Fostering sustainability is at the forefront of the world development agenda. For a long time, corporations have taken part in facilitating sustainable development by engaging in corporate social responsibility (CSR) initiatives. The companies are, however, faced with an ocean of need when it comes to fulfilling their societal obligations and they often find that CSR cannot adequately rise up to meet these challenges.
Corporations have now realized that they can yield social, financial and strategic returns by investing in inclusive entrepreneurial ventures targeted at individuals at the base of the pyramid (BoP) in what is known as corporate impact venturing.
The largest problem that social entrepreneurs face is accessing adequate financing to enable them to develop and grow their businesses. Traditional financial models such as donations and grants often serve to stultify their development. Most start-ups also lack managerial and business expertise and adequate scalability.
Corporations, on the other hand, lack insight on low-income markets. They often have rigid and bureaucratic structures in place, expect high returns on investment and are generally risk-averse. These are all qualities that make it difficult for them to invest in BoP Markets.
Corporations and social entrepreneurs are quickly realizing that numerous benefits can be realized from working together.
When a corporation invests in a social business, it gains a foothold in low-income markets and increases its brand visibility with BoP individuals. In addition, it acquires valuable market insights and is able to gain access to top local talent. Inclusive businesses gain much-needed capital, scalability and business acumen required to firmly establish their enterprises.
A report by Endeva highlights the three different models that are currently being utilized by corporations engaged in corporate impact venturing: direct investments, third-party funds and self-managed funds.
Direct investments involve organizations funding inclusive businesses from primary accounts, with the investment amount being listed on the company’s annual balance sheet. Self-managed funds involve corporations setting up separate investment companies, while corporates that use the third party method for corporate impact venturing are limited partners in third party funds such as venture philanthropy funds.
This alliance of convenience is not only a win-win for both corporates and inclusive businesses. The biggest beneficiaries are the low-income earners to whom the products and services are geared.
Husk Power Systems is an innovative, inclusive business that was founded by Gyanesh Pandey, Manoj Sinha, Ratnesh Yadav and Charles Ransler in the Indian State of Bihar. The organization provides off-grid energy solutions for people living in rural areas in India and East Africa. They do this by designing, installing and operating small power plants that convert agricultural waste into electricity.
The venture has managed to install more than 80 mini-power plants which provide energy to over 200,000 people in 300 villages in India and 6 villages in Uganda and Tanzania.
The growth that Husk Power Systems has achieved since its inception has been fueled by its strategic partnership with the Shell Foundation. The foundation has provided the start-up with funding, recruitment supervision and research and development guidance.
The Shell Foundation was founded in 2000 by the multinational corporation Royal Dutch Shell as part of its sustainability strategy to deliver environmental and social impact.
“At a time when many companies report that they are stuck on their ascent to sustainability, engaging in venturing through impact investing is a powerful opportunity to achieve results of consequence for both business and society,” says Dr. Maximillian Martin, the founder of Impact Economy. “Companies can become profit-making shapers in a changing world—rendering their businesses future proof while delivering positive impact.”
– June Samo
Sources: Business Fights Poverty, HBR, Husk Power Systems, Impact Economy, Shell Foundation, The Guardian, The Practitioner Hub 1, The Practitioner Hub 2
Photo: Flickr