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Promoting inclusive business through responsible business. Part 2 – Shared value and community-based development

10 September 2015
by Guest author

Sleek_Garments_Industry_in_GhanaRoel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr). Part 1 is here.

Aside from promoting engagement with suppliers and communities that often include vulnerable populations the OECD Guidelines for Multinational Enterprises also encourage local capacity building through close co-operation with the local community and human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees.[1] While such recommendations do not specifically target base of the pyramid populations, they do promote economic advancement, particularly in the context of industries relying on unskilled labour.

Technology transfer is another important way of creating value and encouraging economic growth. The OECD Guidelines recommend that companies adopt, where practicable, practices that permit the transfer and rapid diffusion of technologies and know-how[2] and that when granting licenses for the use of intellectual property rights enterprises should do so on reasonable terms and conditions and in a manner that contributes to the long term sustainable development of the host country.[3] With regard to technologies that could provide substantial benefits to poor populations (for example medical or agricultural technologies) the expectations of responsible business conduct can have important implications for inclusive growth.

The OECD Guidelines likewise promote community engagement with relevant stakeholders in relation to planning and decision making for projects or other activities that may significantly impact local communities. In the context of large scale agricultural investments and the extractive sector, industries which notoriously posed risks to poor communities in developing countries, the OECD has developed guidance on how to best engage with stakeholders to avoid adverse impacts from operations and to ensure that such activity produces shared value at the level of local communities. [4]

The extractive sector is often pointed to as a sector with limited positive linkages as it is an enclave industry and generally generates minimal direct employment opportunities. However a focus on shared value can ensure that indirect benefits are maximized and that extractive operations are as inclusive as possible. For example an extractive operation could support local enterprises to become competitive, efficient suppliers to the extractive project resulting in a win-win local procurement strategy. Likewise investment in infrastructure that is dual purpose and benefits both the enterprise and local communities can be an important resource for economic growth beyond the lifetime of an extractive operation. Furthermore, as extractive operations usually involve long life-cycles and fixed locations fostering economic opportunities locally can be an important factor in reducing risks and lowering the costs of production.

In the agricultural sector, large agri-food enterprises can benefit from establishing long-term relationships with small-scale farmers thereby supporting their integration into global supply chains. Globally there are around 500 million smallholder farms and agriculture provides income to approximately 70% of the worlds rural poor populations. Stable relationships can improve transparency and traceability and help large enterprises secure access to a reliable supply of agricultural commodities. Such sourcing relationship can also work to enhance capacities of small-scale agricultural producers, share technology and resources, and promote responsible business practices at the base of the supply chain. This is quite important in the case of cocoa whose production is done by numerous smallholders that lack access to finance and technology and for which land productivity should be enhanced to respond to international demand.

No matter what the sector, the link between responsible business practices and inclusive growth is clear. Responsible business conduct encourages continued engagement to improve conditions in high-risk industries which often are the primary employers of populations at the bottom of the pyramid. It encourages capacity development and training which can build skills and encourage advancement of low-skilled workers, technology transfer, and meaningful stakeholder engagement with local communities which may otherwise be disenfranchised. Such approaches not only result in positive impacts for poor communities and workers but also often result in valuable commercial gains. In this regard as inclusive business or inclusive growth continues to be labelled as a policy priority by global leaders, the role of responsible business practices will merit special attention.

Useful links

Global Forum on Responsible Business Conduct

[1] OECD Guidelines for Multinational Enterprises (2011), Chapter II, A.3-4

[2]OECD Guidelines for Multinational Enterprises (2011), Chapter IX. para. 2

[3] OECD Guidelines for Multinational Enterprises (2011), Chapter IX. para. 4

[4] See Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractives Sector, p. 48 (forthcoming, autumn 2015).

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