk and costs. These gains are all well documented, but they do leave one question unanswered: if inclusive business is good business, why isn’t everybody doing it already?

The case against sustainable business:

There are two reasons.

First, people, and hence businesses, don’t always act according to their own advantage.  Take the business case against gender discrimination: “Just giving women the same access as men to agricultural resources could increase production on women’s farms in developing countries by 20 to 30 percent” according to the Food and Agriculture Organization.  Still, too often, economic benefits are cancelled out by illogical but nonetheless very real prejudice based on gender, ethnicity, or class.

Second, incentives for inclusive and sustainable business can be substantially mitigated by the disincentives. Many of the benefits discussed in the link above are hard to measure directly, for example preferential access to high quality supplies.   The time scale for return on investments in inclusive business is often a long-term one.  The rewards, when they do come, may accrue not just to those who have made investments but also to freeloaders who haven’t.  Finally, economic freeloading means that if there is insufficient buy-in, in the long-term no one wins: the International Institute for Environment and Development recently highlighted such a dilemma in the case of global deforestation due to land-use conversation.   It’s no coincidence that it is many of the biggest players on the global markets that are making the leap (for example Mondaleez, formerly Cadbury-Kraft, has plans to invest US$400 million in West African cocoa production); these are the companies that stand to win the most if inclusive business does work, and to lose the most if it doesn’t.

What we can do about it:

I’m not arguing against the business case for sustainability and inclusivity, but I am arguing that it will not always be as persuasive a tool as advocates would like.  Ironically, to actually achieve sustainable, inclusive, and ultimately more profitable value chains, sometimes advocates may need to ignore the business case and focus on alternative approaches. These could be summarized as the “three Rs”: redistribute, regulate and reward.

·         Redistribute social power:  In their recent paper, “Enhanced Market Practices: Poverty Alleviation for Poor Producers in Developing Countries”,  Doctors Kevin McKague and Christine Oliver of the York University Schulich School of Business draw on work in the Bangladesh dairy sector to show that redistributing social power to the base of the pyramid can enhance market practices.  The paper demonstrates, for example, that greater bargaining power for poor farmers in aggregating milk production and greater knowledge of best practices in animal husbandry contributes to a stronger, less fragmented value chain that benefits all involved.

·         Regulate against bad practice:  Actively enforced legal frameworks at the national and international levels can counteract cases where companies may otherwise benefit (or perceive themselves to benefit) from human rights violations or environmental degradation; here discrimination is again a cogent example.

·         Reward good practice: Governments frequently subsidize activities with broader social benefit: why shouldn’t inclusive business be one of them?  For instance, research has found that extending micro-savings products to the 2.5 billion “unbanked” poor could lead to a US$145 billion injection into the formal economy every year.   Inclusive business will need new, innovative business models, and government support can accelerate their creation.

There is a strong case for sustainable and inclusive business; however, we need to be frank in acknowledging that transitioning to this model will not always come without cost.  In cases where business may favour short-term over long-term gains, redistributing social power, regulating against bad practice, and rewarding best practice can help make the shift happen.  When it does, the business case will be that much better.