There is a growing recognition in the donor, investment, and corporate community that the way corporates manage environmental, social and governance (ESG) factors—such as carbon emissions, standards on labour, and internal procedures to fight corruption—impacts financial returns and permeates the boundaries of single companies to affect the entire ecosystem they operate within.
There is a compelling case as to why companies with “sustainable” business practices may outperform those without continuously over time. Primarily, sustainable companies might be incorporating a wider range of risks into their business strategy, by reducing exposures to natural hazards or anticipating regulatory changes, thus strengthening risk management. The latter is salient in the climate space, where it appears that potential policy measures to limit carbon emissions are being priced into some markets. Other factors could include operational performance (e.g., more efficient resource management and capacity to attract talent) and market opportunities. Finally, there is mounting evidence that more consumers are willing to pay more for sustainable goods (with the average percentage of most surveys and studies finding that more than 50% are willing).
To unleash a company or development intervention’s full power to help achieve shared goals, it must work with all players in its ecosystem to offer the right incentives, investment, information, and implementation support.
Imani’s has been operating in this space for around 20 years now and there is one thing we have always emphasised in our assessments and helped our clients understand. Ensuring social, economic, and environmental impact and benefits for citizens and the ecosystem an enterprise finds itself in, is an integral part of its risk management strategy and should not be separated out from its commercial calculus. Further, operating in a shared value creation paradigm is vital, as it allows a company to change the way it views risk management. Companies who operate within this paradigm do not only stop the things they don’t want from happening, but they leverage innovation and imagination to form partnerships to bring about positive systemic improvements to their ecosystems which satisfy their shareholders as well as the communities they share the ecosystem with.
This is a great insight you might say, but in practice how do you ensure that these key impacts and benefits are part of the calculus of carrying out a commercial due diligence or developing a commercial growth strategy? Over the years, Imani has learnt how to do this. We do this by combining Market Systems Analysis (MSA), with value and supply chains analysis, and the Sustainable Livelihoods Approach (SLA) to demonstrate the degree of interdependency between the commercial viability and sustainability of a project/business, and its economic, social, and environmental impacts and benefits.
Imani’s repeated focus on sustainable livelihoods within a market system is because people do not recognise a key point: that livelihoods and market structures are not soft factors, they drive billions of dollars of business feasibility and decision-making and in turn influence outcomes for the poor.
Market Systems Analysis
The Market System Approach analyses the strengths, weaknesses and gaps of the supporting functions of a market that allow an effective supply chain (more broadly, value chain). Gaps in supporting functions and governance will hinder the market system. This is seen, for example, in the seaweed industry in Scotland where there is demand for product, but the planning, testing and research are stalling implementation. In such a scenario, ‘fixes’ need to be found to support the first-mover companies finding their way in the market system.
Sustainable Livelihoods Approach
Sustainable livelihoods are the goal of development, but within the SLA approach there needs to be mechanisms and processes that improve livelihoods. Private sector development is one of those processes – and we can see where economic activity supports asset accumulation, and where it threatens asset depletion.
The market process can therefore be nested within the SLA model to show a coherent relationship between the asset stock (the asset pentagon of the individual or group in question) and the market flow. By understanding the interaction between market and actor, we can devise the optimal asset-accumulating industry strategies.
The Integrated Model
Why use our Approach?
Firstly, our approach addresses the problem and opportunity space and ecosystem at all three levels of analysis: the macro (market systems) meso (value chain) and micro (the livelihoods of employees, beneficiaries and citizens).
Secondly, taking seriously the economic, social, and environmental benefits during a due diligence (DD) or growth strategy often attracts the ever increasing amount of impact investment and donor funding being made available to businesses through DFIs.
Thirdly, it goes a long way in establishing a baseline for impact tracking and quantification that does not just report on outputs like number of people trained, but can also be used to report on outcomes like how the beneficiaries quality of life has changed , thus ensuring downward accountability. For example, how the five capitals of a beneficiary have increased, decreased or been unsustainably skewed.
Fourthly, taking this approach dramatically decreases the risk of commercial disruption by the local community and ensures high levels of social license.
Finally, approaching impact and commercial due diligences with this approach allows one to truly understand the resilience of the project being proposed or the business to be invested in. Concomitantly if this approach is used to develop a commercial growth strategy that strategy is more likely to be resilient and result in a resilient organisation, that has an impact at the outcome level not just the output level.
Similarities Between our Approach and the Lean Impact Approach
Our approach aims to tessellate with the Lean Impact approach developed by Ann Chang and applied in USAID’s Develop Innovative Ventures (DIV) approach. We do this by ensuring that at the DD phase or strategy development phase we place emphasis on assessing the likely outcomes of different aspects of the business or project and not just the likely outputs. Additionally, we structure our DDs in a manner which allows them to contribute significantly to an evidence base and in so doing accelerate the proof of concept – fail fast. Furthermore, our DDs suggest priority indicators to monitor impact overtime and these indicators allow for the tracking of numerous impact vectors. These indicators go beyond a standard, number of jobs created, number of women employed approach to assessing, describing, and quantifying impact.
An Example: Assessing the commercial viability and developmental outcomes of a greenfield investment in a food precinct in Lusaka, Zambia
Recently Imani Development conducted a commercial due diligence using this approach for InfraCo Africa Limited (InfraCo) – a well-known infrastructure impact investment firm. The project assessed the commercial feasibility and developmental outcomes of building an agri-services and food precinct in Lusaka, Zambia. The main focus of the work was on how the food precinct will run a fresh food and vegetable market that is replicating the agent commission market model of South Africa, which clears remarkably well and has annual food wastage of less than 1%. Using our approach, we went beyond the standard commercial due diligence findings to develop different SLA scenarios that the food precinct may bring about for small-holder farmers in the areas surrounding Lusaka. These scenarios where then used to inform our assessment of how much shared value the precinct would create, and how through small alterations in the market model or choice of tenants in the food precinct this intervention could increase its developmental outcomes whilst maintaining if not increasing its commercial viability.
Imani’s extensive track record in economic development in Sub-Saharan Africa combined with an appreciation of the commercial calculus at the heart of business, means that our integrated approach excels at finding and assessing whether a proposed business model, project, or business expansion has the right frequency to harmoniously maintain both impact and commercial imperatives. This harmony creates shared value by achieving shared ecosystem goals.
All businesses that have engaged with us in our private sector development portfolio, have received tailored commercial advisory support. This support ranges from critical feasibility assessments of business plans, due-diligence of identified business (managerial, financial, and operational capacity), due diligence for prospective equity investment projects and the development of an appropriate business plan. Get in touch with us or speak to one of our Senior Development Consultants (Andrew Parker, Isla Farley or Chad Capon) about commissioning or collaborating on an feasibility study, impact assessment/due diligence, or developing a shared value creation strategy.
Chad Capon is a Senior Development Consultant at Imani Development. He holds a Masters in International Political Economy from the University of Cape Town (Summa Cum Laude). His interest and expertise lie in the Political Economy of Sub-Saharan Africa (SSA). Chad is particularly interested in the informal sector and regional integration, and the important role they play in SSA’s political, social and economic dynamics. He has experience in community development, migration and trade capacity building projects, and has worked with intergovernmental organizations such as the African Union, SADC, The New Development Bank, various other BRICS institutions and The Foreign Commonwealth Office.