21 December 2006, Daniel Owen / The World Bank
This report explores areas of convergence between private sector corporate social responsibility (CSR) and related corporate citizenship sustainability initiatives and community-driven development (CDD), with a view to identifying opportunities to leverage corporate investment for the benefit of CDD programs. CDD practitioners have long anticipated a role for the private sector, yet the opportunity remains relatively unexamined and the extent of private sector engagement in CDD programs overall relatively limited.
Meanwhile, the last decade has witnessed expanded awareness among companies, especially multinational corporations (MNCs), of their responsibilities toward the communities they impact, elaborated in the concept of CSR and allied notions such as a Social License to Operate (SLTO). Some companies have experienced local and global backlash when they have neglected those responsibilities. The business case for investing in development, with mutual benefits accruing when communities become development partners rather than passive recipients of philanthropy, has also received a wider hearing. As a result, more companies have explored options for engagement with communities or examined the possibilities of cross-sectoral partnerships by involving a spectrum of stakeholders including development agencies, civil society organizations and the public sector.
This report notes opportunities and constraints in engaging the private sector in demand-driven community development programs. The contribution from the private sector can be much broader than financial support, and encompass technical and managerial expertise, skill transfers and jobs, access to markets and business linkages. At the same time, the motivations for the private sector to invest in communities vary between companies and industries. These drivers need to be taken into account and to the maximum extent possible, core business drivers and community development objectives should be aligned.
Results of private sector association in community development have been mixed, with few private-sector initiated projects achieving the promise of a comprehensive CDD approach. Shortcomings include companies lack of development expertise, reluctance to cede control of initiatives, imbalances in the power and level of organization between companies and communities, unsustainability of funding, and lack of capacity on the part of local actors, ranging from ineffective community based organizations (CBOs) to weak local government. Often times, considerable investment is required by way of facilitation to ascertain how communities can leverage their asset bases vis the private sector and vice versa.
This report depicts two typologies to describe development partnerships between the private sector and communities: the Social Investment model describes that which has been a standard in approaches to community development; the Economic Linkages model associates development projects more closely with the business drivers of the private sector entity.
In the Social Investment model, company funding is applied to investments or programs that seek to improve the general welfare of the community. Funds may go towards health, infrastructure, education, or various forms of capacity building. Social Investment can be channeled through either of two basic funding mechanisms: (i) Social Funds or Community Foundations to which companies contribute financially, and; (ii) direct investment, whereby companies directly fund a community development program.
Social Funds to a certain extent make for a hands-off investment strategy that can seem indistinguishable from philanthropic giving and does not necessarily institutionalize the transfer of non-financial assets between the private sector and target communities. In the Economic Linkages model, development initiatives aim to integrate communities into the business activity of the private enterprise. This may include job training, direct employment, technical skills training, building microfinance institutions, capital formation, or developing new supply bases and creating supply chain linkages. The strengthening of institutions of the poor that can manage relationships with the private sector is crucial to the success and sustainability of the Economic Linkages model.
This report suggests that the Economic Linkages model, whereby companies and communities become both business and development partners, presents compelling opportunities for CDD. Case studies such as the Andhra Pradesh District Poverty Initiatives Project (APDPIP) indicate the models potential to operate even among the very poor, stimulating poverty reduction. Success, however, depends on a host of mutually supporting factors, such as accountability to the community, transparent operation, an enabling environment created by government, institutions that support communities fair access to the marketplace, and access to capital.
