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Creating Shared Value at Nestlé

Examples of Nestlé’s commitment to sustainability abound — and they’re impressive. So much so that other business leaders have been applauding. For instance, Douglas R. Conant, the former CEO of Campbell Soup Company, told us in an interview that “Nestlé has got an amazing agenda on social responsibility.” And earlier this year, Andy Wales, senior vice president of sustainable development at SABMiller, told us in an interview that “In the last five years, a number of food and beverage companies — the leaders include Coca Cola, SABMiller, and Nestlé — have started to raise the risks of water scarcity with leaders of global institutions and national political leaders.”

Meanwhile, MIT Sloan Management Review’s 2012 Sustainability & Innovation Global Executive Study and Research Project noted that “Examples of successful sustainability-driven innovation fall along a rich spectrum — from doing things differently to doing entirely different things” and that Nestlé, for instance, “developed a cost model innovation in a novel point in its value chain. The company realized how to use coffee grounds — a by-product of its manufacturing process — to help power its factories.”

No question, Nestlé is at the forefront of the worldwide movement to incorporate sustainability into overall company strategy. And Hans Joehr, Nestlé’s corporate head of agriculture, has been at the heart of the global group’s efforts to promote sustainable agriculture for the past decade. Joehr — who is a co-founder, former president and now honorary president of the SAI Platform (the sustainable agriculture initiative of the food industry) — is responsible for providing technical and strategic leadership for Nestlé’s worldwide agricultural material supply chain, a job he’s held for 12 years.

One of the ways Nestlé accomplishes its goals is by providing agricultural “extension services” for the hundreds of thousands of rural farmers who are its suppliers. “We source raw materials such as cocoa, coffee and milk from more than 680,000 farmers worldwide,” Joehr wrote in a blog post last fall. “Sometimes, a lack of investment in the social and agricultural infrastructure in a region or country can make it difficult for farmers to supply us with high quality, safe and sustainable-grown crops.” So Nestlé provides “people with the access to knowledge and information they need to increase productivity and establish sustainable production systems.” It’s all part of the company’s Creating Shared Value (CSV) approach to business, a process that “requires us to look for ways to create value for our shareholders while also ensuring we create value for the communities in which we operate,” Joehr wrote.

In a conversation with MIT Sloan Management Review’s Nina Kruschwitz, Joehr explains the initial impetus behind the SAI Platform, the methodology of looking at the production systems in agriculture and the wisdom of not having a single sustainability officer.

Nestlé has become so prominent in the food industry for its work around sustainability over the last decade, and you have been in your role that entire time. Tell us about the transformation.

We started 12 years ago with our sustainable agriculture initiative at Nestlé, and then two years later we launched this sustainable agriculture initiative platform within the food industry, SAI Platform, which has become the most recognized industry initiative on sustainable sourcing and sustainable agriculture worldwide. There are about 14 members. Do you know about that story?

No. I’d love to hear more about that.

This is one of the best well-kept secrets, that the way we probably impact on sustainable sourcing and rural development has been ten times bigger than on all the niche market approaches, like organic, or fair trade, or you name it.

SAI Platform is mainly a very simple thing, because everything that is quite simple really creates an impact. All the very complicated things, people do not understand over the long term, and then there is no traction and no continuity.

Instead, SAI Platform was created with a very simple idea of putting principles and practices together on sustainable agriculture for certain crops in order to address environmental, societal and economical topics around agriculture production systems.

So we have put these principles and practices together, and now we are sharing this in a pre-competitive way with all these member companies. And in fact, we started that together with Danone and Unilever exactly 10 years ago in May 2003. Nowadays, we have all the confidence, given that all our principles and practices are field-tested and are continuously being improved. And it’s not about labels and certification systems and schemes only. It’s about real practices.

Can you take us back 10 years — what prompted the formation of that organization? What problem were you trying to address by forming this platform?

We all have the same problems of quality, of scarcity, of cross-border issues from child labor to pesticide residues to contaminants. A lot of things are linked to agriculture practices that may end up, at the end of the day, in your raw materials and finally in your branded product.

So we had a number of issues that were hitting everybody in a negative way. We said, “well, we have an exposure to the same topics, what do we do?” Instead of each one of us going out and trying to fix it, we looked at whether there was something we could do together, on a voluntary basis. And then we looked into these principles and practices and procedures.

Were the principles and practices developed by Nestlé, or did they evolve when you partnered with other companies?

No, no, no. That is, you develop these kinds of things in working groups, where you invite a big range of stakeholders. This is not a Nestlé-only approach. We are not the rule-setters. We initiate, we let people sit around the table and then discuss, What are the issues? What are the topics, what do we do now, and what is next? We all go forward in a kind of continuous improvement process.

Do you know about the methodology of HACCP analysis?

No; tell us what that is.

HACCP analysis on food safety. It stands for Hazard Analysis & Critical Control Points. [The U.S. Food and Drug Administration defines HACCP as “a management system in which food safety is addressed through the analysis and control of biological, chemical, and physical hazards from raw material production, procurement and handling, to manufacturing, distribution and consumption of the finished product.”]

There is a lot of methodology in HACCP that comes out of total quality management that has been developed by NASA, because you want to make sure that you really have top quality if you send someone to the moon, yeah? These technologies have been used in food safety and quality assurance, by mapping out what are the risks, and what are opportunities.

And this is exactly what we’re doing. We’re looking at the production system in agriculture and we see where are the risks, for instance, on land use, on pollution, on waste and biodiversity, or on doing something wrong with natural resources.

Once you have mapped it out, this is like going to see the doctor and he does a checkup. You find out where the critical control points are, and you start to address these critical control points in a way that you have an action for doing each point better. So you eliminate the worst-case scenarios and you go into striving for the better scenarios.

This is what we call sustainable intensification of agricultural production systems. It’s a very systematic process approach to drive sustainable agriculture. At Nestlé, we do that with many hundreds of thousands of farmers.

Can you give us an example?

I wrote about this on a blog post last fall, and you can get more details there, but the summary is that one of our partners, iDE Cambodia, trains rural business people to become Farmer Business Advisors. Those advisors then work with small-scale farmers and help spread a better understanding of good farming practices.

Our investment helped iDE Cambodia nearly double the number of advisors, so that now more than 100 are working with about 15,000 farmers. The program is being extended to Mozambique and Ghana. For this work, iDE Cambodia was the winner of our first Nestlé Prize in Creating Shared Value.

That’s great. Let me ask one final question about how Nestlé organizes its sustainability practices. Some companies have a vice president of sustainability, some have advisory boards, some have a CEO who drives the efforts. What’s the big picture for Nestlé?

We have sustainability in all of our operations. We don’t even have a sustainability officer. We believe that you can’t make good progress by using a ‘doctor’ prescribing to everyone what they should do.

This is where this approach of Creating Shared Value really gets highlighted. We created this approach together with Michael Porter. And creating shared value is not sharing created value. I say that because creating shared value, to our understanding, is the next step of corporate social responsibility approaches. [Details about Nestlé’s vision for Creating Shared Value are online]

For many companies that think about corporate social responsibility, when something goes wrong, a lot of people become extremely nervous and say, “okay, who is going to fix it?” And then they write a check to the next NGO to fix it.

We said we do not want to have this. If something goes wrong in our company, then we fix it ourselves. So we have to embed sustainability as a clear role model of what we call the functional leadership of our organization. When we need to, we make a change in operations. That’s how we got to talking about sustainable sourcing and working with the farmers to get the raw materials into our supply chains to feed the factories.

We really make it happen and put it into the KPIs [key performance indicators] of everybody, from the shop floor to the top. It means that you have to engage with many, many, many people and you cannot just hire one guy called a sustainability officer.