Marc Pfitzer charts the emergence of Shared Value as a driving force for innovation and growth in companies determined to create both social and economic value. Like other new approaches to sustainability, it is filling in huge gaps left by earlier experiments with philanthropy and CSR – but is still in its infancy and its potential is vast.
For well over a decade, we’ve searched systematically for practices that lead to extraordinary social impact. Our journey with Shared Value started with the same idea: what were companies doing that truly changed the world?
But it all started with investigating other, ultimately disappointing approaches. Ourdeep dive into corporate philanthropy in 2002, for instance, left us unimpressed. Guided by notions of moral obligations, investments were diluted. We saw many heartfelt projects which had little impact.
There were exceptions, of course. Cisco, with its Network Academies, was on its way to training four million young people in ICT around the world because it powered the global adoption of its technologies. Nestlé’s vast agricultural development programmes similarly enabled it to localise and expand its dairy or coffee businesses. Social constraints to growth were the target, changing conditions unlocked new business
prospects, impact was increased in scale. Then we turned to the sustainability and CSR movements.
Back then, the emphasis was on mitigating the negatives. We loved the principles, but questioned the results. ‘Tick box CSR’ had pushed companies into a multitude of efforts in areas of concern to all. But were emission reductions, water saving efforts, or human rights standards truly making a difference to climate change, water basins or working conditions?
Meanwhile, some truly impressive outcomes did begin to stare us in the face. India’s Jain Irrigation wasn’t trying to save water in manufacturing; it was growing the world’s largest drip irrigation business. Toyota didn’t focus on factory emissions, but led the way in developing clean mobility solutions. Here were truly world-changing developments, promising a thousand times more potential. Unmet needs were the target for product innovation, profits enabled reinvestment and – once again – impact was scaled up.
Creating Social and Economic Value
Shared Value had crystallised. Companies that changed the world found ways to create social and economic value simultaneously. By 2011, we were no longer looking at marginal initiatives but ‘Shared Value companies,’ who defined their purpose around social progress, powered by strong economics.
We sharpened our understanding of the linkage between society and business, and helped codify how Shared Value is created (through products, value chain reconfiguration, and investments in the enabling environment). We understood the enormous potential here: solving social problems profitably meant solutions would not be limited by scarce public or non-profit budgets.
Yet we also grasped that profits are not all equal. Those that advance society create the conditions for future growth. Profit is not the problem, but the nature of profit matters immensely. Shared Value practices are spreading throughout the world in name or form.
A million viewers have followed Michael Porter’s TED talk, thousands of corporate and cross-sector members have joined the Shared Value Initiative, hundreds of companies contribute to the annual Shared Value summit, dozens of firms (some trained by us) in every continent are consulting on Shared Value across the world: why?
Well, because many now understand that simply managing the footprint is not enough.
Shared Value does sit on the shoulders of the sustainability and CSR giants, and the mitigation work is far from over. But it is not sufficient.
For two decades now, a multitude of companies has scored high on CSR ratings. And yet simultaneously, trust in business has crashed and a Living Planet Index has worsened year-on-year.
Where Shared Value is different is in the fact that it gives the moral leader a new set of tools so that their best work on footprint management is just the foundation of a whole new world of impact and value creation.
Another reality is that our social deficits are hurting companies. Mining companies have seen a ten-fold increase in community conflicts in the last decade, and over two-thirds of the discount applied to gold mining companies by investors today, for example, is due to political and social risks.
Globally, companies face another paradox. They can’t access well-trained vocational staff, while massive youth unemployment threatens stability in key markets. Shared Value gives the cost conscious leader guidance for driving both resource and labour productivity in the value chain. And it gives the risk averse a business case for mobilising kindred spirits, both internally and externally, to address local development needs.
And Shared Value opens the field to immense market opportunities, represented by the billions who lack access to proper nutrition, housing, sanitation, health, energy – you name it.
Our recent work in financial services uncovered 2.5 billion “unbanked” people, $2.1 trillion in unmet credit needs for SMEs, and a $3–10 trillion future market opportunity in impact investing.
The reality is, Shared Value represents the most significant opportunity for innovation and growth in business today, as demonstrated by GE in environmental and health technologies, Nestlé or Dow in nutrition, Veolia or Kemira in water treatment, and Intel or Pearson in education technology and content.
Shared Value gives the competitive leader a language for adopting purpose-based strategies, as well as concrete guidance on how to turn on the social innovation engine in their companies.
Positive and Comprehensive
Shared Value is positive – it moves the rationale for investing in society from a licence to a reason to operate. Purpose is immensely powerful: it channels resources to the right kind of ideas and partners, and it puts fire in the organisation and in people’s hearts.
Shared Value is bringing the best talent back into business or into partnership with business.
And it is comprehensive: based in the interdependence between business and society, it acknowledges remaining areas of trade-off while opening the possibility for breaking these through innovation.
A measure of its comprehensiveness is its consistency with the related movements featured in this report. The EP&L and SP&L movements focus on trade-offs and seek to apply a price to externalities. Companies internalising such environmental and social costs will find a way to innovate out of them, and that will create Shared Value.
The circular economy and Net Positive movements are providing guidance on achieving resource productivity (value chain reconfiguration) and the B Corp movement is giving an institutional framework to a purpose-driven company.
Our focus has been on illustrating the management practices that advance both social and business conditions. And in many ways, Shared Value is still in its infancy. The big frontier is measurement. We have described how companies, which systematically measure the link
between achieving new social outcomes and business returns, unlock further value creation – but these practices are just emerging.
Measurement validates purpose, and opens the door for authentic cross-sector collaboration. Measurement provides the foundation for a new discourse between government and business, not anchored in traditional wealth extraction through taxation, but in incentives to drive social outcomes in ways that decrease cost to the public sector.
And importantly, as shown by leading practitioners, measurement will guide investors to fulfil their social purpose in allocating resources to ventures that outperform the market through their extraordinary contribution to social progress.
Read more insights on sustainability from leaders around the world with our report Directions 2014: New Sustainability Thinking